Of Investment Community Day. Today's presentation is being recorded and will be available for replay at TractorSupply.com. 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. This morning, you will hear from Jim Wright, Chairman and Chief Executive Officer, Greg Sandfort, President and Chief Operating Officer, Clay Teter, Vice President of Real Estate, and Tony Crudele, Executive Vice President and Chief Financial Officer. It is now my pleasure to introduce Tractor Supply 's Chairman and CEO, Jim Wright.
Thank you, Randy. Good morning, everyone. Welcome to Nashville and our Annual Managers Sales Conference. Those of you who were able to join us this morning to hear Greg's presentation, that was the company. We have about 1,100 current store managers in the room, about 100 people who will soon become store managers, around 100 multi-unit managers. That is the field, that is the sales force. Those are the folks who meet, greet, while amazed, delight our customers, and bring them back with ever-increasing frequency. The purpose of this meeting is to bring our team together, to build the team, to train the team, and to recognize the team. I was with one of our regions last evening, and we gave out 105 awards. Now, there's 115 or 116 stores, I guess, in that region.
The great thing about Tractor Supply is the recipient goes up on stage, gets a pat on the back, gets a plaque. In some cases, they win a trip, but everyone in the audience claps as though they were the person on stage. It's an amazing culture of teamwork. We will spend some time over the next couple of days building a team to even hire a higher pitch. Shortly after this meeting, you're going to be on the trade show floor. We will have the chance to interact with about 300 of our vendors who are responsible for about 70% of our cost of goods sold. They're here to show new products. They're here to interface with our store managers, trade information, and prepare our store managers to sell their products in the coming season.
A lot of product education goes on in breakout sessions over yesterday and today. Our growth through the recession. First of all, I'd like to point out that it was in 2002, after being in business for 64 years, we hit $1 billion in revenue 10 years ago, first time ever. During the Great Recession, in four years, we increased our revenue by $1.5 billion, or 57%. During the Great Recession, we generated a profit increase of $123 million, 124%. We opened 42% more stores, 321 of them. We added 5,800 jobs for a 37% increase, and share price was up 296%. We motored on well, quite well, through the Great Recession. A couple of reasons for that.
One, we happen to do business in small-town America, where consumers have been in their homes an average of 10 years, where their homes are affordable, where they had not over-leveraged their homes, where they had, unlike many people in our country, had kept high FICO scores and low credit card balances, where they're used to fixing things themselves and just did more of that, buying the products they needed to repair and maintain from Tractor Supply Company. The success components of this company is that we know and we understand our customers. We know them through research, but most of all, we know them because we visit, I visit 120 stores a year on average. Greg, more, everyone else in the company probably more than I do.
We spend time with our, first of all, our customers up and down the aisles, and then a tremendous amount of time with our team members talking informally about what is the customer saying, what is the customer thinking. For example, Greg and I were out last week, and we said, "What are our customers saying about gas prices? What are they doing about gas prices?" Not surprisingly, we heard from the three or four store managers we visited, they're calling more now before they come. They seem to be consolidating trips. Interestingly, they said their observation was that Friday nights are becoming a little more important relative to Saturdays than they used to be. The consumer is buying on the way home as opposed to going home and coming back the next day to buy what they need for their weekend projects.
We work really hard on training, on hiring. We are jealous about our business, and we invite only those that we have rigorously determined are likely to be successful and to be successful the right way at Tractor Supply. We train them to the best of our ability. We reward them when they have a success. As a result of that, they come back the next day, the next week, the next month, next quarter, and they learn more. Mission being, we want as many of our team members as possible to be unconsciously competent, so they just do it. They just execute across every product line, across every point of decision. Our strategic plan, we have a lot of rigor. For six years now, the Senior Management Team has spent five days sequestered. We used to go off-site, low-cost off-site. Now we go even lower cost.
We just go to our boardroom, but sequester ourselves and spend a lot of rigor around planning the next five years. The first of those five years becomes the financial plan that's presented to our board six months after we start the process. Most importantly, though, is elements of that strategic plan that can be owned by a store manager or on the store manager's performance appraisal. Elements of that plan that can be owned by a merchant or on the merchant's performance plan. We have the deepest alignment with regard to strategy and the execution of strategy that I've ever experienced in my 43 years in retail. As a result, we get corporate-wide execution of the plan. We are dedicated to continuous improvement, known as LEAN. We call it Tractor Value System. We're in our sixth year of that journey. First two years, it was a drag on earnings.
Then it was neutral, and we're now at a point where it's an engine that helps us take waste, friction, confusion, and cost out of the entire enterprise. Today's press release. We have, for a number of years, been talking about our ability to both improve and to grow the business. Some of you have been with us on this long trip. Eleven years ago, our market cap was less than $100 million. Today, it's $6 billion. Eleven years ago, our operating profit was 3.8%. Eleven years ago, we thought someday we would have 700 stores. As we've gone through that, we have told you, after great study, great consideration, and a little bit of conservatism, we think, no, we can have 900 stores. We think, no, maybe it's probably 1,200 stores, and then 1,400, and then 1,800.
