Good morning. Glad to see everybody here. Welcome to the management presentation portion of Tractor Supply's 2018 Investment Community Day. We recognize that it is a really busy morning in the retail sector. As a team, it means a lot you are here with us in Nashville. We appreciate your time. For those of you listening via the webcast, we appreciate you joining us as well. I wanted to share with you that going forward, we will be releasing our quarterly earnings reports before the market open. Our Q1 2018 earnings release is tentatively scheduled for Thursday, April 26th, 2018. This morning, you'll be hearing from Greg Sandfort, our CEO, and Steve Barbarick, President and Chief Merchandising Officer. I'm looking for the slides to advance. Rob Mills, Chief Information and Strategy Officer, as well as Kurt Barton, our CFO.
Today's presentation is being recorded and will be available for replay at ir.tractorsupply.com. After the presentations, we'll break to get lunch. We ask you please come back in the room for the Q&A session. After that, we'll depart for the store tour. I would like to remind everyone that today's presentations made by our executives may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are subject to risk and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our filings with the Securities and Exchange Commission. Today's presentation will contain certain information that has not been derived in accordance with GAAP. You can find a reconciliation on our website at ir.tractorsupply.com. We are so excited you all are with us today.
I hope you all enjoy the presentation.
We're the early risers. The ones who start while the world is still asleep. We're the hardworking. All right, we're getting somewhere now. The proud. The many. The ones who built their lands, their homes, their families. We don't do it just because it makes us better.
All right.
We do it for the things we love.
I found one.
Look at all the carrots we got. The sun is rising. The world is shining. Nothing but blue sky clear. Got everything we need For Life Out Here. For Life Out Here.
Now we can eat.
Because we don't just like life out here. We live life out here.
Daddy.
Hey, honey. Tractor Supply, For Life Out Here.
All right. Good morning, everybody, and thank you for making the trip to Nashville today. This happens to be one of my favorite times of the year because it's when we can bring the entire company together here in Nashville, all the managers, the field people at the DCs, and the store support teams, and we celebrate prior year's success as well as we discuss our plans for the coming year. I hope you enjoyed the vendor trade show this morning, and I'm glad that you're here to learn more about our long-term strategies. The video you just saw is one of our new brand videos. We launched it 21 days ago, and it has already received over 10 million views, so it resonates with our customer. All right. Let's get started. Let's talk about what we're going to do today.
Before we really dive into that, I want to remind you, this is our 80th year of operation. You may not realize it, but T.E. Schmidt, back in 1938, conceived Tractor Supply at his dining room table as a catalog tractor parts company. Our company has evolved over time and so have our customers. Through the years, as we've grown, and we became a public company listed on the Nasdaq in the early 1960s, then moved from small cap, mid cap, now to large cap. We are ranked today at 396 in the Fortune 500. From those early days as a tractor parts catalog company to today being a full line national retail chain, one thing has always been and will remain the same, our passion to serve this unique rural lifestyle customer.
In our 80th year of our anniversary, we will celebrate this year a milestone, our 1,700th store opening in March. Pretty remarkable when you think about it. Let's talk about Tractor. At Tractor, we have continued to deliver strong record results, and we think we have a very bright future ahead of us. As we approach the $8 billion sales mark as a company, we are very confident we have room to grow further. Our earnings per share have increased year-after-year, as well as our average store volumes. As we've grown, we have continued to generate significant cash flow eclipsing $600 million in 2017. There's a little bit of magic behind this, and that is what we call our Mission and Values. It's the power of the engine behind Tractor.
We hold ourselves accountable to this performance and the behaviors that our Mission and Values represent. We refer to the Mission and Values as our secret sauce, and this really does differentiate us as a company from many other companies in retail. This culture plays a very important role in who we hire, and it resonates with our team members. You could see that, I think today, on the floor down there with the vendors, how they interact with our team managers and our salespeople and vice versa. As you walked the floor this morning, I'm sure you saw that energy and passion. Remember, we hire our customers. Who better to serve this lifestyle customer, okay, than those themselves who now work at Tractor Supply? Let's talk a little bit about the customer.
They're passionate about this lifestyle as well, and this includes their family, their animals, their land, and the rural communities that they live in. We have become their go-to store, their most dependable supplier for products and services and knowledge about this lifestyle, whether that comes to them through the store or it comes to them online. We also value stewardship, just as they do regarding their land and the communities they live in. They give us a lot of credit for that. They look to us as being the person that supports stewardship for the outdoor lifestyle. We talked about how unique this customer was and their unique sets of needs, but this is a conscious choice by our customer to live this lifestyle. They're generally middle-income earners. They own their homes, they have animals, and they generally own some property. They're primarily needs-based.
They buy product close to the time of use, they are do-it-yourselfers. They put it to use themselves. They don't call someone to come out and repair their fence and take a look at the rotting lawnmower or maybe their small tractor. They repair them themselves. They're exceptionally loyal. They appreciate seasoned advice, those that we give them in our store, they love the accessibility to our team members. That's important to them. Our average customer visits our store 6 times a year, but the higher affinity customer is in our store 12+ times a year. They're in often. They look at our store as the gathering place for their community. Knowing that, we feel that Tractor Supply is the leading farm and ranch retailer, and we provide an unmatched assortment of products and services for this rural lifestyle.
Our store serves as I said earlier, kind of that one-stop shop for the products they need. We strive to make that shopping experience at Tractor Supply seamless and easy. We do that through the interaction that we have with our customers using the ONETractor strategy that we mentioned last year, and we'll talk more about today. Our store is a fun place to shop. We incorporate a lot of things into that store, product updates, we add newness to that store on a regular basis. Steve will talk more about that in his presentation following mine. Even as a national chain, we offer product localization. That's important. It addresses the unique needs of that local community. It's not important that we have 1,700 stores and with the size we are, almost an $8 billion company.
What's important to our customer is that 1 store in those 1,700 individual markets that has the right assortments for those customers. One of the other things we like to talk about is the differentiation and some of the strengths that plays to us by that. We use the word legendary this year as our theme at the show, and it goes beyond just the products we sell. It is how we help our customers address their needs and solve their problems, how we interact with them, how we empower our team members to do whatever it takes to take care of our customers. You'll see that sign in our store as you leave the store today. It says, "You check out," you'll see, "whatever it takes to take care of the customer." Knowledgeable team members who are lifestylers themselves form very strong relationships with these customers.
We know them by first name basis. We know their animals. We know their property size. We price regionally, both online and in store, we can stay competitive on price. Our locations, because they're close to our customers, combined with our enhanced in-store and online capabilities, make us the most convenient place for them to shop. Our product mix in the physical store and online is directed toward our own exclusive brands. There's a reason for that. They provide higher quality and a superior value than many of the national brands that are on that floor. As we complement our exclusive brands with national brands, we look at that as a combination that ensures we have the right product offerings in the right market, that we're relevant to that market, we stay competitive.
We will continue to take a very offensive approach to widen the gap between ourselves and the competition, both physical and in the digital space. This is how we will fortify the moat around our business. We believe this will allow us to deliver a very strong gain of market share over time. As we evolve our capabilities in the digital space, Tractor Supply has taken what I would consider a leadership position by offering our customers the ability to shop Anytime, anywhere, and any way they choose. You're going to hear that phrase a lot today. For example, our buy online pickup in-store capability drives about 45% of our online sales today, with another 20% being shipped to the local Tractor store that's also bought online, and that's designated by our customers. They want to come to the store.
This allows us the opportunity to sell our customers additional products when they pick up that order in our store. To date, this has resulted in a 20%-30% add-on to the original sale as we've been able to measure it. It's substantial. When they're coming in to pick up [inaudible], they're buying other things. We believe this will be a tremendous sales driver for us going forward. By the way, buy online, pickup in store is one of the most cost-effective ways you can grow your online business. With our commitment to ONETractor, that strategy and building upon the strength of our store network, which is important to our customers, that's how we deepen that relationship with them. This strategy will ensure that we grow our leadership position for the Out Here lifestyle.
As we talk about executing against any time, anywhere, and any way, that ONETractor strategy I mentioned, we are focused really on four strategic goals, grounded with two foundational strengths that I'll talk about and the rest of the team will mention this morning. We're going to share with you the most important ways that we plan to drive profitable growth, how we offer relevant products and services, how we build a higher level of unique capabilities and customer-centric engagement, and how we can enhance our core foundational capabilities. We believe these four strategic goals will collectively allow us to exceed the ever-evolving expectations of our customers really position us for growth and generate greater shareholder value for the long term. We are focused also on continuing on to improve our operational efficiencies at the same time, increase team member engagement.
That's important for our customers, that engagement. Two foundational strengths that build upon a highly engaged team who will be operating more cost-effectively as we move forward. Let me take you now through the first of the four strategic goals. Steve and Rob will walk you through the other three goals, and they'll be followed by Kurt, who will bring this all together in what I would consider to be the financial performance perspective. The four major areas of focus are comparable store sales, store growth for both Tractor Supply and Petsense, our online growth. Many of our initiatives that we're going to share with you this morning will support the growth of comparable store sales, several are more significant, like our exclusive brands, optimization and localization of our product, and the growth of our private label credit card.
Through data-driven store-specific product assortments that ensure we are relevant in those markets, we will increase transactions. As we highlight our exclusive brands, both in-store and online, and you'll see that today as you walk the store and you jump onto our website, that will continue to build a greater affinity with our customers to our brands. This is something we've been working on for better than seven years, and we're really seeing some great success with it. As we focus on increasing the use of our private label credit card, we see an opportunity to significantly increase our ability to drive big-ticket or large-ticket sales, and that can be across all channels. We'll have that availability to our customer.
This also, we believe, can bring to us a potentially new customer who doesn't shop with us today, and we will be looking to build a business in the B2B channel as well over time. I mentioned earlier how important it was for our customers to interact with our team members in our stores, and our stores still matter at Tractor Supply. We have a long record of successfully opening those stores, and we have a modeling tool with multiple data points that help us drive the decision process to open that new store to ensure that it will be a profitable store. We are confident we have a long runway of stores ahead of us, and recent analysis that we've completed using Intalytics as our site selection partner supports a very high level of confidence on our part that we can indeed achieve 2,500 stores.
