Good morning. Welcome to the management presentation portion of Tractor Supply Company's 2013 Investment Community Day. Today's presentation is being recorded and will be available for replay at tractorsupply.com. This morning, you will hear from Greg Sandfort, President and Chief Executive Officer, Steve Barbarick, Executive Vice President, Merchandising and Marketing, and Tony Crudele, Executive Vice President and Chief Financial Officer. I would like to remind everyone that this presentation includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These risks and uncertainties include, but are not limited to, those factors identified in our filings with the Securities and Exchange Commission. It is now my pleasure to introduce Tractor Supply's President and Chief Executive Officer, Greg Sandfort.
Thank you, Randy, good morning, everyone. Welcome to Nashville and our annual store managers sales meeting. Those of you who were able to join us this morning for the general session were given the opportunity to experience firsthand the winning culture here at Tractor Supply. We had about 1,200 current managers, about 100 unit managers, all of which are the individuals that really are the front line of Tractor Supply and who serve our customers daily and practice what we call GURA, which is greet, uncover, recommend, and ask, and that's really what drives our sales. The purpose of this meeting is to bring together the team, to excite them, to get them excited about the product for the year, to inspire them with the new products, with our vendor community downstairs, and to recognize them for a job well done. We did a lot of that.
Actually, last evening, I attended a region awards dinner where we presented, in that region, over 100 awards. It went on for some time. One of the great things about Tractor Supply is that we have a culture of recognizing our top performers, and we applaud them as part of our peer group. The culture here is one of recognition and collaboration, and that supports the idea that if the team wins, everyone wins. We'll spend some time over the next few days building our team's competencies and challenging them to achieve an even higher level of execution. Shortly after this meeting, you'll be touring the trade show floor, where you'll have the chance to observe about 300 or so of our vendors who have the responsibility of about 70% of our total cost of goods.
They're here to interface with our store managers and to show them products, share information, and to teach our store managers how to effectively sell their products. I like to start all the presentations, even as I did this morning down on the floor, with our mission and values and what they mean to us as a company and talk to you a little bit about this being the foundation of who we really are. Now, I will tell you that I tested this before I joined the company back in 2007 by traveling and working with one of our District Managers. I spent literally a week traveling Texas with this individual, and by doing so, I was able to observe what the company was truly all about. Yes, I conducted my own research, and I did test drive the company before I joined.
I'll also tell you that it's how we hire here, and it's also how we sadly say goodbye to some of the team members. It's how we try to conduct ourselves every day with our customers and our vendor community. Our mission is to work hard, have fun, and make money and give legendary service and give great products at everyday prices. That is really what Tractor Supply is about. Our values are straightforward, and they're easily understood. They are things that you would probably share with your own children and as they grow into adults. Tractor Supply is a place where we emphasize these daily. We have these in print throughout every facility on the walls of every building that we have, and these values are the foundation of who we are as a company. Let's talk a little about shareholder value creation.
In fact, this is our 75th year, and yet we are still having opportunities on a daily basis to look at doubling the size of this company, particularly in our domestic store base, while relentlessly improving our results. In today's presentation, our focus will be on shareholder value creation. Later in the presentation, Steve Barbarick and Tony will be sharing with you more information on the many initiatives to increase sales, to improve margins, and manage expenses as our capital investment moves forward in the growth of this company. Let's talk about 2012. We had a very solid performance. We opened 93 stores in 2012. We grew our same-store sales 5.2% on top of last year's 8.2%. We increased our gross margin by 40 basis points to 33.6%. We leveraged SG&A by 70 basis points, and we paid a record $51 million in cash dividends.
At the same time, we repurchased a record $272 million worth of stock. As a result, our earnings per share grew 26% to $3.80 per diluted share. One of the questions we receive a lot is: How are you going to cycle those tough comps? Here's our answer to that. As you'll see from this particular slide, the company has posted very strong comps over the past three years. We're going to let Steve Barbarick share with you information about how we plan forward for driving sales and the initiatives that our team has in place. It's exciting to know that despite the strong performance in recent years, the merchant team here at Tractor Supply continues to find that pipeline of opportunities for the next several years.
However, rather than rushing to push these products into the stores, our team continues to use a test and learn methodology to grow the business. What's important to know is that while comp stores can trend to be volatile at times on a year-to-year comparison, weather events and other product trends and such still impact the business, but we continue to deliver solid year-over-year growth in earnings and operating margin by quarter. As you can see on this slide, the company has produced solid year-over-year EPS growth on a quarterly basis. For the past several years, we have had solid performance. This has been a result of us continuing to grow sales, increasing gross margin, and managing expenses, all while continuing to invest back into the business as we grow it. The operating margin side of our business on this slide demonstrates year-over-year improvement.