This morning we said it's 2,100 stores, and we are as confident that we can get to 2,100 as we were when we went from 700 to 900. There was a day that we said we believe we can get our EBIT to 5%. We are as confident today that we can grow to 9.5% over time, probably not linearly. That is going to be, you know, a number of years ago, I said we get to 7.5%, and we quickly jumped to 8%. Had to readjust that.
The last, you know, 130 basis points of EBIT improvement in the last two years, it's not, we're not likely to get to 9.5% quite that quickly, but I'm confident that we will indeed get to 9.5%, and we'll get there while we grow and while we invest and while we make this company a better place, first, to work, secondly, to shop, third, to do business with, and yes, finally, fourth, to invest. With that, Greg?
Thank you, Jim. Good morning, everyone. Glad you're here. I'm going to walk you through this morning some of the things that we've been talking about in regards to structural change in the company. We've talked about this now for some time, going back to 2000, late 2007, 2008, when the, quote, the Great Recession began. We started looking at our business differently, and we said there's some things we need to do to change how we operate, to not only stay competitive, to continue to grow the company, but to also reposition ourselves to continue to take market share. The first thing was the Q strategy. The Q is simply this: consumable, usable, and edible product. These are products that people need to come in and buy on a day-to-day basis. It's the milk, the bread, the eggs, if you want to call it, like a grocery store.
That's our Q. We started out initially in the program with, if you remember, the 2,250 was the first rendition. 20 top categories, 250 critical SKUs. Quickly moved from that to the 3,300, and that's about where we are today. 30 categories, 300 absolute, always in stock, never out of stock SKUs. We committed not only the inventory and the flow and the processes behind that and then the rigor, but we aligned also with our vendor community and said, "This is going to be what we stand for. We need your support." We gained alignment across, and that strategy has served us very, very well, and will continue to serve us well in the future. The second piece of this was testing in new products.
We have a very rigorous testing process, and as you walk the trade floor today, you will notice a lot of starburst on products that say new. Those are a lot of items that were tested possibly six months, maybe even a year ago, sometimes even as little as 90 days ago, but are now going into our assortments, and you'll see quite a bit of it. It's important to bring new products and bring the best of innovation to the store and to the customer. It's what we're becoming known for. We're becoming that store where customers will come in and shop us and say, "Wow, you know I want to go by the tractor store this weekend just to see what's new.
What's in the store that wasn't there two weeks, three weeks ago?" It's just kind of the, in a way, the old Costco, you know, it's the treasure hunt, but it's really not. For us, it's a shift in how we do business, and new products are continuing to fuel the business as well. Now, underlying all of that, you have to be able to communicate to the customer and tell them what's happening. That's what we do with our customer relationship marketing programs. John, one on the team, have done a marvelous job. I mean, a yeoman's job of taking this program and really targeting it to our consumer base, using those seven customer segments that we have and talking to them individually, telling them about new product, telling them about new offers, telling them about changes in the assortments.
Sometimes we'll alter the offer across a myriad of those seven segments, but we're constantly talking to our consumer directly. The CRM piece just continues to grow, continues to build. We learn new things all the time, and we incorporate those learnings as we go to the next round of either, you know, talking to the consumer in a specific way about a promotion or launching new products and talking to them about why they need to come back into the store. CRM is starting to move now. We're starting to see the impact and very pleased with its progress. Beneath all of that now, we need to talk about the structural things as we've done with our systems. We've been able to upgrade our E3 replenishment systems. I mentioned earlier this morning in the opening session about being able to put feed as a replenishment item.
That would have been unheard of five years ago, to be able to replenish feed in all the stores. Tom Rausch and the team have done a marvelous job there, again, working closely with the stores, learning the needs, understanding the differences, and then working that through. POS system upgrades, our ability to be able to pull information out of the register systems and understand what our customers are buying, tracking trends, seeing what's happening between ticket and transaction, and so on and so forth, and mix of business. Very important for us to understand, and that takes across the entire country, regionally, as well as, you know, individual store.
Price optimization, still in the early stages, liking what we're seeing as far as its ability for us to be able to price across different markets, individual stores very effectively so that we can be competitive on price, but at the same time, look for ways to build margin. It's not all about taking the price up. It's about being at the right price. There are other things that we've done. WMS systems are placing into our distribution centers. IntactX, the system that we use to really dig into our planogram process and understand the productivity of every four-foot section in our store. There are a myriad of things that we're doing today that we weren't doing five to seven years ago. That's just part of that rigor, and that's part of that structural change that continues in the company and continues to propel us.