Here are just a few quick facts regarding our new stores. Our new stores are profitable year one in opening. They generally beat their pro forma metrics, and in aggregate, new stores are beating their sales forecast. Our conclusion of that is our site selection process works. Turning a moment to Petsense. While Petsense has a rural store base, they will serve a different customer than Tractor Supply. This was one of the primary drivers for the acquisition. There's less than a 10% crossover in customer base between Petsense and Tractor Supply. Petsense is a full-service specialty pet store offering grooming, adoption services, training, and a differentiated mix of products that will not be available found in TSC.
With the recent launch of True Source, an exclusive brand that we developed for Petsense, they now have the product differentiation that will drive their sales and their margins for longer term. This is really one great example of how you can use the leverage and best practices of Tractor Supply and roll those over to apply them against Petsense. Growing these stores, we are confident will increase our share in the rural pet market. As we expand the base, we're going to leverage Tractor Supply's site selection expertise for additional store openings. Interestingly, Petsense and Tractor do share some similar values and culture, and those being the alignment behind the customer comes first, then that customer service aspect, and then the knowledge of our team members about the products we're selling in our stores. Another reason why this made sense for us.
As we look at Petsense from about 2019 and beyond, what we're looking at is we've used a very methodical and deliberate approach to understand this business and this customer, and we've now established a long-term strategy for their growth. We have a very clear understanding of the business and the opportunity that lies ahead. We have a defined plan for integration of this business back into the back house systems and other areas in 2018 that will allow us to gain more cost efficiencies for this business. In 2019, you will see us accelerate the growth for Petsense. Let's talk about the online business for a moment. At Tractor, we view the online business and our presence as more than a selling platform. Rather, it's an opportunity for us to further interact with customers.
Much like our stores, customers shop online at Tractor Supply looking for product information first, sometimes availability of product and advice. They're looking for information first. The uniqueness of the business carries over into the online shopping experience, as we've added more capabilities to support our ONETractor strategy of anytime, anywhere, and anyway, our customers are demonstrating how they choose to interact with us both online and in store. In 2017, our online site was ranked number 1 on customer web experience by ForeSee when they did their customer experience index. We're very proud of that. At Tractor Supply, this is something you didn't probably know until now, we have achieved 22 consecutive quarters of double-digit sales growth in our online business. It's very healthy. It's still small, but it's growing fast. Let's turn now to the launch of buy online, pickup in store.
Our customers quickly embraced buy online, pickup in store, and it now drives 45% of our online business. As you can readily see, our customers prefer to shop with us online sometimes for that convenience. Maybe they're at home, it's late in the evening. They still value that in-store experience, so they choose to pick up that product in the store so they can have that conversation of advice with our team members. Our customers shop with us on mobile more than the average retailers see their sites being shopped. There's a reason for that. It's where they live. They don't all have the access to broadband, but they do have access to a mobile device. Knowing this, we are focused on ensuring the online experience is built for mobility, and it's seamless, and it's easy for our customers to use.
Let me share with you a few stats that you've probably not heard before. I think you'll find these interesting. The capabilities that we've introduced as part of ONETractor as a strategy tied directly to the improvements we're experiencing in our online business. Unique visitors are up 21% year-over-year, and web visits are up 30%. This is tied directly to our focus on mobility as a platform and offering an expanded long tail of assorted products online. Second, our average online order is three to four times that of the average in-store sale, and it ties directly back to the improvements we have made in our search mechanisms on our website. Conversion also has increased 90%, driven primarily by our buy online, pickup in store rollout, also benefiting from the improvements to the checkout process and payment options.
We added PayPal this year, that was a big, big improvement. Lastly, and most importantly, our customers use store locator, that increase year-over-year is over 44%. They are looking for where the stores are located. This generated over 22 million clicks this past year. They're looking, where is that Tractor store? How close is it to me? This measure, we believe, further demonstrates that our customers prefer that interaction with Tractor Supply. They're coming online, but they really enjoy coming to the store. This accentuates the importance of why stores still matter at Tractor Supply. Let me wrap up here, and then I'll turn the presentation over to Steve. Here's a few thoughts for you today. There are compelling opportunities still available to us at Tractor Supply to grow not only our comparable sales, but our profitability.
At Tractor, we see, again, significant opportunity for new store growth in both formats, Tractor Supply and Petsense. We are leveraging today the physical assets with the digital aspects to grow our sales overall. In summary, this ONETractor strategy that you're going to hear more about today really positions us very, very well for future growth. With that, I'll turn the presentation over to Steve, our President and Chief Merchandising Officer. Steve?
Thank you, Greg. I'm now going to walk you through two of our strategic goals. First, I'm going to be speaking to offering relevant products and services, followed by building customer-centric engagement. Tractor Supply Company has an opportunity to continue to gain market share by becoming more important to our customers by offering relevant products and services. Our customers have come to rely on us for the products they need to support their lifestyle. They expect a convenient in-store experience, and they value the services that we can provide. Let me take a moment to walk you through each area. It all starts with the right products. CUE products, those that are consumable, usable, and edible, are a staple for our customers and drive repeat traffic. Our merchants are tasked with constantly finding new products that will drive incremental sales.
We have a structured test program which we use to ensure that we are bringing quality new products to market. We understand the importance of merchandising to the local needs of our customer base. We continue to build out our exclusive brand portfolio, which differentiates our assortments and it drives loyalty. Lastly, the digital platform allows us to offer a wide range of products and brands that are relevant to the lifestyle of our customers. For years, our CUE strategy has been successful in driving top-line sales and repeat traffic into our stores. As a company, we are committed to being a dependable supplier of basic maintenance needs, and nothing is more basic than supporting our CUE business. We are focused on three key areas for future growth. We will continue to expand our assortments of consumable products.
We have and will continue to invest in inventory to make sure that we are a dependable supplier. We will continue to use pricing tools to manage market share gains while balancing our margin rates. Categories such as forage, animal feed, grass seed, lubricants, animal bedding, pet food, and others continue to be opportunities to gain market share in this CUE business. New and differentiated products resonate with our customer base. As a company, we have a philosophy of test and learn. We believe in failing often, early and cheaply. This risk-taking approach has allowed us to quickly learn and liquidate or scale new products to more stores. We also are able to use the website to get a read on customer interests. There have been numerous examples where we've added products to stores based on our website analytics.
In terms of leading and differentiated brands, earlier this year, we launched the Husqvarna brand of chainsaws. The brand is meaningful to our customers that live the out here lifestyle. We will also be expanding the Scotts brand of product in our lawn and garden department. Lastly, we'll be adding a line of pet food called Loyall Life, which is a channel specific to the farm and ranch sector. We will continue to take advantage of new and emerging category trends. For example, trends in organic products, sporting goods, farm decor, and merchandise, as well as sustainable living. As Greg mentioned, our customers don't care that we're a chain of 1,700 stores. All they care about is the Tractor Supply store in their local community. It is imperative that we merchandise that store with the products, brands, and pricing our customers expect.
Our merchant team travels across the country, getting feedback directly from our customers and our store teams about the products that we need to carry. They work closely with our vendors to optimize our assortments based on geography and volume needs by store. Approximately 85% of our assortment will work for the standard Tractor Supply store, but it's that 15% that makes us local. This site-level merchandising philosophy is in a constant state of refinement and is one more point of differentiation. Getting seasonal product to our stores timely is also critical. The exhibit on the upper right of the screen is a map showing by color our flow of spring goods to stores. This science-driven approach has allowed us to capitalize on early seasonal business while optimizing our inventory investments.
As a national chain, we have the ability to build and market exclusive brands that are meaningful and relevant to the lifestyle of our customers. Exclusive brands today represent approximately 30% of our sales. Exclusive brands allow us to drive customer loyalty, ensure quality standards, and generate higher gross margins than the branded product. While we will always carry national brands, our exclusive brands augment our assortments, offering a value proposition to our customer. Whether it be exclusive brands such as Traveller in automotive, GroundWork in seasonal, DuMOR in livestock feed, or 4health in pet food, we continue to grow market share. Each of these brands and others are a great example of how our merchant team, product development group, marketing department, and our suppliers work in concert to drive brand growth.
The product may have great specifications and be value-priced, but it is our store team members that make the difference. Their ability to have confidence in the brand and recommend it is why our exclusive brands have become so meaningful. This is one of the many advantages of being a relationship-based retail company. Our customers trust the recommendations from our team members. Now, let's play a short video of an exclusive brand that we launched last year called Untamed.
From the murky depths of the bayou to the highest mountain peak, mystery lurks around every corner. Out here, curiosity cannot be tamed, just like your animal's primal cravings for pet food with a wild side. This is the untamed spirit of the wilderness. It breeds an animal whose sole desire is the hunt. They're wild at heart. Feed your pet's primal hunger with the protein-rich ingredients of 4health's Untamed Pet Food, available exclusively at your local Tractor Supply Company.
Untamed fits a niche market that has been dominated by national brands. We've been marketing the brand through social media, and the spot has received millions of views and impressions. Untamed also has its own homepage, as in experiencing strong web traffic. Since the launch, sales of the product have exceeded our expectations. As a result of the strong sales, we are expanding the product line. Just recently, we've added canned product of Untamed to all stores. Untamed Pet Food is a great addition to our exclusive brand strategy in pet. The strategy starts with Retriever, which is a value-priced product. 4health, original and grain-free, that's a premium product. Now Untamed, a super premium limited ingredient diet. We will continue to grow out our pet food exclusive brand portfolio based on the strong demand from our customers.
These brands of pet food make up a meaningful and significant portion of our overall pet food business. Our ONETractor strategy is centered around being there for our customer anytime, anywhere, in any way. Having a broad assortment online gives them an opportunity to purchase products, brands, and sizes they wouldn't typically find in a store. Today, our website has approximately 100,000 SKUs available for research and to be purchased. To put that into perspective, a typical Tractor Supply Company store may have between 15,000 and 20,000 SKUs. Online assortments are selected based on products that are meaningful to our customer and their lifestyle. If a customer is interested in buying, they can have it shipped to a store, they can buy it online, pick it up in-store, or they can have the product shipped directly to a location of their choice.