If you look just a few years ago, operating margin targets were set at about 7.5%. This team has done an exceptional job of improving margin year-over-year, and in 2012, we ended the year at 9.4%, just shy of our most recently stated goal of 9.5%. As you would expect, we have decided it is time to share a new target with you, and I'll cover that in just a few moments. As I mentioned, Steve and Tony will be sharing more detail regarding our initiatives during their presentations. The initiatives listed here, comparable sales, gross margin, expense management, are all the drivers for growing operating margin to our new target of 10.5% by 2017. As in the past, we do reserve the right to get a little ahead of that schedule as we perform through the next two years. Our next five-year targets.
In the next five years, we expect to grow our operating margin to about 10.5%, and we expect that we'll make approximately 20 basis points of improvement on an annual basis. By doing so, we expect that earnings per diluted share will range from $7.20 to $7.70 by 2017. Longer-term expectations. Talk a little bit about store growth. We still plan to be growing our store base square footage by 8% a year. We still see same-store sales growth between 3% and 5%. We believe we can continue to improve our margins by approximately 20 basis points. We will be investing approximately $250 million in capital, and we will continue to return cash to shareholders through our dividend and share repurchase programs. EPS growth will be somewhere between 14% and 16% on an annual basis as we grow the company forward.
As we look at this slide about shareholder value creation, before I turn the presentation over to Steve, I want to speak a few moments about Steve Barbarick. Many of you have probably seen Steve, or maybe you've even spoken to Steve in the past. He was recently promoted to be our Executive Vice President of Merchandising and Marketing. Steve has served Tractor Supply for over 15 years, holding numerous positions of increasing responsibility here with the company. He and his team continue to play a very integral role in the company's success.
Under Steve's leadership, and you saw some of this yesterday as you visited one of the stores, you have seen and will continue to see significant improvement regarding our product assortments, the exclusive brand development that we've been putting into our stores for our customers, our direct sourcing of product taking cost out, and the in-store environment, which I believe you got to see yesterday, which was one of our reimage stores, which they look just fabulous when we put that into play. Steve will play an integral role at TSC as we go forward, and you'll hear more from him over time. At this point, I'd like to turn the presentation over to Steve and let him walk you through how we're going to drive sales and margins.
Okay. Thank you, Greg, and welcome. As Greg mentioned, I'm going to talk about 2 key initiatives now that we have to drive shareholder value. The first being sales, and then that will be followed by gross margins. Before I do, I wanted to lay out what we call some key merchandising principles. These principles are guardrails that we give to our merchant team so that we stay down the right path and we don't deviate from ditch to ditch. The first, being focused on being the most dependable supplier of basic maintenance needs. For a destination retailer, that's really important. We're going to differentiate ourselves through the products and the brands that we carry in our stores. We're going to offer value that exceeds the customer's expectation. We're going to excite our customers with a treasure hunt experience.
When they come in, there's going to be something new and different for them to find. Finally, we're going to maintain our commitment to supporting the Out Here customer. What that means, essentially, is it's taken us 75 years to build the TSC brand. We're not going to lose the authenticity of that brand by chasing what I would consider to be hollow sales. Driving sales. Greg showed some comp numbers up here, and while we're comping against some big years, the one thing that we've had is a plan. I'm going to lay out some of that plan for you today. First, we're going to talk about new products. You've heard us talk about CUE, consumable, usable, edible. Regionalization and what that means to Tractor Supply Company.
Then we'll finish by talking about the drive aisle and what we can do to improve that to gain incremental comp store sales. First, new products, keeping our assortments fresh. For years, we've talked about the fact that we've had a pipeline of opportunities, I would tell you that that pipeline still exists. We have a structured test program, we're rigorous about it. We have assigned owners that go out and look for new items. We get those from customer feedback, from our store managers, and from our vendors. What we'll do is we'll put them into a grid of 25 stores that are randomly chosen. We will then have that assigned owner lay out a plan, when they'll hit the stores. We'll report on those tests on a weekly basis and determine the viability of rolling those items out.