Last but not least, and I will say this truly, TVS. It has been a huge win for the company. We're finally getting the traction behind it. The rigor that this puts us, the mindset it puts us through, and the way we go to attack issues using the TVS process has really made us a better company today and will continue to make us a better company. We use this a lot when we run into an issue, you know, where we have a process that seems not to be working the way we want or we're not getting the right result. We get the right parties in a room, we put it through the TVS process, and we always come up with a better solution. I'll give an example here in a minute of a process in the store that we've been through several iterations.
We finally now, we believe we've got this thing working the way we want, but it always doesn't, the first pass doesn't always get you there. Let's talk about Tractor Value for a minute. What this does is it empowers the team members to build trust. You get the right partners into the room. Basically, you check your titles at the door. You talk about it openly. You look at the issues. You kind of map the processes of where it is today, and then you move to what you think is the absolute solution. It's a common sense approach. It's about continuous improvement. It's about focusing on taking out waste and eliminating work. That's simply what it is. We do that constantly here. It applies more rigor and processes and gives us a functionality that can take us to a better place.
It's a structured process, so it can be used in many different disciplines across the company. It has had, I think, a significant impact on our performance. We are better today because of TVS. We are a better company. I think for us, it's a competitive advantage for the longer term because it helps us continue to stay focused on the customer and the value we can bring to the customer. The more work I can take out of that store, the faster I can get things done, the more efficient I can do them, the better off we are as a company and we better serve the customer. That's the ultimate goal. Now, faster freight's the example I want to just take a few minutes on. Years ago, probably seven years ago, we had a concept called, you know, on the floor in 24.
Truck hits the back room, offload the freight, need to get it out within 24 hours, put it on the floor. Sounds good. Sounds like it's something that shouldn't be too difficult to do, but without the appropriate processes, we struggled with it. To be honest, we didn't always get the freight on the floor in 24 hours. Sometimes we weren't getting the shelves replenished and the customer would come in and guess what? Product wasn't there. It was in the back room. We moved from that process to freight in eight. We said, we've got to be able to work freight in eight hours, get it to the floor. That sounds like a quantum leap. Again, didn't really have the structure behind it to make it stick. Some stores kind of worked their own processes around it, made their proclamation, freight in eight, figure it out.
We said, this isn't going to work. We've got to get better. Freight in eight is still not good enough. Once it hits the back door, it needs to get to the floor quickly because we're trying to do just in time. We introduced and we used TVS and said, faster freight. There's a thing called the 5S strategy, which literally gives you a positioning for all of your equipment in the back and a place for everything. When the freight comes off the truck, it's loaded in a certain way, it's pushed to the floor. That was the first iteration of using TVS. Then Lee came into the company and we looked at it again. He said, you know, there's another way we can even improve this. I think let's put it back to the TVS process again. This time, let's look at the rigor.
Let's change the way we're doing it. Let's call it faster freight using TVS. What could we come up with? Now today, we decided that the best way to work freight is when the consumer and the customer is not in the store. Now we bring the teams in at 5:00 A.M., work the freight early. By the time the store opens, the freight's on the floor and the customer's delighted because the product's there for them to buy. It's one of those things of progression that I think TVS has helped us understand. Now we've got a process that we're rolling out to all the stores. If you talk to our store managers, they're thrilled with it. They were part of it, by the way. They helped us put this together. It's not something we pushed down. They came in, spent time with us.
They were part of the team that built this. This is a great example of how TVS can work. All right, let's shift gears a bit now and look at the road to 9.5% operating margin. There are a number of things here that we have discussed in the past. I'm going to highlight a few, but price optimization, as I said earlier, still working through it. Don't have all the SKUs turned on at this point, but very promising early results. We like what we're seeing on the balance of prices moving up, prices moving down, and in general, it's helping us manage our pricing throughout the company. You can imagine that in every individual market, feed pricing honestly can be set by the store price based upon the local competition. Remember, there's about 10,000- 12,000 of those small feed guys out there that we compete with.
You can't just take the roller approach and say everyone at a singular price point. One of the reasons price op was put in was that purpose as well as trying to find ways to conserve margin. Private branding I'll speak about in a minute. Share some thoughts with you. In the back of the room to the right, you'll see the whole setup for 4health. Probably one of the more, I would say, home runs that we've had in the last couple of years as far as product development and launch. Strategic sourcing, very important still. Our product development teams that are up and running. We've got our strategic sourcing piece set up. The logistics teams have done a wonderful job, less than the teams of building the infrastructure. Now we can bring products from about anywhere in the world. Couldn't do that five years ago.