Online assortments allow us to use analytics to understand what customers are researching and buying. This data, along with analytics, allows us to geographically place inventory in stores based on what we are experiencing online. We recognize the in-store experience matters to our customers. It is important that we excite our customers with event merchandising and give them a treasure hunt experience. We use our center court space and end caps to showcase new products and categories. We are always reassessing the in-store experience and layouts in our stores. For example, stores that index high in animal products and maybe less so in apparel are reset each year based on ROI modeling. The past few years, several hundred stores have been right-sized based on the sales and margin potential while optimizing inventory investments.
We have the ability to use technology to drive incremental sales through what we call the Stockyard kiosks. These are devices that allow customers access to the long tail of product right there in our stores. Lastly, as part of our continuous improvement mindset, we have opened several ONETractor stores that are similar in size to the existing store format but have reallocated space and new technology. As mentioned, the use of our drive aisle provides a stage for what we call retail theater. We use our center courts to highlight seasonally appropriate categories. Whether it's Chick Days, Stock Your Shop, or Spring Gardening and Decor, you'll find unique products that are relevant to the lifestyle of our customer. Our center courts, end caps, and unique merchandising fixtures allow us to trial new products.
These in-and-out buys give us a read on customer interest and may eventually find their way into our everyday assortments. Event merchandising allows for that treasure hunt experience, which is meant to surprise and delight our customers. Tractor Supply is a test and learn company. This past year, we opened two of what we call our ONETractor stores. These stores include some of our latest thinking in terms of product assortments, store layout, and technology. You will have an opportunity to walk through a local ONETractor store later today. At a high level, let me go over some of the details. In terms of the layout, we did a full review of our assortments, customer traffic patterns, and where we see an opportunity for future growth. The image on the left is an existing store layout, and the one on the right is the new store layout.
The first takeaway is that the box size is the same. We intentionally left the box size the same so that we can apply the learning from the ONETractor stores to the existing store base. A few comments on the layout. Several departments were reduced in size as we dense packed the product. Clothing, electrical, plumbing, and some of the legacy ag parts are just a few of the departments that were reduced. In total, we reduced our SKU count by nearly 10% from what we carry in the typical store. We moved the seasonal department behind clothing, which freed up space at the front for an aisle of sporting goods. The high-traffic animal products business, mainly CUE, was moved to the back of the store. Lastly, we have doubled the number of pallet drops to better support our CUE business.
This will help our in-stock position on these key items, it'll be more convenient for our customers to shop, and it will improve operational efficiencies. From a technology standpoint, Rob will walk you through the tests that are taking place in these stores. There's a lot of early learning in these stores, which we'll be able to incorporate into new and existing stores as we move forward. Finally, we believe that we have an opportunity to offer more than just products. Services are a way for Tractor Supply to be more meaningful to our customers. For example, a few years back, we began working with a third party on a mobile pet clinic, which we have branded PetVet. The mobile clinic is a convenient and affordable way to take care of your animal. This past year, several hundred thousand pets took advantage of this service.
In an effort to further support our animal-owning customers, we began testing a self-wash pet station in our stores. The response has exceeded our expectation, and we have begun adding these self-serve pet washes to new stores and retrofitting existing stores that have the space. Lastly, we will continue to support our customers through a variety of delivery services, which include trailer rental. Turning to building customer-centric engagement. As we build our strategic growth plans, putting our customers first is the key to our success. They depend on us to support them with the products and advice so that they can live what we call Life Out Here. We will advance our marketing by enhancing our personalization initiatives. Our personalization program will focus on better understanding of our customers, their shopping behaviors, and developing more relevant and individualized experiences across multiple channels.
We are committed to hiring a dedicated team to support these initiatives. The team will include a Vice President of CRM, a Director of Insights and Analytics, and several data scientists. Our path to deeper personalization is strengthened by growing our Neighbor's Club loyalty program. Our loyalty program allows us to build a more complete picture of each of our members, recognize our most engaged members, and tailor our communication messages to each individual. We also know that direct conversations and interactions with our customers are key to our success as a relationship-based retailer. Our team members' one-on-one relationships with our customers, our millions of conversations and engagements on social channels, and our individual store community marketing efforts, they all work in tandem to create connections and enhance relationships.
Key sponsorships of programs like 4-H, FFA, state and county fairs, as well as our support of the military, all demonstrate our commitment to our customers and what they value the most, building that strong relationship. A key component of personalization is our Neighbor's Club program. Our membership has continued to increase, and we've crossed over 7 million members and growing. This program allows us to capture a more complete data about our customers. It allows us to truly individualize the conversation that we are having with our customers across all channels. Whether we are communicating to a backyard poultry customer through an individualized email about expanding their flock, weatherizing their coop, introducing them to a new brand of feed, or simply personalizing their experience around poultry interests, we will be able to ensure our messages are authentic, genuine, and relevant.
Our Neighbor's Club initiatives include tailored offers and content across a variety of topics that are of interest to them based on their individual profile. We ensure our most engaged customers have access to knowing about things like new product launches or special events, such as a sneak peek of our Thanksgiving ad or our Friends and Neighbors nights. We always want to acknowledge special occasions like birthdays in order to enhance the personal connection that we believe is essential to our relationship with our customers. A key differentiator for Tractor Supply is the strong relationships our team members forge with our customers and communities. We hire our customers, which gives them a broad range of experience since they live the lifestyle. Most of our team members live in the communities we serve and engage with our customers both in store and outside of the building.
We believe it is not about what we sell, but rather who we serve. That is the difference between transactional retail and relationship-based retailing. I often get letters and emails from customers who refer to our team members in our stores as friends, family, or their neighbors. These close relationships build loyalty with the Tractor Supply brand and result in repeat business. We've been tracking our customer satisfaction scores for a number of years, and recently, we received the highest customer satisfaction scores ever. While our products must exceed our customers' expectations, it is our people that make the difference. Tractor Supply is active across a variety of social media platforms, such as Facebook, Instagram, Pinterest, and YouTube. This year, we will cross over 1 million Facebook fans, and the number is growing. We also have several social ambassadors who live the Out Here life.
Through that wide fan base, we are able to continue to spread the word about Tractor Supply to many existing, as well as potential new customers. Social media is where our customers also share their lives with us, and engage with us on one-on-one conversations. There is so much we learn about our customers, their passions, values, and interests through the social channels. With this learning, we can tailor messages in their social feeds that are personalized and engaging. We can demonstrate to them that we know them, respect their lifestyle, and that we are there for them anytime, anywhere, in any way they want to engage. Our 16 unique marketing toolkits enable our stores to individualize local events based on their customers' interests and their passions. Our stores know and understand their customers and use these tools to tailor their marketing store by store for greater community engagement.
These are not national programs, but rather we empower our store teams to develop events based on the needs of their individual markets. We recently added more kits to our portfolio, which now includes a tractor and car show, as well as a pet treat-tasting event. The engagement from the community has been positive, and based on the response, we'll continue to add more unique events and kits to the stores. Community and family are very important to Tractor Supply and to our customers. Our support and sponsorship of 4-H and FFA are key to demonstrating this support in a tangible manner. With the help of our customers, we raised almost $3 million last year for children in our local communities to go to camp, attend leadership experiences, and receive grants to expand high school agricultural programs.
These youth are our future customers and team members who will remember and appreciate the support they received from Tractor Supply. Our Mobile Fair Tour is an experiential marketing initiative that takes Tractor Supply outside of our four walls and directly into the communities that we serve. It's an opportunity to create awareness of our brand, acquire new customers, and reinforce with our existing customers that we are there for them. It is a fun, free experience for families to enjoy together. It demonstrates that Tractor Supply supports what our customers care about and allows us to make an emotional and direct connection with them. This year, our fair tour will support 24 state and county fairs across the United States, delivering millions of impressions. It is an initiative that allows us to embed ourselves in the communities and beyond just the store environment.
Lastly, their customers have told us that support of the military is very important to them, something they value. We demonstrate that we care about the military families through occasional military discounts. Our customers notice and appreciate what we're doing to support them. These efforts continue to enhance the relationship we have with our customers and promote loyalty at Tractor Supply. Our support of the military, like our support of our customers' communities and lifestyle, lets them know that we are working to be a valued part of their lives. Here are a couple things that I would leave you with. We are uniquely positioned to support the rural lifestyle. We understand this space, and we are there to support this customer anytime, anywhere, in any way they want to engage. Our product assortments give us a point of differentiation.
Channel-specific and exclusive brands found only at Tractor Supply give us a competitive advantage. Expanding new products in store and online along with services will drive comp sales by allowing us to grow market share. We are still early in our journey around personalization. There's a lot of upside as we are able to use analytical tools to optimize the customer data that we are collecting. Lastly, our customers value relationships. Our store teams and their connection with our customer matters in the communities that we serve. At this point, I'd like to welcome up Rob Mills.
Well, thanks, Steve, and good morning, everyone. I'd like to talk to you today about the remaining goal of our ONETractor strategy: enhancing our core and foundational capabilities. These activities are about improving our ability to use data to drive decision-making, enhancing the experience of our customers across all channels, and supporting the Tractor Supply ability to grow and scale while driving efficiency. Today's disruptive environment requires that retailers know, understand, and meet the ever-changing expectations of the customer. From self-service stores to voice assistants to multiple delivery options, every day, a retailer introduces something new that evolves our expectations as consumers. There are four key areas I'd like to focus on today. First, leveraging analytics. I will share how we are leveraging data to drive decisions, continuing to move us from art to science, and in how we influence our customers and drive our business.
I'll also talk about how we are improving the in-store experience, making improvements to meet those changing customer expectations, drive convenience, and increase the productivity of our team members. Next, I'll give you some highlights of what we are doing online. As Greg mentioned earlier, we want to continue to grow our online business, capitalizing on our position as a lifestyle authority online as well as in store. Last, I'll talk to you about some of the foundational supply chain investment work that we are doing to ensure that we are able to deliver products to our stores and customers in a timely and cost-effective manner. How we use data at Tractor Supply will be key to continuing to meet and anticipate the changing consumer expectations I referenced earlier.