That pipeline could have as many as 50 or 100 items in it at any given time. Those items that don't work, we roll off, we roll new items on. It's a constant rolling methodology by which we use. We also have a culture of risk-taking, we applaud failure at Tractor Supply as much as we do success. I know that sounds kind of odd to say, but we really believe that the more opportunities that we have out there, the more opportunities we'll have for the future and the success of the company. The comment that Jim always talks about, fail often, early, and cheaply, that is reiterated on a regular basis around the store support center with the merchant team. We also get ideas from open buying days, and this is something we established about three years ago.
Three times during the year, three different times, for one day, we'll invite vendors in that we do not do business with today. They'll come in and they'll show us their products. We'll learn about what's going on in the industry, and we'll meet over those three days with approximately 1,000 vendors we don't do business with today. Again, finding those opportunities, putting them through this grid and this structured testing that we have, and we learn a great deal from that. Finally, category resets, and that's an opportunity for us to change our assortments up and down our aisles. Here's some examples of some tests that we've had and where we're going. The first one's live goods, and about three years ago, we tested some trees and bushes in a number of stores, saw some success. The following year, we expanded it, built upon it.
The picture to the right is the product that was received by our Lake City, Florida store just recently. We went from a couple bushes and pots and a couple dormant trees that you hear us talking about, to what you see today, and this assortment will go to about 500 stores. Again, as you heard Greg talking about a test-and-learn approach, we'll see how it performs. Based on the history that we've had, we believe we set ourselves up for some great success. We also talk a lot about differentiation and the fact that we need to quote-unquote, "tractorize our assortments." Yes, we carry grills and yes, we carry patio furniture, but it's not what you're going to find at big boxes or necessarily at mass. It needs to be tailored to our customer.
Our grills, for example, and you're going to see them when you walk downstairs later today, are different. They're unique. That first grill that you see up there, it weighs 120 pounds. The legs on it are three inches in diameter, and the wheels are eight-inch cast iron. It's different. It's unique. The second grill is over eight feet long, and it's over 200 pounds. It's got 1,000 square feet of surface area. Again, unique and differentiated for our customer. The furniture we carry is completely unique as well, and you're not going to just find it anywhere. When you go down on the floor, take a look at it and you'll know what I'm talking about. Finally, we look at trends and what's going on in the industry. We know our customers are self-reliant. A year ago, we tested greenhouses, and they performed incredibly well.
We brought in a four-foot set this year. I would tell you our sell-through that we're seeing today is exceeding our expectations. We see more opportunities in following trends, but also at the same time, staying true to who we are. Product refreshes and resets. Again, 70% of our revenue we look at every year. That's really important because not only are we looking up and down the aisles, but we're also looking at lowest landed cost in multiple suppliers. Our teams are charged with this. We lay out a full-year plan, and we go back and assess it, and we walk every single planogram change that goes out to our stores. Nothing is done in a vacuum. It's done in a collaborative manner. CUE. You hear us talk a lot about CUE. Being the most dependable supplier. Again, talking about the CUE business.
Our goal here is to grow market share. We've added resources to the team. We've added a few folks that are managing this business for us that are over and above what we had a couple of years ago. We're also looking at improving our in-stocks by adding inventory into some key categories. We've got a pricing group now that is managing our price on a regional basis and in some cases, local basis, to make sure we're priced where we need to be on these consumables. Where we can, we expand our assortments. Three years ago, we talked about the addition of the Purina-branded feed. We had 15 SKUs at that time we launched, and over the course of the last three years, we've added now up to 30 SKUs that stores have access to, and we'll continue to do that.
We've also taken advantage of some other pet brands that we've brought into our stores. When we talked recently about the fact that we've had comp transaction growth, we've had 19 straight quarters of comp transaction growth, and a byproduct of that is coming from the CUE business. This is a picture of a feed room. Today we have about 60 of these in the store. Where we see the opportunity, we can actually expand our floor space and open that store up and give an opportunity to add more products in a lot of existing stores that we have where we see fit. We're not going to do that until we feel like the entire box is performing where it needs to perform. It gives us an opportunity in the future should we want to do that.
In addition to that, we've talked a lot about the hay business. You might say, "Steve, we've heard this for the last couple of years." Yes, you have. A couple of things that you may not know. 25% of the customers that are buying hay are new to file. We're getting new customers in as a result of it. In addition to that, we've got hay in approximately 750 stores now. We will continue to roll that out to more stores. The second phase of it, in which we've started already, is to add big baled hay to our stores. You can see here from the picture what a big round baled hay looks like. It is 1,000 pounds. It retails for about $100, and we have it in over 70 of our stores today. It's performing very well.