Just couldn't do it. Inventory management, Hank and the teams, have really done a tremendous job of managing inventory, getting the right amount of inventory in the right stores at the right time. This is a very fluid process because with new stores opening, existing stores growing, regional differences, you can imagine the complexities. They are truly probably one of the backbones of the store support center. If you talk to any store managers, they'll tell you that the inventory management team is in lockstep with them. What does all of that do? If that's all working and driving the business and trying to improve our profitability, as sales drive up, we start to see SG&A leverage. The key behind this, these are not just margin drivers. These are also sales drivers. Again, a bit of a structural change. Price op, let's talk about these a little bit individually.
It doesn't mean price increase. It's about being at the right price in the right place in the market. That's the ultimate goal. It's a very strategic approach. There's a lot of rigor that goes into this. It's about market share is one bucket, margin rate is another bucket, or the combination of both. Not one category, can I say, is either one of those three necessarily because these things tend to move based upon the competitive situations. There are three buckets we work out of, and that's how we kind of set the pricing structures. Right now, we're focusing on regular price. We are not doing price optimization in promotion or clearance, although we do have what I would call a rudimentary process that we work through in clearance. Those two toggles will be turned on later in the program. The process really is about testing first.
The difference between how we operate our price op and others that you've probably been exposed to is we just didn't turn the system on and let it run. We said we need to have a set of control stores and a set of test stores. We want to first make sure that before we roll this to 1,100 stores and ask people to go out and take the physical challenge of changing price, it has to be right. We do that testing first. Once we get the read, we like the results, then we move it to the chain. We analyze a lot even afterwards. A price op isn't just you do it one time and forget it. It's done. You go back and you revisit. We're going through that now.
Tom and the team can tell you that we're going back, realizing what we've already touched to see, is it giving us the results we wanted? We're learning, we're adjusting, and now we're expanding and taking more SKUs to this. It's an ongoing process. It's re-iterative. It isn't something you just one time and you're done. Price op is something once you start, it's there forever. Private brands, this is a look at all the private brands we currently have in the company. Some of these you'll see when you walk the trade show floor. We're very proud of what we've got here in front of us because we went through an exercise several years ago where we consolidated the brands. We had many more than what's shown here today. We went through a process and validated, streamlined, and said, okay, these are the things that are most important.
Now we're building programs behind them. I encourage you to take a look at the Groundwork product that'll be down there on the floor. We just launched it, put the new packaging, a new product into the stores in the last six weeks. The store managers are just absolutely beside themselves at how well it's selling because it's very high quality, very well built, probably some of the best. Look at the long handle tools as an example. Some of the best that's out there in the market for the price, unmatched by anyone else. 4health. 4health is an example I want to talk about in specific. We introduced it in January of 2010, pretty much in the middle of the "Great Recession." It was so well received by the customers because it was a price point in the upper tier of product category within pet that was vacant.
It was a gap. It was a gap in our own assortments, and it was a gap in the branded assortments. It's exceptional quality. The price point, again, is about 15%- 20% below what the premium brand would be priced at. What we found is we've had the opportunity now to take 4health across more species than we thought initially. Initially, we launched it in dog, and now we can take it to cat and other species and treats and so on. I encourage you to take a look at it before you leave the room today. Strategic sourcing, these are just some of the categories of products that we're sourcing directly. The key here, and for us to consider and think about, is growth. Strategic sourcing doesn't mean we're jumping the pond and going to China, Malaysia, whatever.
It means we're sourcing it where we can gain the best quality, service, and price. It's not all about price, and it's not all about just quality. You have to be able to service as we're growing as a company. I explained this to the vendor community last night. Sometimes we have to multi-source products because the current vendor base, our vendor, just doesn't have the capabilities to grow as fast as we're growing. They have to accept that. In this strategic sourcing element, we're trying to find and reach out to those companies or those factories direct that can support our growth. We're not going to sign up with anyone that can't think that they can support a 2,000-plus store chain. We have a product development team in place today. Very proud of what they've done. It's still growing. It's still building out.
You'll see some of the products downstairs. We're developing our own specs today. Many companies have been doing that for years. We're still in the early stages, but now we own our products. We're not taking someone else's spec. We build our products to our specs. We're expanding the number of places we can source. We're not just China. We're moving into Vietnam, into India, or in other places. We're into the Caribbean. We've got products we're sourcing all over the place today. We're looking to bring the more direct factory to Tractor Supply relationship. I remember talking to this group a few years ago and trying to give me the spectrum of, you know, Tractor Supply on one side and the factory on the other, and all the hands are in between. We used to have relationships with third parties.
We used to have a number of sourcing partners. We used to have all kinds of people in between that were taking a bite out of that margin picture. Today, more and more what we do is ourselves with a sourcing partner to the factory or ourselves direct to the factory. It's a good way to build margin. It's also a good way to control all the other aspects that you need when you're building your products. I mentioned earlier about inventory management. Can't say enough about how we're improving our ability to allocate and flow merchandise. We're more nimble today when we see changes in weather and conditions within the country where there's drought or there's moisture. Today, we're able to move and allocate that inventory much more effectively and direct it toward the stores that need it. That was something we couldn't have done a few years back.