Strong insights about our customers, the products and services they want and need, and how pricing impacts them are all key areas of focus. Steve mentioned earlier how we are planning to further building on delivery of personalized experiences to our customers. Last year, we brought our data in-house from a third party. Now we are building upon that data with tools to continue to drive insights and actions. Leveraging technology such as artificial intelligence and machine learning, on top of our Neighbor's Club customer data, we could determine the message that are relevant at the individual customer level. Let's walk through an example how we could use the data collected through our Neighbor's Club loyalty program to have a relevant and personal conversation with one of our customers.
If we look at a specific customer in our database, the data tells us that we will most likely be successful engaging that customer through social media. We also know from the data that he recently purchased a stall mat and a horse blanket. Using these insights, we can then communicate with this customer through social media and recommend DuMOR horse feed, our exclusive brand that you won't find anywhere except Tractor Supply. We could also take and drive actions in our stores based on these insights. For example, the next time the customer is in the TSC store checking out, a team member can be prompted to ask if they would like to add a bag of DuMOR horse feed to their purchase. Leveraging data in this way will drive sales and provide customers with a shopping experience tailored to their unique needs and preferences.
To effectively communicate with a growing base of over 7 million Neighbor's Club members requires scale. This is where leveraging tools such as artificial intelligence and machine learning will help us. In addition to customer data, we are also implementing tools to better understand our competitors' pricing and augment our price optimization. This allows us to ensure that Tractor Supply is priced right and competitive on the products that our customers need to support their lifestyle. Using technology to narrow decisions and automate processes will allow us to cost-effectively and meaningfully message our customer anytime, anywhere, anyway. Next, I'd like to tell you about some of the improvements we are making to the shopping experience in our stores. We continue to evolve the in-store experience by the customers by introducing capabilities that make it convenient to shop, at the same time blurring the lines between in-store and online.
Leveraging our strong culture of test and learn, we're able to introduce new capabilities across a small set of stores and measure the impact of sales, customer service, and productivity. Testing this way allows us to ensure initiatives are aligned to our strategy and drive the desired return to shareholders. Let's look at a few examples. First, our Stockyard kiosks. We're excited about the potential and the success that we have seen in our test stores. The Stockyard kiosk allows us to drive convenience, providing our customers with an endless aisle assortment. Think about a customer who comes into Tractor Supply looking for a pair of boots. We have the boots they want, but they need a size that we don't carry in the store.
By directing the customer to Stockyard, we can quickly order the size they are looking for and have it delivered to their home or to the store in just a couple of days. These devices allow us to provide our customers with the service and experience they expect and drive sales at the same time. You'll see us expand the number of stores with the Stockyard kiosk in 2018. We are also introducing capabilities our customers come to expect. For example, customer Wi-Fi in our stores, providing them the ability to access information and shopping tools through their mobile device. Another example, customers expect a fast, efficient checkout experience. We have improved the speed of checkout, driving higher customer satisfaction and freeing up time for our team members to focus on legendary customer service. Last, we are testing self-service buy online pickup in-store lockers in a few locations.
These lockers can accommodate anything from a screwdriver to a large bag of feed. We are testing both indoor and outdoor lockers and are exploring the potential of making this service available outside our normal business hours. In addition to improving the customer experience, we are also making in-store enhancements to increase team member productivity and efficiency. We are making it easier for them to perform task work in the store and empowering them to deliver legendary service to our customers. One of the initiatives we put the tools needed to perform their jobs into the hands of every team member through mobility. We started this journey a couple of years ago, and we are pleased with the progress our test and learn activities have shown. We will continue to expand the capabilities and roll out of this technology.
Mobility for our team members drives convenience and productivity in our stores. In the past, team members were tied to specific areas within the stores for tools needed to perform their job. For tasks and information to operate the store, they were tied to the service counter in the center of the store. To interact with the customer and complete a sale, they were tied to a cash register. To receive products, they were restricted to the back room stockroom. With the introduction of mobility, any of these tasks can be performed anywhere inside or outside our store, supporting the ONETractor strategy of anytime, anywhere, anyway. We are also evolving the customer interactions in the store and testing new cash wraps, looking at designs that allow our team members flexibility when checking out a customer rather than restricting them behind a counter.
This enables stronger engagement during the checkout process. We are also investigating ways to improve the flow of our checkout process, testing capabilities such as self-checkout. In addition to evolving customer interactions, we are also introducing capabilities to improve team member efficiency. One example is task management, allowing us to push tasks to mobile device, which enables team members to more easily move from one task to the next and be more productive with their time. Think about how a team member will benefit from some of these capabilities. When she greets a customer who enters the store, the customer asks her for information on a new chain on his chainsaw. The customer can't remember the model of the chainsaw.
Instead of moving the customer to a service counter, the team member is able to use her device to assist the customer and look up the model and size he needs based on his purchase history through the Neighbor's Club account. The team member can take the customer to the product, suggest pre-mixed fuel or lubricants as needed, and complete the transaction on the mobile device. These enhancements serve as a great example of how we are focusing on capabilities that will improve the customer experience while providing many benefits for our team members. Now I'd like to tell you about some of the things we're doing to improve the online experience. Earlier, Greg mentioned about growing our online sales, driving traffic to the store, and ensuring a seamless experience in store and online. We continue to focus on ensuring that the online experience supports this vision.
Our online strategy is mobile first. Nearly 70% of our customers that shop with us do so on a mobile device. That is higher than the industry average. Knowing that our customers are shopping and will shop with us on these devices, we are focused on optimizing experience and incorporating features such as visual and voice search and ease of navigation to support it. In this year, we will offer subscription ordering. In addition to convenience, allowing our customers sign up for recurring orders drive loyalty. This meets a customer expectation and differentiates TSC in the farm and ranch space. We will also be testing and learning with voice ordering. Think about a customer that is feeding her chick when she realizes she is running low on scratch grain.
She simply speaks out, "Hey, TSC, I need to order three bags of scratch grain for pickup." A nearby device confirms the order and lets her know when it will be available at her local store. We will continue to improve the online experience by introducing a simplified checkout process that allows customers to move from cart to checkout with just a couple of clicks. We will continue to ensure a seamless experience across all channels. For example, introducing the ability to support our tax-exempt customers online, offering the same financing offers online that we have in store, and continuing to make the knowledgeable advice found in our stores available online. These enhancements, along with the store improvements we shared today, are significant in the impact they will have on delivering an integrated and legendary customer service. The last area I'd like to cover is our supply chain initiative.
Ensuring we have the capacity in our supply chain to support the growth of our stores. The key is having products in stock when our customers need them. This is driven by new and existing TSC stores as same-store sales grow. We are working to improve and enhance the responsiveness of our supply chain network. We are supporting this initiative through process improvements and technology enhancements, including moving to a newer current warehouse management system release across our DCs. We are continuing to improve the ability to service our customers' delivery needs. We're expanding our ability to fulfill e-commerce orders in our existing distribution network, as well as enabling our new Frankfort, New York DC support e-commerce. This helps us to ensure that we can ship customers home in a timely and cost-effective manner.
We are also testing delivery options from our stores, providing for large or bulk items that our customers might not otherwise be able to transport. We will be testing buy online, deliver from store later in 2018. While we are adding capacity to support our growth, we are also making progress improving flow across our supply chain. For our imported goods, we have improved our ability to be more responsive with seasonal merchandise, drive additional flow through the DCs, and reduce store labor by landing more store-friendly pallets of seasonal and event merchandise. This new process allows us to move the initial store set quantities to our distribution center, and then hold back the replenishment unit at a third-party operating facility near the ports, one on the West Coast and another on the East Coast.
Domestically, we are working to improve lead times, taking days out of the process. By becoming more precise in how we plan, measure, and apply lead times to the replenishment cycle, we can greatly improve our efficiency and responsiveness. In addition to the inventory advantages, these capabilities also benefit our distribution centers by reducing the overall storage needs during high volume periods and increasing the amount of flow through our product. I've shared with you a lot information about how Tractor Supply is leveraging data to drive decision-making and a personalized customer experience, as well as showing you how we are investing in key areas to drive cost efficiency and scale to meet our customer expectations. We will drive an individualized experience by leveraging the data we are collecting through our Neighbor's Club program.
We will improve our stores to offer greater convenience for our customers and equip our team members for greater productivity and efficiency. We will continue to improve and simplify the customer experience across all channels to be fast, easy, and informative. We will invest in our supply chain network to improve efficiencies, reduce costs in our business, and be the dependable supplier that our customers have come to expect. Now that you've heard how we drive to our growth by improving our customer engagement, focusing on the right products, and ensuring we have the core capabilities our customers expect, I'd like to share a quick video that pulls it together. Last year, I introduced you to Kelly, a TSC customer who had a personalized experience when shopping for baby chicks at Tractor Supply.
We took you on her journey as she researched and shopped online for a chicken coop and how she interacted with TSC along the way. Since that time, we have made significant progress in implementing of these capabilities you saw: buy online, pickup in store, product information management, team member mobility, and in a few weeks, the introduction of subscription. Today, I'd like to introduce you to Kelly's dad, Charlie, as he interacts with Tractor Supply, an example of our continued customer experience evolution. You'll see a number of the feature capabilities that Greg, Steve, and I shared with you today and how they might apply to a typical Tractor Supply customer. After the video, Kurt Barton, our Chief Financial Officer, will come up.
Granddaddy, I'm so excited for the parade.
I'm kind of excited, too, sweet pea. I just wanted to get a few things to fix up the old tractor at Tractor Supply, we'll be ready for a parade.
Yay.
Dad, when's the next delivery of shavings from TSC supposed to be here? We are starting to run low.
They come every other Friday, in a day or two.
Great.
Hmm. Well, speaking of TSC. That is a very good idea. They're going to be here on Friday, we got some extras coming because of the weather.
Great.
Hey, Granddaddy, you almost done?
All Granddaddy's got to do is weld a piece onto the trailer, sweet pea, we just might make that parade after all. Ring TSC. Does my local store have that welder I was looking at in stock?
Hi, Charlie. Yes, it looks like the store has that item in stock.
That's the one with the built-in generator, right?
Yes. It has a gas generator providing 9,500 watts of power. Would you like to go ahead and place an order? It can be delivered to your home, or I can have it ready for you to pick up in the store.
No, I think I'm going to wait for right now.