Where we see more pockets of opportunity, we will continue to roll this program out also. Regionalization. Our customers across the U.S. expect us to have relevant assortments for their area. Those folks that live in Kansas expect that we are right in Kansas, and those folks that live in New York expect us to be right in New York. It's constantly a challenge for the merchandising team to understand the needs of the local markets. There's also brand preferences across the U.S. People have different expectations of what we should be carrying in our stores. We get feedback from our customers, we get feedback from our vendors. Last year, we also took an initiative called town hall meetings.
We worked with our store operations team and our nine regionals, we set up a structured event in each of the nine regions where once a month, myself, one of our VPs of Merchandising, a member of the Marketing team, as well as a member of the Inventory Management team, flew out to these stores. We had 20 store managers come in, sit in the back rooms on bags of feed, and talk about their business. We had a structured agenda. It was three hours long. After the meeting, we got a lot of very direct feedback. We had our team members get up and prioritize those greatest opportunities for their regions. We took the notes back. We put together an action plan. Within 60 days of leaving there, we told them what actions we would take to best support their needs.
We talk a lot about servant leadership. You heard it earlier today. We recognize those folks on the front line. Our team members are the ones that can give us the best feedback. Finally, A through D assortments, I'll talk about that here in a moment. Regional opportunities. There's different type of regional opportunities. The first is what we consider to be local store assortments. The product you see right there is for cattle, and it's heavy equipment. Not all stores need heavy cattle equipment. You know what? There are 100 stores in Tractor Supply that need this product. Those customers that live in those areas expect it. Not only do we have that product, but we have tillage, I probably could go through another 50 to several hundred items where we have local store assortments.
There's also regional brand preferences that we consider. Carhartt, for example. The workwear customer is very prevalent up north, and we have a western customer down south. The western customer wants Wrangler-branded products. We have a wider assortment of Wrangler down south, and up north, we have a broader assortment of Carhartt. At the same time, there's needs for livestock feed outside of Purina. There's about 120 to 130 stores in the Northeast that carry Blue Seal. Gallagher is an electric fencing brand that those customers out in the mountain states expect us to have. We're going to have it. Again, trying to manage and tailor assortments to the customer needs. Finally, what I would consider to be geographic assortments. These are clusters of stores. This example would be galvanized hardware.
In the coastal states, because of rust, customers expect us to have a different assortment there. The same thing when it comes to board fencing, for example, in Florida. We have board fencing in Florida. We don't have it anywhere else. Why? Because there's a lot of horses down there, and that's what our customers expect. We have maple syrup supplies, which again, is in the Northeast that our customers expect Tractor Supply to carry. We have that in about 130 stores, and every year we expand it to a few more because we see the need. Again, being local and understanding the needs of our customer are critically important for Tractor Supply Company. Finally, drive aisle merchandising.
This is an opportunity for us to enhance the shopping experience and have the customers find a project type of sales to fill their baskets as they're walking through our stores. Specifically, the center courts. You guys that went to Hendersonville last night saw the center courts that we have out there today. We have an opportunity to really maximize that area of our store. Give the customer a treasure hunt experience of new things that they may not expect from Tractor Supply Company in those events. When we put a lot of items out there in those center courts, we learn from our customers. We learn from the POS data. All those new items, every year we find out what they're looking for, what worked, what didn't work, we can grow from there or add those products back into our assortments.
Finally, improve our impulse item offerings, that being end caps, power panels, clip strips, as we refine what we're doing there. Here are two events. One, like I said, you saw last evening, the Chick Days event, a great opportunity for us to capitalize on that space and be relevant to our customer. The other one is Wild Game Supplies, and we know that the number two hobby of our customer behind gardening is hunting. In this case, every year, we expand this event that's in our center courts. It's about a four-month, five-month event. We had 30 different assortments. We had 11 buying teams participate in it. We had over 100 unique items that we didn't have the year before in the event, back in 2012, and it, again, performed incredibly well. We'll take the learning from that and apply it to 2013.
We've also been able to tie our events together better working with our marketing department. Now they're more packaged. We are stepping it up when it comes to the POP in our stores, and we're really better able to tailor these events to our customers as they walk in and see we've got something unique going on. Essentially, those are the four real levers of driving sales, new products, CUE items, regional opportunities, and drive aisle merchandising. Talking about gross margin. We see this as an opportunity as well. I'm going to talk about price optimization, our exclusive brands, strategic sourcing, and inventory management. The first being price optimization. The great thing about price optimization is you're always testing for elasticity. This is an opportunity for us to drive market share while at the same time enhancing our gross margin performance.