The regionalization of product is very important to us. Steve spoke to that last night with the vendor community, and we continue to urge and encourage them to help us understand the regional differences, where we need to make more changes, where we need to address more regional needs than we even have today. Enhancing our ability to react to the weather trends is important. Because we're so geographically diverse today with our store base, and because today we're not as dependent on one or two categories to drive our business, and because Q has become so important, we today are much less dependent on weather conditions than we ever have been. Weather still does play a part.
I mean, we can have tornadoes and serious weather conditions where the response methodology that we have kicks in, and we sell a lot of generators and such and take care of customers that way. If we have drought or we have severe, you know, moisture in certain parts of the country, we make those adjustments. The fact is, because of our dispersion of stores and all the other things that's working within the box, the four walls, weather is much less of an impact. Our markdown management and our rigor behind how we convert season to season continues to improve. We started there very early on. That was how we'd be able to bring our average inventories down and convert. We'll continue to do that. We're not like the typical farm store. We don't carry things over. We take our markdowns within season. We try to move through it.
We reinvest that money into forward full margin product. That's how you make money in this business. It's not about carrying things over and hoping that next year it's going to sell again. Finally, the correction of error process, which is something that's kind of an offshoot of TVS, but it's used really for looking at a business in a very tight window. Let's just say we came out of the spring season. We quickly gather all the players that are involved: logistics, transportation, marketing, merchandising, ops. We sit down and we talk about the season. Again, checking the titles at the door, we go into a room, and for three hours, we talk about how we can improve that business for the next year. Those learnings are fresh. We spend time doing this. We do, we use COE.
It's being used throughout the company now in lots of other areas because people have heard it's kind of an interesting process, and it gets down to the crux of what can we do to improve what we did. Let's all be honest with one another. There's always things we can improve. I will tell you, it's been terrific. It's making us a better company as well. With that, I'm going to wrap up and turn it over to Clay Teter. He's going to talk to you about the rest of our store growth. Thank you.
Thank you, Greg. Good morning, everybody. As you read in the press release this morning and as Jim mentioned a little bit earlier, we've been able to raise our potential growth opportunity for store count in the U.S. from 1,800 stores to 2,100. We've also been able to include the small market stores that you've heard something about into that mix, and they'll be included going forward. I wanted to talk to you a little bit about how we were able to do that. First of all, we've tweaked and rebuilt our site selection and optimization modeling to include lots of new factors. We were able to work with Finance, Real Estate, and Marketing to update that information and create the new roadmap that we have.
We have implemented that modeling beginning about in the middle of 2011, and we have backtested it extensively to hundreds of stores going back to those that opened as early as 2008, and the model is working well. Lots of things have changed since we last updated that information in 2008. First of all, 2010 census information has become available, and we've used that and the learning from what we now do in our business. As Greg mentioned, things have changed in our business, and things have changed in the marketplace. We're able to take advantage of the 2010 census information, which is the basic census information that you think about, the demographics of population, ethnicity, income, that sort of thing that's important to every retailer. What's not important to every retailer, but is critically important to us, is Department of Agricultural Statistics.
The USDA publishes AgStats every so often, and we were last using AgStats from the late 1990s for our modeling. In our update, we were able to use 2007 information, which includes things that are extremely important to us, like where and how many cattle are in a marketplace, where and how many horses are in a marketplace, how many farms are in a marketplace. It gives us critical information that we can use in our modeling with the data from our existing stores to help us identify potential sites and project the success and financial performance of those stores. Also important to us is mosaic cluster lifestyle data. That's the psychographic information that we get from our customers and our experience in our existing stores that tells us what kind of families are highly likely shoppers for Tractor Supply .
We identify those, we place them in the model, and that makes a big difference in the accuracy of that tool. Maybe bigger than anything is we use the performance of our existing stores. In 2010, when we started this project, we were able to use data for our stores, performance data, and customer data that was based on over 900 stores, whereas in our 2008 modeling, we used data that came from less than 400 stores. We've been using that for some time. Clearly, we have much more robust information about our stores, how they perform, and who shops there. We also had millions of customer transactions to use in the history of the stores to help us build the consumer behavior and the shopping patterns for the folks that come to Tractor Supply .
Those factors alone were very helpful to enable us to make the modeling more accurate and more reliable. Moreover, we were able to take the data from stores in 44 states and look at that on a national basis, and we were able to project the optimization of our store growth across areas of the country where we do not even yet operate. A big part of the new goal is based on the small market opportunity, which I think we've talked about before, and we began to test a few years ago. Our challenge for that was to develop a viable store model that could operate when there are fewer of our Tractor Supply core customers available. That's not necessarily to say that there are fewer overall population statistics in the marketplace, but that we simply don't have the high concentration of high likelihood shoppers.