Okay, Charlie. Your local store closes at 8:00 P.M. tonight and opens again at 8:00 A.M. tomorrow morning.
What do you think?
Yeah. Let's do it. Oh, and I also want to take advantage of the finance offer on that TSC credit card you told me about.
Great. Would you like to take this home with you or have it delivered?
I think I'd rather have it delivered. Annual thing weighs 100 pounds.
I can't blame you. Is there a two-hour window on Tuesday that works for you?
Eight to 10 o'clock would be great.
Granddaddy, these are the boots I need for the parade. I can wear them on the tractor.
Sweet pea, they look great, but it's a little bit too big for you, don't you think?
Don't worry. We can order these in your size on the Stockyard. Come on. Here they are. We can order them today and have them shipped to the store or your home in time for next week's parade.
Tell you what, let's have them shipped here, because I'm sure we've got to pick up a few extra things anyway.
Okay. I've added them to the cart along with your generator. I've got everything totaled for you here. That'll be the welder with the power plus, with those new boots, and it'll all be charged to your TSC credit card.
Oh, that's great. You've been a huge help, Daniel. Thanks a lot. What do you think? Looks pretty good, doesn't it? Are you ready for a parade?
Yes, I'm so excited.
I am too. Let's document the occasion, what do you say? Are you ready?
Well, good morning. I hope you found that video helpful to highlight how we're leveraging data to personalize the customer shopping experience at Tractor Supply. Now, before I get started, please let me say thank you to each one of you for coming to Nashville today. We are glad to have you here to share more about Tractor Supply and our ONETractor strategy. I'm very excited to talk to you about how everything you've heard this morning comes together to deliver shareholder returns over the long term. As Greg and Steve and Rob have shared with you today, we believe that our ONETractor strategy provides us with a platform for compelling growth. Driving profitable growth, as you heard from Greg, is all about our plans for comp store sales growth, new store opportunities, the integration expansion of Petsense, and our online growth.
Steve took you through our merchandising and marketing plans that support our strategic priorities to offer relevant products and services and build customer-centric engagement with our loyal and growing customer base. Rob shared with you the exciting work we're doing to evolve our customer's experience, increase our team members' productivity, and improve our supply chain capacity. These four goals of our ONETractor strategy serve as the foundation to support our long-term growth targets. Today, I will build off the ONETractor strategy to cover four topics. First, I will discuss our investments for growth outlook. Second, our operating leverage improvement. Third, I'll lay out our long-term targets through 2021. Finally, I'll wrap up with a discussion on our shareholder return principles. Let's start by taking a look at our investments to support our growth, keeping in mind these investments are a combination of both capital and expense.
Our new store growth investments are a strength of Tractor Supply, and we have a strong track record of performance in this area. With compelling returns, we continue to open highly successful Tractor Supply stores and believe that we have a strong runway for future growth. Our new stores continue to meet or exceed our pro formas. You heard from Greg about our disciplined and analytical process for site selection, and we continue to believe that we have potential for 2,500 Tractor Supply locations over time. This provides us with a long runway of growth as we look to open 80 to 100 new Tractor Supply locations annually. In order to support our store locations and enhance speed of delivery for direct-to-customer purchases, we continue to build our supply chain network.
This year, we anticipate the completion of our New York distribution facility, the addition of two mixing centers, and an East Coast import center. We would anticipate that for about every 300 new stores, we would have a new distribution facility to support this growth. Our online enhancements are balanced to leverage the strength of our physical store locations with our growing digital capabilities to provide a seamless shopping experience for our customers anytime, anywhere, in any way they choose. As we have shared with you, we continue to invest in our team members across the chain. We believe that our legendary service starts with our team members who are a differentiator in our model. For Petsense, 2018 will be a year of integration that we anticipate would allow us to accelerate growth in future years.
Across these investments, the team is working to balance our initiatives to drive improvement in both sales and operating profit. Over the last four years, we have invested nearly $900 million back into the business to support our growth strategy. Looking ahead, we anticipate averaging about $275 million per year for the next four years. This would be nearly $1.1 billion cumulatively that we believe will enhance our growth and returns over time. This does factor in the construction of a distribution center in the near term, which can make some of the spending choppy year to year. This infrastructure spending helps to drive efficiencies in our supply chain and ultimately reduce our costs. Our capital expenditures are balanced and disciplined across new and existing stores, information technology and supply chain. These investments work together to help drive our return on invested capital.
At the same time that we are focused on efficient deployment of capital expenditures, we are also committed to making improvements in our operating margin. We continue to believe that we have opportunities to improve our operating profit margin, all while balancing our cost structure with investments for growth. For 2018, we are faced with the macro pressures from rising freight prices and higher wage pressures, while also making investments for growth that we believe are right for the long-term health of the business. We are focused on controlling what we can control while rigorously examining the business to remove costs that can either be redeployed into the business, fund growth, or ultimately improve our operating performance and return on invested capital. I will speak to some of these opportunities in the next few slides.
Starting with gross margin, we still see opportunities for improvement or to help mitigate some of the macro headwinds with the goal to expand gross margin over time. We are purposeful in improving margins and have a consistent philosophy that focuses our merchandising, our forecasting and planning, and our pricing teams on the primary margin drivers and our goal to improve gross margin. An important foundation of our gross margin improvement is exclusive brands. Exclusive brands not only drive sales and customer loyalty, but grow margins as well. Exclusive brands often provide higher landed product margins compared to national brands. While we have made great progress, as you heard earlier from Steve, we believe we can continue to grow our portfolio of exclusive brands to support the needs of our customers. Over the years, we have improved our inventory management capabilities and will continue this effort.
One example is the import transload centers that Rob shared with you to improve our product flow for replenishment of seasonal merchandise. We use analytics throughout each season to determine percent sell-through based on our forecast, and we link that to vendor lead times to manage the inventory levels, thus capturing sales where demand is strongest and reducing markdowns and clearance risk. Strategic sourcing highlights our ability to be adaptable to market conditions to determine the right quality product at the best cost, whether from a domestic supplier or direct import. With respect to price management, our dedicated pricing teams continue to learn from and utilize our price optimization software to sharpen our prices with the goal of driving both market share where appropriate and margin where possible.
Just this year, we have expanded our price zones to be more nimble and provide greater flexibility across our wide range of locations. We continue to see potential areas where we can make improvements to our gross margin. Another very important area we are focused is capturing operational efficiencies. While we believe our organization runs a very cost-efficient business, one of our core values is accept change, embrace it, and even initiate change with the goal to do everything better, faster and cheaper. We're undertaking a comprehensive review across our business to help us gain efficiencies, streamline processes, and drive productivity. Our goal is to bend the trend on our recent operating margin performance. Let me share with you an example of how we are approaching the business as we look at current headwinds of higher transportation costs, given that we are such a freight-intensive business.
Headwinds include a driver shortage, the electronic logging device mandate, and a higher cost of diesel fuel, which is currently running over 30% increase since the end of 2016. We are focused on controlling what we can control. Actions within our control in this area, reducing stem miles, increasing inventory value per load, or how much we cube the truck, negotiating lower common carrier rates, and reducing the frequency of going outside the negotiated common carrier network to more spot market rates. This is just one example of an area we're addressing to help manage our costs by applying more science and rigor into the process. Building on our key drivers of growth and the investments to support that growth, we believe our operating plans deliver a clear path for the future. We are focused on driving top-line improvements and growing profit margin.
When you put it all together, we believe we have compelling opportunities to deliver earnings per share growth in the low double-digit range over time. Let's walk through each component. First, let's start with the top-line. Over time, we continue to target net sales to grow in the range of 7%-9%. This growth is fueled by our significant new store opportunities and our comp store growth, which includes our online sales contribution. Looking beyond 2018, comparable store sales are forecasted to grow in a range of 3% or higher over time. As the team has shared with you today, we believe we have a robust and actionable strategic goals that will all help to drive comp store sales growth through an ever-expanding assortment of relevant products and services, leveraging our physical store with our growing digital capabilities, increased personalization, and improved customer service.
As our ONETractor investments are beginning to take hold today, we anticipate these strategic goals will provide an even greater benefit in the future. Turning to operating margin improvements. While we are facing some macro headwinds in 2018, as we discussed, we believe that operating margin will stabilize this year, and our goal is to improve our operating margin in the future years. While never a straight line to the top, our goal is a 20- to 60-basis-point improvement in operating margin by 2021. This chart highlights the significant potential cash flow generation of our business over the next four years. We expect to generate significant levels of free cash flow, driven by our earnings growth. Our disciplined and balanced approach to capital allocation will continue as we look to invest back in our business.
In this scenario, we would have about a cumulative $2.1 billion over four years to enhance our return to shareholders through either incremental investments back in the business or payout to shareholders through the combination of share repurchases and dividends to enhance our returns. Our goal is to improve our high level of return on invested capital. We believe the combination of our disciplined capital spending and our ONETractor strategic plans will provide us with the opportunity to expand our return on invested capital over time. Looking out, our target is to achieve anywhere from a range of 120-180 basis points improvement in return on invested capital through the combination of improved sales and profitability and a disciplined approach to both working capital and our capital spending.
Our capital allocation strategy remains disciplined to improve our returns over time and consistently return cash to shareholders through the combination of consistent share repurchases and a competitive growing dividend. We have a strong balance sheet and efficient capital returns. Our commitment to enhancing shareholder returns will continue to be an important focus area for us. We plan to continue to generate cash for shareholder returns through return on invested capital, dividends, and share repurchase, as we discussed. We will continue to allocate our cash with these priorities in mind. We are investing in projects that help us grow our business with expected healthy long-term returns. We will either fund these types of projects or return the cash to our shareholders if that creates the best value. Our track record demonstrates our ability to do just that.
In closing, our ONETractor strategy provides us with a clear strategic direction and goals that support our future growth. We are making investments today that we expect will have a strong return in the future. We have aggressive plans in place to capture operational efficiency improvements that we anticipate can help us offset these external headwinds. We have a strong track record of returning cash to shareholders. We are focused on the long term. We are committed to returning value to our shareholders in the form of share repurchases and dividends with the available free cash flow. Based on our plans and how we see the landscape today, we believe we have the ability to achieve our top line, operating profit, and return on invested capital targets. I am really excited about the future of Tractor Supply and thrilled to be a part of it.