You can use it either way. This is not about just taking prices up. We've seen a lot of other companies do this, and it's failed. We're going to use it the right way. We're going to use a test-and-learn approach. We are not going to risk market share. Right now, we're focused on regular price. We've got a pricing team that's working with the merchants and every day talking about recommendations that we can make within the assortments. Later, we have the opportunity to look at promotion and clearance modules. The great thing here is that we're doing some low-tech things today that are improving the performance, but we know we've got more opportunity in the future. Exclusive brands. There's a lot of reasons to capitalize on exclusive brands. First of all, we control the quality and the specifications.
We can buy it from multiple sources, therefore improving our consistency of supply and our in-stocks. We can develop loyalty with that exclusivity and customers coming back to Tractor Supply Company. Pricing is less transparent because it's not brand to brand across different retail outlets or the Internet, for that matter. Certainly, it helps Tractor Supply when it comes to our profit margins. Probably the most important thing here is it gives the customer a choice between branded and exclusive branded product. It offers them value should they choose to pick an exclusive brand. Today, we do over $1 billion in sales in exclusive brands. It represents over 25% of our sales. We've got a product development team working with our merchants in marketing when it comes to our approach.
We believe it provides value, as I mentioned to our customers, there's still a lot of opportunity in front of us to capitalize in this area. A couple of things here I would share. The first being the fact that we will always be a national branded house. We will never get away from that. It is entrenched in who we are. Our customers expect us to carry national brands. You can see from this slide in livestock and pet, we're going to have Purina, Blue Buffalo, Hill's Science Diet. When it comes to seasonal and gifts, we're going to carry MTD and Ortho. In tools and truck, we're going to carry Hobart and Ingersoll Rand. Clothing, there's some key brands there that we're going to have in our stores. Finally, there's some brands in agricultural products that we're going to always carry.
At the same time, we know we can offer value to our customers with our own exclusive brands. In this case, in livestock and pet, 4health, which we've talked about, DuMOR, Paws & Claws, which is in cat, and Royal Wing, which is our bird aisle. In seasonal, you've heard us talk about GroundWork and RedStone, JobSmart over in hardware and tools. Certainly, the opportunity we have in front of us with C.E. Schmidt in workwear, finally in agriculture. A couple of things here. First of all, 4health, you've heard us talk about it, has done very well and exceeded our expectations. In February, we rolled out 4health Grain Free. It's three different formulas. I would tell you that our team members have gotten behind it. As a result, they've talked it up to our customers, it's doing very well.
The launch has been very successful. At the same time, we recognize the opportunity to upgrade our existing leather footwear line in C.E. Schmidt. We will, in May, roll out six styles, a seventh that's regional. It's a logger boot. Talking about regionality here. All these styles will be waterproof, they will have a much better comfort for the customers. Strategic sourcing. Again, this does not just mean importing. It means strategic sourcing. It could be domestic. We're always looking for product quality first. We need to make sure that we've got a sufficient supply chain and looking for vendors that can take care of our needs and have the capacity long-term for Tractor Supply Company. We're also looking at landed cost because in many cases, you can reduce your expense significantly if we pick it up from the right locations.
Where we can, we prefer multiple suppliers for obvious reasons. Managing the seasons. Any retailer that has a seasonal business recognize that the money to be made is in allocation, in sell-through, and in clearance. The team has done a fabulous job with that. We're allocating more productively today. Our assortments are being more regionalized. We're adapting, and we can react very quickly as an organization. Tractor Supply is not bureaucratic. When we make decisions, we go, and we go as a team. We seize the opportunities, and we've done a nice job ending our seasons clean. In summary, we have a really good balance between sales and margins, and you can see that through our track record. We're not going to risk market share for margin rate. We will continue as an organization to take calculated risks and to test and to learn.
We're going to learn through our TVS process, our continuous improvement, and our correction of error process. We're excited about the future and the pipeline of opportunities we have in front of us. I would go as far as to say that in the time that I've been with the organization, some of the biggest changes we've made is going from what is really an arts-based organization to one that's much more science-based and using data and statistics, and that has really helped us refine the model and where we're at today. That having been said, I'd like to turn the microphone over to Tony Crudele to talk about the other phases of shareholder value.
Thanks, Steve. As you may have gathered, Steve has a lot of energy, a lot of passion. Generally makes me look like I don't have much of a pulse. However, I will attempt to wow you with expense management. We don't talk a lot about SG&A, but we think we have some opportunities here, and we've highlighted four areas that we're focused on, although there are several others that we feel that we can leverage, areas that we can leverage as well. Tractor Value System, we've talked a lot about property ownership. We think that's a way to reduce the expenses on the P&L. Our purchasing department is relatively new. We'll talk a little bit about that, and then some energy management initiatives as well.