We still have shoppers available, but we haven't been able to reach them with a traditional model because of the cost or the lack of sales potential in those areas. We set out to do that. The timeline started in about 2007 when we were challenging ourselves internally to come up with a store format that we could use and would get the returns and the profitability in the same range as our traditional model, but yet be able to operate on a lower volume. What we came up with and what we're using today is a store model that is based on lower volume, which means we must find lower real estate costs, and we've made the footprint of the building smaller. Our sales area in a small market store is about 12,500 square feet, whereas our traditional typical Tractor Supply store is 15,500.
A significant change, but not dramatic. We've also reduced the size of that outdoor fenced yard that you see at all of our stores. A traditional Tractor Supply store has a fenced yard of about 15,000 square feet. The small market store's outdoor display area in the fence is down around 12,000 square feet. We have taken a couple thousand square feet out of that. Most importantly, we lowered the inventory investment in the store. We modified the depth and breadth of assortment in a lot of categories. In order to continue to serve all of our customers and deliver what they want, we did not reduce the breadth of offerings in any category. We still have all of the categories, and we feel that we can meet our customers' needs within that reduced inventory amount.
All this came together to create a situation where we could move forward with new stores that were projected to do first-year volumes of about $2 million or a little more, whereas the traditional Tractor Supply store was requiring and still requires a volume somewhere closer to $3 million on average. It gave us an opportunity to go into areas where our customers exist, but just in smaller numbers, serve those customers, and not leave them behind. In October 2008, down in Hohenwald, Tennessee, about 45 minutes or an hour southwest of here, we opened our first small market store. It performed well, and it continues to perform well.
Since that time in 2008, we have tested that concept, and we now have 33 small market stores in operation in 16 states. We have rolled it out through wide geography from Mississippi to Minnesota, and it continues to perform with similar returns and profit rates to all our other stores. Here is a good example on the map, pardon me, that shows a store that is about an hour the other direction from Nashville. The star in the middle indicates the location in Smithville, Tennessee. You can see the TSC logos around it where we had existing stores that have been in operation for a number of years. Back in February, we opened this store in what was previously a car dealership. That is new for us because we have been able to be more adaptive in the small market approach. There was heavy highway traffic.
There was good accessibility, all those things that we need on an ongoing basis. There was a solid customer base there, excuse me, that we did not otherwise reach with our existing stores. Thank you, Randy. We were able to, excuse me, identify customers that were highly likely to shop Tractor Supply that we were really not reaching with the other stores. We do take a little bit of business and cannibalize from some of those stores, but overall, we're able to reach a marketplace that we couldn't otherwise reach. This store and the other stores are performing well. I talked a bit about the adaptive use of real estate. These two stores are good examples that show that we can use previously used buildings of various varieties and continue to maintain our brand identity. The store on the left in Bolivar, Tennessee, was a former Walmart store.
We took a slice out of that, right-sized it for that market, and created a successful store. The store in Wynne, Arkansas, was a freestanding abandoned grocery store, which we were also able to modify and continue to keep our brand identity. Our learnings on small market stores is that we found a small store, smaller market store that's viable across the United States. We have the opportunity to continue opening those stores to serve customers that we could not otherwise reach with our traditional model, helping us to increase our target up to 2,100 domestic stores. We are more confident than ever in our methodology and predicting our site opportunities across the U.S., and we are highly confident that the 2,100 store projection is attainable for Tractor Supply . You've seen a map that looks a little bit like this before.
If you go back and compare the states that are slightly different, we've kind of reorganized this based on some of the learnings that we did in the updated work that we did. This continues to show existing stores on the left with a slash for the potential stores that we've identified on the right. We, again, are very confident that we can roll this out, including the stores that are right-sized for the market, either our traditional format or the new small format, and reach our goals in the long term. With that, I'll say thank you, apologize for coughing, and turn it over to Tony.
All right. Thanks, Clay. Clay's team has done a great job analyzing the markets, and he's done a lot of research on the model and improved the model. It's always great to see him up here. He's very passionate about his work. He always gets a little choked up when he talked about real estate. We're very proud about the success of opening our stores. We've done a terrific job. We've had very few misses, and the work that Clay's done on the model gives us even more confidence as we move forward in opening up stores that will well represent Tractor Supply . I thought it'd be a great opportunity to talk a little bit about the store economics as we're talking about some of the small market stores. We're happy to update actually our prototype. Much improved economics, the inventory now, the carry is less than it was.