Thank you for your time this morning. Now I'll turn it back over to Greg to wrap it up.
We've had a lot to talk about this morning. I know many of you are probably very hungry. I know that you can probably see our enthusiasm for the business. We do believe we have significant opportunities to grow our share, our sales, and our profitability. We are uniquely positioned with the physical assets, the digital assets that we have, and using the ONETractor strategy anytime, anywhere, and any way for our customers. Let's take a break now. Let's have lunch. Then back into the room. Then we'll start with the Q&A. Okay? Thank you.
They make us who we are. They are farmers. They are husbands and wives. They are family, and they are friends. They get up early, and they come home late. They do whatever it takes to get the work done and get it done right. They are horse people and goat people. They know tractors.
Born to be wild. Back door lover always caught me 'neath the covers till her talkin' to your daddy say. Said, "You ain't seen nothin' till you're down on a muffin, then you sure do be a-changin' your ways." That Sheila lead, I was a real young weed, all the times I could reminisce. On the back fence a-lovin' with a sister and a cousin, only started with a little old kiss like this. See-saw swingin' with the boys from the school and your skirt flyin' up in the air. Singin', "Hey diddle diddle with your kitty in the middle" of the swing like I didn't care. School struck a big zen at the high school dance with a mister who was ready to play. Wasn't me she was foolin' 'cause she knew what she was doin' and the knowin' love I'm here to say. What she told you?
Watch us play. Watch us play. Watch us play. Watch us play. Watch us play. Watch us play. Watch us play. Watch us play. I just did it again. Like this. Schoolgirl queen in the classroom kinda classy, little skirt flyin' way up her knee. There were three young ladies in the school gym locker when I noticed they were lookin' at me. I was the high school loser, now a lady with a laser said the boy was gonna come up in a mess. My next-door neighbor with a daughter had a favor, so I gave her just a little old kiss like this.
I took a big chance at the high school dance with a mister who was ready to play. To me, she was foolin', but she knew what she was doin' when she taught me how to walk this way. She told me to walk this way, walk this way, walk this way, walk this way, walk this way, walk this way, walk this way, walk this way. Just like me, I can. Like this. If at last year's rockin' round the way, couldn't get much higher. Out your back, you take it day to day. Time to open fire. We don't mean lately. Life doesn't go in style. Just a rockin' round the way, better round the way we like. You tellin' us differently, tellin' us that changes in every day. Heaven doesn't matter. Faith was alone and who gave you that back?
Playing it play by play. Time to change the matter. We don't mean lately. Life doesn't go in style. Rocking around the way. Better around the way we like.
Okay. Yes, sir. Yes. Steve, I want to make sure Steve gets that. When it comes time, they'll run him a microphone. Let me see.
Okay. I'm just saying. That's fine. I don't have a problem with it.
Hey, Sam. Hi. Sam, is there an extra microphone I could have at the table over here on the right? Right over here. All right, everybody. Welcome back. Valair and Ellen have the microphones, so they'll be running with the mic. If I could ask you to please state your name and affiliation and keep it to one line of questioning so we have plenty of time to get to everyone. As you can tell from today's message, we would like to stay on strategic topics. It is not about the quarter for us. Joining me on stage, I've got the team up here. Let's see. Valair or Ellen, we'll take our first question right here. Go. We're shooting to be on the buses, I think, by 1:45, 1:50. So if anybody has any time constraints, please let us know.
Thanks. Peter Benedict at Baird. Greg, maybe talk a little bit about the private label credit card or credit initiative you alluded to in your remarks. What's changing there? What kind of opportunity? What have you seen in the past from that? Talk about maybe penetration and what you think it could do for you in 2018.
All right. I'll start. I'll pitch it to Kurt. He's done a lot of the work on this. We noticed that there's some opportunities out in the marketplace, particularly in the rural market with some other retailers' businesses declining, and those customers are going to go somewhere. We also noticed our penetration of our card, our private label card, was exceedingly low in comparison to others that we did some benchmarking against. Kurt mentioned we brought in an expert, spent some time with us, and we saw a tremendous opportunity, at least we believe so, over the next number of years, building a base of consumers who own our card, then using that card as a platform to give the customers the opportunity to stretch their dollars. You can buy that $5,000 lawnmower today using your TSC card, here's the financing plans.
We know our customers are conservative. We know that they probably will not let this thing extend beyond the payment of, let's say, if it's zero interest for 24 months. It's a way for them to feel comfortable to go ahead and make the purchase now instead of what I heard from many customers when I was in stores, "I don't have the money today. I'll come back in six or eight weeks." Kurt?
Yeah, I would just add to that we see an opportunity that we can leverage Tractor Supply size as other retailers have done with a private label credit card. There's a loyalty factor to it, the size of Tractor Supply gives us the ability to have that be a cost-effective type offering to our customers. With our size of customer, if we can grow that volume, we have the ability to give an offer to a customer and still be cost beneficial or cost effective to us. We're really excited about the opportunity to drive big-ticket sales as well as recurring transactions on the Tractor Supply credit card.
Yep.
Next question. Valair, we'll stay on your side of the room right there with me.
Oh, thank you. Hi, Peter Keith, Piper Jaffray. Just looking at the move to more e-commerce. I wanted to just balance the idea of giving more free shipping to your customers
With the hindrance of maybe less traffic. As you're now expanding your DC network, I think last year you said you had like 90% of your store base would have free two-day shipping. We're not seeing that quite yet. Wondering if that's going to be a big initiative for this year? Is that something that maybe you don't want to go free shipping for the whole site because you want to keep people coming to the store through BOPUS?
Okay, let me take that. This is Steve, for those on the call. What I can tell you is right now there's a lot of test and learn taking place. For example, in the pet categories, we have an offer $49 and above, we ship free. If it's categories like footwear and some apparel, we'll go ahead and ship that free. We have promotions in the fourth quarter that we will do some free shipping as well. What we look at it is, because our box is so unique and the model and the products that we carry are so unique, that it doesn't make sense to have one offer across the entire box itself. That's where we see the value with the buy online, pickup in store, and ship to store.
We can open the valve as we need to or turn it back depending upon the categories and the demand that we're seeing. It's not as though we're opening the valve completely and just letting it run us. I would go as far as to tell you that we're managing it and controlling it as we see fit based on the demand from our customers.
All right, Ellen, you want to take somebody from that side of the room?
Hi, it's Michael Lasser from UBS. My question is on some of the margin drivers. You laid out coherently how you expect your margin to expand over the next few years. How much will those factors be offset by a reinvestment in price across your different categories, and where do you think you still need to make price investments? Thank you.
Again, this is Steve. What I can tell you is this. You heard Kurt talk about the price zone flexibility that we've got. We recognize that we've got stores in 49 states. All markets are unique and different. We've got pricing tools that allow us to understand elasticity levels by store, whether or not we can go up or back based on margin rates and unit movement. We still see that we've got plenty of opportunity to dial both ways up and down based on what we're experiencing from our customers as we move those dials. It's an ongoing evolution and journey for us when it comes to pricing. We do believe that there's more opportunity on the retail selling price from where we're at today.
We just went through a complete zone recast. Steve, how many markets did that touch the entire country, but that was how many different zones?
As Kurt mentioned in his talk, we went from 15 to 25 different zones. That gives us an ability to be more nimble and also use our pricing tools and systems to better manage our overall margin selling rates.
All right, next question.
Yes. Brad Thomas with KeyBank. A question on the same-store sales guidance in terms of long-term outlook. The last few years, you all have guided to a two to three comp, including this upcoming year. You clearly explained a lot of initiatives that you have coming over the next few years, but what is it that gives you confidence in calling for that acceleration in comps over the years ahead here?
Yeah. I'll take that. I'll just say, this is Kurt. When you look at the history and certainly the most recent, we do see momentum that we've got. As you've seen from third quarter, fourth quarter, the traffic drivers are part of that momentum. The other key thing is everything we've been talking about, the ONETractor initiatives. These initiatives that have been in place that we've been investing in are beginning to take hold and driving some of the top line. The combination of the momentum that we've got, along with ONETractor investments, those initiatives are all playing into our outlook of 3%+.
Ellen, we'll go to your side of the room.
Yeah. Hi, Oliver Wintermantel from MoffettNathanson. Your long-term forecast calls for a 9% to 9.5% operating margin. Looking back a few years when it was 10.5%, what is fundamentally different today versus when you reached that all-time high and do you think you can ever get back to that?
Let me take that one. There's a couple of things you need to understand about the past. We had major tailwinds with inflation. We also had oil markets that were running very, very hot, which was driving a lot of sales in those markets well and above the average store comparables at that time. What we have seen is we saw a reversal a few years back where deflation became a real problem in several of the major categories. The oil markets literally just dried up. Now we're through all that. Now it's more balanced. Now we kind of understand. We're now dealing with, I think, a more normalized business to those oil markets. We're seeing a slight tick up in inflation, not much, but the way the model runs today is different than it was running then.
I think honestly, and I said this even back then, I said I don't know where the absolute long-term operating margin will be for the company. Some people were trying to target us up in the mid-teens. I said, I think that's impossible given our markup structure and the categories we're in. I think we're starting to understand now with some of the new costs that have come into the business, some of the requirements that we have to have for our customers. We're very comfortable with that in between 9-10 range, but I don't think we're going to be a company that's going to be a 10.5%-11% operating margin. To be competitive, to keep the business running and operating with some of the new costs that we're absorbing, I'm very comfortable between that 9 and 10 range.
All right.
Yes. Hi, Adam Zimmer, Deutsche Bank. Staying on the operating margin, as we look out three years, historically, the leverage threshold has been about 3%. How much is your operating margin growth dependent on the fact that you comp above 3%?
Yeah, Adam, good question. What I would tell you is that when you step back and look at our long-term targets, our investments today that we've been investing in on ONETractor, I think the important thing here is that our long-term algorithms and our model is that we'll be growing in the investments that we've got to grow the top line. It's important to know that it's a combination of both the levers of gross margin as well as the cost structure. Will we lever today in the near term, Adam, at 3%? We don't see leveraging at that point. The point of leverage today is higher than what we'd like.