Looking at Tractor Value, this has been a terrific program for us and really, really fits our culture because not only does it focus us on a continuous improvement, and it's founded in LEAN principles, but it really promotes the teamwork and collaboration. I would say this is really the brainchild of Jim Wright, who has been dubbed the father of TVS. I'd like to say, Jim, I didn't use grandfather, just to let you know, but I had to get at least one dig in in the program here. What we do is we get the whole team together. We look at a process. If the process is broken, we will get every functional group together. What's even better is that when it involves a store, we can bring in that store person. We'll have teams together. They have store managers, District Managers.
We'll have receivers from the backroom. They'll be working with the logistics folks from the Store Support Center, or they may be working with the operators. They may be working with the finance group. We'll get the team together in a Rapid Improvement Event. We'll solve that problem in a two- to three-day period. We'll have a working solution that we can roll out. We believe that over the last three years, in the processes that we've had just with the stores, that we've saved over 400,000 hours of store time. We either reallocate that to sales initiatives or we'll take that to the bottom line. It's been a terrific program for us. Our next focus is to develop Continuous Improvement Leaders out in the field.
We brought in four DMs. They're going through a rigorous training program so that they can bring the principles out to the stores. We're also investing in growth. We believe that given the current interest rate environment, it makes a lot of sense for us to use our capital to drive some efficiencies on the P&L. In the first two instances, when we talk about self-development and the store purchases, one, when it comes to self-development, we believe that by taking out some of the developer expenses, working directly as sort of overseeing the contractors ourselves, we can take out costs and we can use our financing to drive some savings that will inure to the P&L. At the same time, when it comes to store purchases, we have the right of first refusal on all our leased properties.
When they come up as an attractive number where we believe that there'll be a positive benefit to the P&L, we will purchase those store sites. We believe that this gives us some flexibility as far as how we allocate our capital. It's just not focused strictly on either dividend and/or share repurchase. It just gives us a little bit more flexibility, and it is subject to the interest rates and the favorability relative to that store and the available purchase price. We take a look at the lease versus buy when it comes to distribution network. As in the past, we have owned all our distribution centers. That'll be the case going forward.
In addition to the relocation we're currently doing in the Southeast, we also plan to open up two distribution centers, generally targeted for 2015 and 2017, out on the West Coast, in the South part and Southwest United States, and in the Northwest United States. The Store Support Center, we had purchased land last year. We are targeting mid to late next year to have the Store Support Center built. It's going to be a great facility. It will house the entire Store Support Center. Currently, we're in three different locations in the Maryland Farms area of Brentwood, Tennessee. We believe, again, by using our capital and the low interest rates, that it makes the most sense to own the property and reduce the expense. Purchasing department was established about four to five years ago. Prior to that, we basically would purchase through each department.
Each department had its own function and had to carry the purchasing activities on their own. We brought on an individual to start up a department and really just work as a facilitator, working with the departments. We have had significant success in managing the costs. This is really for all the non-merchandising spend. We've instituted very formal bid processes. We've utilized reverse auctions, especially when it comes to store supplies, and we've saved close to $500,000 just in one year in reverse auctions. We have the opportunity to aggregate services, so we're no longer decentralized when it comes to buying certain services, and that gives us some leverage, and we can scale that as well and get some efficiencies.
The next phase of purchasing, as we enter into last year, we started to build the team, and now we are truly becoming more of a centralized purchasing group. We're doing that on behalf of the entire company, and we've relieved that function from each of the individual departments, and that's why we believe there's even more savings to be had as we centralize that purchasing group. Energy management. You listened to Ben in the company presentation, talk about some of the things that we're doing from a sustainability standpoint. The main focus and where we've had the most success in is obviously reducing our electricity and gas usage. We've also been taking a hard look at the deregulated marketplace and deriving some benefits there.
Currently, we have over 700 stores with an energy management system, but we are currently testing and have 85 in place of a new system that is much more impactful and much more high-tech, and we believe will deliver even greater savings. We have some significant benefits that we anticipate getting from that new energy management system. There's some alternative energy saving alternatives or tests that we're conducting that relate to energy-efficient lighting, and that's one of our main initiatives there. In the past, we've had some efficiencies on transportation. We've reduced the number of stem miles by basically eliminating the backhauls that we do. We've saved some significant gas usage there. We're actually testing CNG trucks, so compressed natural gas. It's in a test phase, and we'll be analyzing that.