We had talked about in a range of about $750,000. We've taken about $50,000 out of the inventory. So we're at about $700,000 on a prototype. Leasehold improvements, we're at about $320,000. That number was north of $350,000, bringing the total investment down to just over $1 million with vendor payables, offsetting that by $280,000 with a net investment of $740,000. That's obviously improved our sort of standard traditional model and the economics around that. Now, when we look at the small market, the inventory is actually at $500,000. We've taken out some of the inventory. We've done it with mostly the assortment and some of the depth in the inventory. Really taken out just two full categories out of about 340 categories. When you walk a small store, you're not really going to notice the difference.
Leasehold improvements a little bit less at $270,000 and a total investment of $770,000, vendor payables of around $200,000, so a net investment of $570,000. Now, as Clay mentioned, most of the small market stores are going to be second-use real estate. We've set this up more as more of a prototype small market so that we can compare the two models. We will have some additional investment in leasehold improvements as we renovate a building if it is second-use real estate. Now, looking at the store productivity, first we'll talk about the prototype. The traditional model, what we're basing it here on is really our approval criteria.
I know once you get the calculators out and you run your models, you'll say, "How are they ever going to get to 9.5%?" We have performed better than these numbers, but this basically is what we use to approve a store when we're in our Real Estate Committee. We target a first-year volume of about $3 million. The ramp-up in the comp, and you can calculate through these numbers. You probably already have done that if you've moved ahead on the slides. The best way to look at the comp is that the newer stores will perform somewhere between 3%- 6% higher than the mature store base.
That is going to translate generally into the first couple of years being high single-digit to low double-digit comps, and then in years three and four, you're going to be closer to mid-single digits to upper single-digit comp growth. That will drive you to year five of about $4.1 million. You can see the store operating margin continues to improve as we move to 12.4% at the store level. That gives you the return on investment of 33.8% in year three, 40.5% in year five. That is calculated on more of a P&L return on investment. As we move to the small market, again, these stores are stores that we've targeted. We've just tailored it. It looks like a Tractor Supply, and the economics are generally very similar.
In the future, you're not really going to hear us talking about this is how the small markets perform versus the larger market stores. They're generally going to be a blend of stores, and we believe that the economics behind it generally will be the same as the prototype store. We're going to come out of the box. These numbers that I'm talking about here are a little bit more historical. We've only had four years of operating statistics, and so we're projecting out the outer years, but these are more actual to-date numbers. The sales have come out at about $2.3 million, as Clay has alluded. We believe this model worked from $2 million to, say, about $2.4 million, and they've come out of the box at $2.3 million. They've grown through year four, we believe, north of $2.8 million.
As we move to year five, we'll be around $3.2 million. The store operating margin comes out at 10.9%, and you can see it tracks a little bit higher than the prototype, but given the level of investment in the lower sales, the return on investment in year three is at 26.3%. In year five, it starts to close the gap and hits 4.4%. Now, when we look at the approvals, when we're looking at a store and the new store returns, we look at it on a discounted cash flow basis. You can see in the outer years, as we move from year five through year ten, these stores we believe will perform even stronger. Net-net on a discounted cash flow basis over 10 years, we believe both models work at about the same internal rate of return.
We're very excited about the model and it gives us the opportunity to move into some smaller markets that we had not anticipated when we came out with the 1,800. Now, as we've moved the target to 2,100 stores. Looking back at 2011, we've improved and we grew the business. As Greg alluded, this is structural. We've done many things over the last years so that we've been able to improve the business and hold on to those improvements and not backtrack. Record sales of $4.23 billion. What's exciting is 8.2% comp growth over last year of a 7.0% increase. Back-to-back strong comp numbers led by transactions, as we've had a 5% increase in transactions, and that compares to 7.4% in the prior year. That really substantiates that these improvements are, again, something that has been built into the business.
100 basis point improvement in operating margin, that's really driven our new goal to 9.5%, and we're excited about moving towards that goal, and we think we can achieve it generally on about 20 basis points a year of EBIT margin improvement. We've become more efficient and productive with our inventory as the inventory turns were up 14 basis points over last year. Returning value to the shareholders is critical to us. We have two levers that we pull, one being the cash dividend and the other the share repurchase. We are committed to increase the dividend. We're going to, we will, on an annual basis, continue to analyze what our payout ratio is, and we will continue to target the increase and philosophically, that's where we would like to be. We'll use our repurchase to return value to the shareholder. We generally will work off our matrix.
At times, we'll be opportunistic if we're in a buying window. However, again, being matrix-driven, it's very difficult for us to predict how much stock we will buy back. As we look at this year, at times, if the stock continues to run, it tends to run outside of our matrix and reduces our opportunity to acquire stock. Again, philosophically, we would like to be buyers throughout the year. We will continue to invest in our infrastructure. We opened the Franklin Distribution Center this year. It was a seamless transition. We have targeted our Southeast Distribution Center, which we lease. We are looking to relocate that and also add an import center there. That land acquisition is targeted for this year, and we will open a facility in 2013.