In the long term, as we're able to drive the top line and the operational efficiencies, we believe that we can drive leverage that is all part of that operating margin improvement over the next four years.
Not to piggyback on it, Kurt mentioned earlier in his presentation the maniacal focus we're going to have on looking at operational efficiencies and working with a third party to really help us go in and root out how can we bring costs down in the overall company. That is a key component that we'll be starting on this year, and it'll be a multi-year phased in approach. Like any company, when you get to a certain size, it's time to step back and say, "Okay, are we operating as efficiently as we could? Are we looking at everything that we should and with the right set of lenses?" I'm very comfortable that that's going to also help us look at ways to mitigate expense and bring the operating margins back.
Valair or Ellen, let's come down front and let somebody down front ask a question, please.
Hi, Matt McClintock, Barclays. Steve, just on private label food, you had a very successful launch last year with Untamed. You're launching a new brand this year, Loyall Life. How much more room do you have to expand further brands and further sub-segments of that of private label food, specifically pet food? More importantly, where is that space coming from in your store that you're taking away to actually add all these new brands?
Matt, well, it's a good question. As I mentioned in my talk, we still see opportunities to grow exclusive brands in our pet area. I look back when we launched 4health, when we launched the original, we thought, "Man, this is great. Where do we go from here?" Then we went to grain-free, a whole another expansion. Then we went to wet, then we went to Untamed. I still believe there's more opportunities here. As customers embrace these brands because our team members are recommending them, which I can't explain the power of that inside of our store in these smaller communities. We continue to gain traction. I still believe there's more opportunity.
What we do every, I guess, it's twice a year, is we do a category management approach and look at all the brands within the four walls themselves, geographically, to determine which of those brands are performing at the levels they need to hold the shelf space. If we find there are some brands not performing like others, or that are going more mass than others, those are the brands typically that we find opportunities to continue to grow our share. I look back over my time with the organization, I remember brands that were really big at that point that are now very small within our stores or gone. I think all brands go through different peaks and valleys, and I would tell you the pet industry right now is experiencing that.
That's one of the real advantages that we have with our exclusive brand opportunities. We've got a lot of willing suppliers that are willing to step up, that are branded suppliers, that are willing to help us build out that portfolio.
All right. Valair, you want to take one down front on your side here?
Hi, Simeon Gutman, Morgan Stanley. It won't be about pet food, Greg. Two parts on margin. First, the margin's sub 9%. Curious if there was an internal debate about holding it where it is and not even growing it, what some of the puts and takes of that debate. The second question, philosophically, it sounds like there's a change in how you think about long-term margin. Older meetings, we sat here, you were revising them upward. Your business is seasonal, sometimes you've beaten on comp. Let's say you get to that margin target quicker, it sounds like you're not going to be revising it up further over time. You're just going to hold it within a range.
Yeah. Simeon, I would tell you that as we looked at the guidance range, we looked at it pretty rigorously as to what would be the guidance for 2018, what's our long-term outlook. I would tell you that, as I mentioned, 2018, as we look at our operating margin, is a year that we stabilize the operating margin. I would tell you that as we look at the long term, we're pretty excited about our opportunity in both the levers of gross margin and cost structure to see operating margins improve. Ultimately, we see in 4 years, overall operating margin growth 20 to 60 basis points.
Ellen, you want to take one on your side?
Thank you. (Sami Luksa), Goldman Sachs. Looking at your 2018 margin guidance, could you give us a sense as to what degree does the compression reflect one-time elements like wage pressure and logistics versus You know, long-term investments that you've sort of outlined during the presentation versus more short-term investments that probably will roll off after 2018. Thank you.
Yeah. Sure. It's a good question on the mix of the operating margin pressures for 2018. As we said on the fourth quarter call, there's probably about a mix about 50/50 of those pressures are coming from these short-term type costs, the freight transportation costs. Those can be cyclical. There's about 50/50% of the investments on transitory, and then others of them, some of that wage pressures as well as investments in the business are a bit more long term. That all plays into what we say. When we say we're stabilizing operating margin, we're now going to be able to leverage some of those costs and see the operating margins grow in the future.
All right. Valair, you want to take right there by you?
Liz Suzuki, Bank of America. Just a question on store growth. Your store growth target at last year's Analyst Day was 100 new Tractor Supply stores, 15%-20% annual Petsense store growth. That's now been brought down to 80-100 Tractor stores and 25-50 Petsense stores. Do you just think that there are better opportunities to invest in other areas of the business than store growth right now, or is there a fundamental difference in how you view store growth?
It's not a fundamental difference at all. I'm going to answer this question, I hope for the last time, okay? There's X amount of capital that we allocate every year. When I sit down with this team and we talk about where do we want to spend our money, what does it look like from a standpoint of today, next year, three years from now, where do we want to be? We said, "You know, some of these new ONETractor initiatives are really taking hold. They're starting to drive comps. We're starting to get more traffic in our stores. Why would we feather those out over a longer period instead of accelerating them now?" We see great benefit on that. I made that decision to push some of that capital back over and say, "Listen, we're going after some of these other investments." The store growth is there.
We just finished a very rigorous analysis of our store potential. The number actually runs higher than 2,500. We brought it back down to 2,500. We have multiple sites of opportunity out there, not only for Tractor, but also for Petsense. It's a one-year decision to slow a bit. We made the comment this morning, 80 to 100. We're comfortable with that range. We can tell you, we can open probably a little more than 100 stores with the backlog of stores that we've got into the system already. It is not about, there's not locations or there's not opportunity. There is tremendous opportunity out there. By the way, if you've been tracking the rest of the farm channel, the other guys are starting to grow again too.
Valair, you want to come back down front? There's a table down here.
Steve Forbes, Guggenheim. Maybe regarding the ONETractor layout, I think you showed on the screen there in the front of the store the expansion of sporting goods. Can you touch on why that category? Then also regarding the broader changes, space allocation and what else, how you plan on incorporating that into the existing store footprint?
Yeah. This is Steve. What I can tell you is that, I guess it was probably three or four years ago, we were always doing test and learn. We started out testing some sporting goods products, actually it was a Center Court event. We saw things that were working, we started to build on that like we do most things when it comes to merchandising. We found that we're getting a solid return on that sporting goods business. Now, we'll never be just a sporting goods store, right? We support a lifestyle. Whether it be things that we've added in terms of kayaks, we put ammunition into some of our stores, really more for rodent control. If you live the lifestyle, that's what you're using ammunition for in many cases, or for entertainment value. We're seeing value out of that aisle today.
We've already got it in a couple hundred stores. As we move forward with new stores, if this layout fits, we'll continue to expand that assortment going forward. Will that modify and adjust over time? You betcha. Absolutely it will. In terms of the layout itself, if you get a chance to go to the Tryon store this afternoon on the tour, you'll see that whole experience feels a little bit different. We did look category by category. We looked 4 foot by 4 foot, and we made some really good adjustments based on the analytics that we have. The two stores that we have the new layout in today, I will tell you the feedback both from customers and from team members has been very positive.
I'll look forward to hearing what you all have to say once you get through it and take that under advisement as well. Yeah.
Valair, can we come back down here front, please?
Really? Okay. Scott Mushkin over at Wolfe Research. I wanted to take the other side of that store growth question and talk about wallet share. I think you guys said 12 to 16 visits per year, which is actually pretty low for a retailer for your avid people. I want to talk about growing wallet share. I wanted to see if your card data is showing that there's almost a pro inside of Tractor that you can maybe go after a little harder. Also where you think you can drive sales per square foot and drive up your asset turns. Then to that, I saw you put ROIC, Kurt, in the Sorry.
Okay.
A lot of questions.
Let's just stop there.
Yeah.
That's already four questions. I mean.
We'll come back and get the rest of your questions, Scott.
Yeah.
We'll get them.
Yeah. Let's start with the first part about.
Wallet share was the first part.
Wallet share. 12 times a year-16 times a year is very frequent. You may not think so, but that's very frequent for our customer because they're going to buy X amount. Now if they're a feed customer, meaning horses, cattle, they're going to be in somewhat every week or every other week. This is on average. Anytime you aggregate averages, it looks a little too broad. We think that's a very healthy number. Second question was?
Wallet share and card data about a pro customer.
I would consider if we had a pro customer. It's the tax-exempt customer. They will claim because of their tax exemption that they farm or they live on the land, that's how they make their living. I will tell you that many people can claim that exemption because they have animals and property and so on. To say we have a pro customer, we don't have a customer that is a traditional, let's say, production farming customer that is buying the large quantities of feed and fertilizers and all that. We probably take care of their 15-20 acres that they live on themselves. That 1,000-acre wheat farm, that's not us. You've asked me this question before, we struggle with anything but tax-exempt to say if that's the pro customer. Steve, you may have another point of view on it, but
The only thing I would share is, I guess it's in May we cycle our Neighbor's Club program for a full year chain-wide. That really gives us an opportunity to do a lot more segmentation with the existing customers that we've got. That will give us a better insight and be able to share a little more directly with you. Unlike the home centers that have the construction business, our model is very unique, and we support more of a lifestyle than we do what you would consider to be that pro customer. That's how I would respond at this point.
Sounds good. Scott, your question was targets on ROIC and projects.
Maybe repeat the part about
ROIC.
Scott's question was on ROIC and compensation. Scott, I'd tell you that a significant part of ROIC, this management team is incentivized on driving those returns. On the capital side of it, there's targets internally that we are held accountable to, and we are rigorously going after our invested capital side of it. As Greg mentioned, we're going after operational efficiencies. Part of that is our focus on working capital and capital spend. We'll be certainly flexing and showing the leverage and size of Tractor Supply to improve the working capital and invested capital. I could tell you from a performance basis in what we're accountable to, what we look at, return on invested capital is a key part of it.
All right, Ellen, moving over to your side of the room.
Chuck Cerankosky with Northcoast Research. I think Steve, you mentioned the right sizing the stores. Can you talk about that a little bit more, how many you're looking at? Are you talking about increasing or decreasing the size of the entire store significantly or reallocating space between inside and outside backroom and sales floor?