As we developed the new store support center, we've made it highly efficient, and we have designed it to the extent where we anticipate having it LEED certified. One example is we're using the raised floors and doing the air conditioning and heating under the floor, which has tremendous savings as well. Again, we believe this plays very well into our sustainability program and will also benefit the P&L by reduced expenses. How does this all play into the financial engine? Clearly, sales is the main driver. We have anticipated same-store sales growth as we move forward, and we're going to continue to grow the number of units at about an 8% clip. As we grow sales, that's going to drive profitability.
We get leverage from the sales growth, as Steve has talked about improving gross margins, we just talked briefly about managing the SG&A and driving expenses down, that is going to generate significant cash flow. As we continue to manage the inventory, that will add to the cash flow as well. We're going to take some of that cash and obviously funnel it back into the company to continue to drive our growth as well as use some of those cash for technology advancements so that we can continue to manage the expenses and continue to fund our initiatives around gross margin to be much more efficient and drive bottom-line results. Additionally, the remaining cash is going to be returned to the shareholders. Our plan is a balanced approach.
We continue to drive shareholder value through the stock, through EPS growth, we also intend to return cash to shareholder through dividend payments as well as the share repurchase program. Greg talked about our new target of a 10.5 EBIT goal. What we see is we believe that through the comp sales, the gross margin, and expense management that we talked about today, we anticipate a pool of about 170 basis points of value that we think we can take to the bottom line. Before we get too excited and start a new goal of 11.5, I want to remind you that we do have a headwind that comes from the impact of the Q items. We know that they are sort of lower average than chain average margin. They're high bulk, they're low average ticket, and they're not freight efficient. All right.
There's going to be a headwind from the impact of Q. Obviously, on the flip side, we love Q. It's a tremendous driver of the business. It's high frequency, builds customer loyalty. It makes us the dependable supplier as well as continues to drive market share for us. It's obviously a plus, but we anticipate that there's about 10-15 basis points of gross margin headwind when it comes to Q items and growing the Q items. Net-net, we feel very comfortable in that 10.5% EBIT target that Greg outlined. How do we get there? When we look at the components, looking at these variables, we believe that just driving sales will bring us about 0.3 or 30 basis points of improvement. Really that'll give us some leverage from the comp sales.
Biggest driver will be the four key gross margin initiatives, that's about, we estimate to be about 60 basis points. From the true expense savings that we're getting, not necessarily the leverage that comp sales will drive, but from the expense leverage that we anticipate, we look at about 20 basis points, and we believe that's what will carry us to our goal of 10.5 EBIT five years out. What are the assumptions behind the modeling that gets us to that 10.5? Number 1, we have square footage growth of 8% annually. Generally, that's going to translate into about 5%-6% of sales growth. Add to that your comp store sales growth of 3%-5%. Generally, we anticipate being around the 10% sales growth. Our operating margin improvement, we've always talked about the 20 basis points annually.
Year-end cash balance, again, consistent with our target of $100 million-$150 million. Inventory turns, we expect to get about five basis points annually. That will continue to help our cash management. That will translate into, over that five-year period, shareholder payout ratio of about 70%-90%. Looking at it in a little bit more detail, that'll take us out, 2017, our estimate is about store count of 1,800, sales at close to $7.5 billion. We'll grow margin, gross margin of 10-15 basis points, matched up with expense leverage of about 5-10 basis points. That'll get us that operating margin of 20 basis points annually. That will take us to an EPS, and this will also include an estimate for share repurchase of around $7.20-$7.70.
Net CAGR over that period of time, EPS growth will be about 14%-16%. We think just tremendous returns and potential for our shareholders. From a free cash flow standpoint, obviously this is critical as far as looking at our capital allocation, but we anticipate generating close to $2.5 billion in total cash flow. CapEx, again, to fund the business, we anticipate $1.2 billion approximately to funnel back into the business to drive our operations. That'll result in about $1.350 billion that's available to return to the shareholders. When we look at the capital allocation targets, again, we're looking at a very balanced approach. We're going to invest in the growth. We have dividends and share repurchase, and we believe that will funnel to benefit our shareholders.
When we look at the capital allocation, we believe it's been very consistent over the years. If you look at the last five years and compare that to what we anticipate seeing in the next five years, you can see the allocation is very consistent. Dividend will increase slightly because, as a reminder, we only started the dividend program in 2010. There's two less years in the past five years where we've had a dividend. We look at the allocation as being very consistent and again, very balanced. As we invest for growth, we have $250 million annually targeted for CapEx. This breaks out into a couple of buckets. We have our growth, that's about 8% square footage growth.