As we move into 2014 and 2015, we will look at the West Coast in opening up a distribution center and an import center out on the West Coast. 2012 expectations. This information was provided on February 1st on an earnings call. We are looking to open up 90- 95 stores, sales to be $4.56 billion- $4.66 billion. Same-store sales to be 3%- 5%. As we look at the comp sales, transactions have been very firm throughout the last two years. As we move into Q1, we see inflation being, again, relatively firm, and we will have one less comp day. That will impact the number of transactions that we have on a comp basis.
As we look at Q1, we probably see that evening out a little bit more with average ticket driving some of the comp with the transactions being a little bit lower because of the one less comp day. As Jim alluded to earlier, as gas prices rise, there may be less trips to the store, which reduces your transaction but increases your average ticket. We may see more of a balancing of that as we move into Q1. Operating margin, our target is 15- 20 basis points of improvement, and that will continue our march to 9.5% EBIT. Earnings per share, $3.38- $3.46, and capital expenditures are $160 million- $170 million, which is similar to last year.
Included in that number, we have a placeholder to purchase some of our lease stores that we have right of first refusal on. That is approximately $30 million- $40 million as a placeholder. Additionally, we anticipate acquisition of some land and some initial investment in our Southeast Distribution Center relocation of approximately $11 million there. That keeps our capital relatively consistent with last year. You can see the improvements in the business as we drive EBIT. We become more efficient with our capital. Our ROIC trend has just been terrific. We have it both on a rent-adjusted basis and the normal calculation. You can see that each of the last three years, we have increased over 300 basis points. On a rent-adjusted basis, we have increased close to 150 basis points.
We believe with the improvements that we have structurally put into the business, as we continue to be efficient with our capital, we can continue to drive that number up. With that, I'll turn it over to Jim for some closing remarks.
Great. Thanks, Tony. Appreciate that and everyone. If you listened to Greg this morning, you've heard him talk about our mission and our values. If he had been here yesterday, you would have seen myself speak about it. Lee spoke about it. Lee runs SVP of Store Operations. Steve Barbarick mentioned last night with the vendors, this is the real deal. These words were put on the page in the middle of the 1980s. For 20 years, 25 years, this has guided who we hire, who we say goodbye to, the decisions we make. We walk the talk. We define ethics, ethical behavior on a very, very bright, sharp line. It's either right or wrong. We don't believe in situational ethics. I'm only the custodian of our mission and values, but they are truly part of the foundational to how we view our lives and our business. Customer outlook.
Our customers continue, this has not changed since, I guess, since 2008. They continue to be very focused on value. They are buying needs as opposed to wants, and they are buying closer to need. As a result, we'll continue to focus on consumable, usable, and edible products, and we'll continue to be our customer's buying agent in the marketplace to give them the value that they deserve for the hard-earned money. Investment summary, we're winning today. We've been winning for a decade. We have a very clear strategic plan, a lot of rigor around the development of that plan, a lot of rigor around the execution of that plan, and a tremendous amount of passion throughout the organization. Those of you who've been our store managers today at breakfast saw that. Tremendous amount of passion throughout the organization for what we do and the opportunity that lies ahead.
We're effectively managing the variables. There was a day that if we didn't have a good lawnmower season, we didn't have a good Q2, and if we didn't have a good Q2, we did not have a good year. Last year, we did not have a good lawnmower season. We had a good Q2, and we had a good year, even though we fell into a very deep and pervasive drought Q2, Q3, and throughout. As Greg and Tony spoke to, we can adjust. We're in 44 states. We're smarter. We're faster. We're better at anticipating and responding to the variables that historically impacted our business. We are focused on growth. First, store sales, comp store sales. Next, margins, and ultimately, as a result of that, earnings. We're generating significant cash from operations. We are returning value to shareholders.
Today, we are a growth company, and we'll continue to grow at 8% square footage growth. Now, for years, we've been growing at 8% or 9% stores. The operative number now is square footage because we've introduced the two models of stores now. You'll hear us not talk about small versus prototype. You'll hear us talk about total square footage growth. We serve a lifestyle, not a hobby. We serve your lifestyle. Our customers are committed to living on land. It might be an acre. It might be 100 acres or 1,000 acres of Texas, but they're committed to living on land with animals, with pickup trucks, working the earth, planting, harvesting, in some cases, freezing and canning, and we are the purveyor of the goods needed for that lifestyle. We sit at the intersection of what they aspire to do and how they get it done.
We have to have very limited or fragmented competition. The next six chains have 380 stores or so. They open collectively 15 a year. We're growing at 75- 95 stores over the last several years. They're growing at 12 or 15. We have experienced, and I think you've probably sensed, fairly energized and focused leadership team, and we have a significant opportunity to both continue to improve and to grow our business. I appreciate the fact that you joined us today. Have a great time talking to our vendors and touring your trade show, and we'll see you back later for Q&A. Thank you.