The maintenance piece is clearly about updating the stores, updating the technology in the stores, enhanced loss prevention, capital, as well as the energy management that we talked about. Those are some key maintenance items relative to the stores. From an infrastructure build, we've talked about consolidating the store support center, the distribution network that we have planned, as well as any technology enhancements to support that infrastructure. How does that actually break out into details around the capital investment? New stores, generally our investment in 2013 is around $60 million. We expect that to grow over time as we increase the store base to about $90 million out in 2017. The existing store purchase, we've always had a placeholder of about $20 million-$30 million. We're going to keep that relatively constant through this period.
We're going to be very opportunistic when it comes to buying new stores. Again, we use it as a little bit of a flexibility because at times, as we exercise our share repurchase program, depending on how we see the share price and how it's moving against the marketplace, will dictate how aggressive we are in the marketplace in repurchasing shares. This gives us a little flexibility in our use of capital. The existing maintenance, we anticipate being about $25 million-$35 million. The distribution centers, it's $50 million-$60 million, and that really has a lot to do with the two new centers that are coming on. As much as we anticipate them coming on in 2015 and 2017, generally the construction of the facilities spread over two years. That tends to smooth the capital out when it comes to the distribution centers.
From a technology standpoint, there's some maintenance technology in here, as well as additional technology to drive new initiatives, about $40 million-$50 million a year. The store support center is currently under construction. It will run through 2014. We see about $75 million in expenditures relative to years 2013 and 2014. What happens is it tends to smooth out the capital expense each year. It comes out to around $250 million. Even though there's a couple big tickets that are spread throughout those periods, it tends to be fairly ratable throughout the next five years. As we move to dividend, we wanted to be a little bit more specific as to our capital allocation thoughts and targets. When we look at the dividend, we are targeting 20%-25% payout ratio for the dividend.
We can be a dividend grower and anticipate that this will translate into 15%-20% dividend growth. When we do some benchmarking, we take a look at some of the peers. We broke it into a couple different categories, fast growth retailers, core comps, and then other best-in-class retailers. One note is that PetSmart and Whole Foods Market are really the only dividend payers in the fast growth retail group. As you can see from a yield standpoint, we're slightly below. We're at 0.9%. We have some room to grow there, as well as when you look at the payout ratio, we're at 12.3%.
We believe as we move towards that target of 20%-25%, we have a lot of room, and we can be considered a dividend grower and still be a store grower and continue to grow the chain itself. When it comes to share repurchase, again, a balanced approach, but we expect over the course of the next 3-5 years that we'll be in the 40%-45% of our operating cash flow will be allocated to share repurchase. That translates to about $170 million-$290 million annually. Also represents about 2%-3% of the shares will be repurchased annually as well. When we benchmark here, this is very interesting.
Given the amount of cash flow that we have, you can see that in the last five years, we have been able to fund our expansion program, and we've allocated about 50% towards that, which really fits very well within the peer group. When you look at your dividends and your share repurchase as a group, we're at 46.7%. As we showed in the pie chart, we sort of anticipate as we go out to be relatively consistent as we've been in the past five years. We believe that we not only have the cash flow to fund our growth at 8% unit growth or square footage growth, but we also have significant amount of cash that we can return back to the shareholder through dividends and share repurchase. We think that it's a tremendous value for our shareholders.
Just sort of in summarizing the cash flow distribution, you can see how, again, it's very ratable as we continue to move forward over the next five years. This translates into, as far as shareholder return, we believe that just growing the operating margin through the growth of the chain represents about 12%-14% return. We believe that the share repurchase will drive about a 2%-3% return for the shareholder, with the dividend contributing about 1%. That will translate into a total shareholder return of about 16%-18%. Really, in summary, we believe that we're a growth company in a unique niche. Clear winning strategy, a lot of passion, a lot of rigor. Hopefully, you saw that today at our store manager meeting. We have tremendous opportunity ahead of us.
We have initiatives around sales, gross margin, even expense management, and we can drive some SG&A savings. We have a very defined capital allocation strategy. Hopefully, we communicated that well to you today, and we just continued on focusing on creating shareholder value, and we think we have the right economic model to do that. With that, I really appreciate your continued interest in Tractor Supply, and that will conclude the webcast presentation portion of our Investor Community Day. Thank you.