What I would tell you is the box itself is under a different bit of scrutiny all the time. In the presentation I made earlier, I'll use the example where today animal products and apparel are next to one another. Over the last couple of years, we've actually expanded the animal products and reduced the size of apparel based on the local needs in the ROI investment in return that that would give us. On the other side of the store, for example, we have hardware next to seasonal. We do the exact same analysis. You've got 1,700 or so stores that are all basically being localized based on the opportunity we see to drive sales, profitability, and best use our inventory investment.
Now, over time, that will continue to be part of what we do day in, day out because we see the benefits of that. All the products we have are in planograms. They all have a home. All the products do. It's all through systems and technology. That gives us a leg up on a lot of the competition that aren't able necessarily to make those strategic science-driven changes. In terms of ONETractor, and I don't know if I answered it earlier, but I can tie it into this. Those stores themselves, as we move forward, you will take the learnings from those stores and be able to apply it back into the existing chain of stores because the store size is the same.
Last thing I would mention, we do have some larger stores that we don't fully maximize the entire selling floor because our selling floors are pretty standard. That'll give us an opportunity to add things like pet washes that we talked about earlier that are a service kind of value add to our customers. It'll also give us a chance maybe to add different categories of merchandise that our existing stores can't actually have because they don't have the space. We have several hundred stores that we'll be able to go in and optimize that opportunity as well. That's something that's always in the works.
All right, Alan, back here in the middle of the room.
Thank you. It's Alan Rifkin with BTIG. Greg, you said a little while ago that only two years ago when you were hitting a 10.5% EBIT, you were aided in part by inflation. Well, more than two and a half years ago. Go back.
I think you were at 10.45, I think at the end of-
Yeah, you said 10.5. We weren't 10.5. Just to be accurate.
Okay. Right. Is that to say that you don't think inflation will ever return to the category?
I think inflation will. I don't know that we'll get the same tailwinds that we once saw. There's some new costs that have come into all of our businesses in the retail level. Making things available to the customer in the multiple ways that Rob mentioned earlier, there's a cost to that. We're very fortunate. Our online business is growing, but it's growing in a very healthy way because our cost of fulfillment to the consumer is really at 70% of it being fulfilled at store. We have a very small cost today. Will that shift over time? We're not sure. We don't think there'll be a major shift for us because of the importance of the store. I do think that there'll be some inflation, but I don't know that it's going to be as much of a tailwind it was in the past.
Steve and I talk about this a lot with the teams. Could we find a way in certain markets based upon our pricing structures and the way we run our business to find ways to lift markets a bit with margin? We have experimented with some of that. Where we've been successful, we've made some additional lifts because let's face it, in some parts of the country, it costs more to do business. It really does. We're not priced the same in every market. That's an opportunity for us yet. We're not going to bank on that inflation's going to be there. We may have to create some of that on our own and through our size and scale and our pricing, I'll call it, complexities that we now have our hands around.
We think we may be able to find some longer term, but I think it's going to be a little more challenging to find it just in pure straight-up pricing, because we have to be competitive. We are very competitive in every market, and it's different. Pricing is just not the same across the country.
You said that 2018 will be another year of investment for Petsense.
Well, we're not going to talk about Petsense too particularly from an EBIT margin standpoint, although I will tell you it will run higher than what we're seeing at Tractor. We have integration to do. We have back house integration. Maybe Rob, you want to talk a little bit because you're actually the guy that's driving that.
Yeah. As Steve or Greg mentioned earlier, last year was all about learning as well as understanding core processes. Working with the Petsense team, we've identified a roadmap and where the benefits that we need to migrate their backend systems to drive efficiency as well as enable more selling tools within their stores or their e-commerce. We have a roadmap that's going to take us through 2018 that you'll start seeing them convert to more Tractor systems and processes and backend processes where it makes sense.
Thanks.
All right. Valair.
Hi. Tori Bertucci, JP Morgan. Can you talk about the cadence of the openings for Petsense, like the 25 to 50 long term, like how many per year?
We're not going to talk about how many per year at this point. Our target this next year is in the 25 to 30 range. I'll give you that. Depending on how quickly and how effectively we can pull off the integration which we plan to do, we could accelerate that to as much as 40 to 50 a year. That remains to be seen.
Yeah. Just a clarification on that. We're targeting about 20 in 2018. With this investment, as I mentioned in there, we see the opportunity as you build the base and put them on our platform and integrate them, it makes more sense. It's more responsible to then begin the acceleration versus the other order. We expect to be able to see beyond 2018, a more faster growth pace.
All right. Alan, you want to come down here towards the front, in this front table?
Hi. Brian Nagel from Oppenheimer. Two bigger, I think bigger picture questions. First on sales, we talked a lot about the forecast going forward, which you're telegraphing a potential uptick in comps from here. Let's just go back a second and I guess I want to hear, we had this period of sales weakness, I take it that the guidance you're laying out today is a way of saying, "Look, we're through that." If we could maybe post game a little more to say now with a fresh set of eyes, what happened during those quarters where sales lulled? The second question I have on tax, and again, we talked a lot about investment, there'll be a pretty big savings for Tractor Supply from lower tax rates. What are the plans with those savings?
As you look at that amount of savings, are there specific investment earmarks?
Kurt, why don't you take that first and I'll talk about the tax side.
I'll start with the tax. I would say, with our tax rate, as we mentioned, we've been moving down from 36.5% down to a 23%-23.5% tax rate as we expect for 2018. As I mentioned on the call a few weeks ago, we anticipate for 2018 that we're taking about a third of that, Brian, into the business. We're investing that either into incremental capital spend, and you see where we highlighted some of the increase in capital, not only in distribution, but some of the ONETractor initiatives, but also in areas like wages. We're on the OPEX side investing additional in our team member wages. I would say that those are somewhat, especially on the wages, more of a permanent on the spend side.
We believe a majority of the tax tailwind will be returned to shareholders through additional share repurchase and operating cash flow.
All right. On the sales side, you had two major factors. You had deflation driving prices down, which directly affects comps. We had the issue with a heavy penetration at the time of stores in Texas, Oklahoma into the Dakotas. Both of those issues are behind us, and that's what gives us a lot more confidence. That's stabilized, by the way. We feel very much that Texas has stabilized to that, and that the oil companies are a little smarter this time around, maybe, as they build back and open wells and such. Those are behind us.
On that point, with weather, if I remember back at that time, weather was also a factor. We had two seems like a little more normal.
Weather is always going to play a role in any retailer's business. I don't know of one that can say it doesn't. Okay. Whether it's hurricanes, whether it's too warm, too wet, too cold, too whatever. You have to navigate around that. I would not use weather, although weather will have a play on where the business develops and how it develops early, late, what have you. We typically can manage our way through that. It's some of the other things that come into play that are more macro, that have a bigger effect. We've done, I think, a fine job of managing through those cycles, which could be very challenging, but those are behind us now, Brian. Yeah.
All right, Alan, you want to come back over here to the front?
John Lawrence with Coker & Palmer. Rob, would you talk a little bit about the development of these technologies, where you are on that path, and just a little bit of the investment, and what are the major step changes for voice subscription and some of that on the back end?
Yeah. Think about the technology in three buckets. First thing from a customer facing core selling, it's really leveraging, as I referenced earlier, around Neighbor's Club and that data and how we leverage that data to offer product recommendations, continue to ensure that the team members have tools that could interact with the customer more efficiently and also continue to just build upon that engagement while they're in the store. We're pretty far down this journey. As you've heard over the last year, Neighbor's Club has grown significantly. We're bringing now tools and building on analytics and becoming more power. When you look at that video, that's real. It's things that we're working on. We have those capabilities. It's foundational. Some is futuristic, but we're definitely on that path. I feel really good about where we're at around customer and the core selling systems.
When you think about productivity, we've made a lot of progress with mobile and team member efficiency in the store and the things that I've referenced with supply chain. How our flow of goods, driving more efficiency there, as well as team members saving anywhere from steps in the store, just to making it more efficient and convenient for that customer and that interaction. You'll see us continue to invest there with task management later this year, going into next year, our workforce management solutions. You'll see us continue to drive a level of efficiency there. Then third, it's really there's foundational capabilities, and that's just keeping up with other retailers, the market, the changes that are occurring. We've made a significant progress over the last three years. I referenced the Kelly video at the beginning.
When you look at those subset of capabilities, we've delivered majority of them, subscription being one that we're just weeks away. Leveraging such a strong culture of test and learn at Tractor, which you don't see in a lot of organizations, really has offered us the ability to grow into this. Understand the customer experience, making sure that we're thinking smarter on those technology investments. We feel good about the results that we're seeing. That's why we're moving forward with them.
All right.
This is a bit of a two-part question. It kind of follows up the investment. In terms of your omnichannel and e-commerce initiatives, who would be the one to three most important partners there? Would you describe them as technology leaders or best near-term ROI? The follow-up question for me would just be, excuse me. Of course, it slips my mind. I'll just leave it at that.
How we look at it is a couple of areas. One is there's just core capabilities that we have to have within our omnichannel business just to stay competitive and on par. There's also other advancements that we're making, like buy online, pickup in store, that's really offered us a differentiator, but plays well into that customer and what they have told us of how they want to interact with Tractor. Expanding our assortment online is going to be another key part of this. Less probably technology, because now we have the foundation in place where we could onboard items. A year ago, it would take us seven to 12 weeks to have an item on the website. Today, we're now within minutes to hours, and then we're improving that. The core foundation there.
Lastly, it's now leveraging those analytics, and that will come with partnership as well as internal skills and evolve our thinking there and just make it more powerful.
Of course, I remembered the second part. I think there was a comment earlier that you had brought a lot of your analytics back in-house. I think Walmart did something similarly there. Just trying to figure out why did that not work in a cloud environment, outsourced environment for you? What was the real impediment there?
Yeah. We did bring the customer data in-house. There's two primary reasons. One is we wanted more control over that data and visibility to that customer real time. In addition, we also wanted to make sure it was very secure. That is too precious of an asset for us, and we needed to make sure that we were putting all the controls and processes in place. With that being said, we are definitely leveraging cloud technologies. When you think about analytics, machine learning, artificial intelligence, some of those big kind of fancy words that are used up on the screen, that's where cloud technology comes in play.
We have now the ability to go out to the cloud and take millions and millions of records and attributions of that customer in real time to generate customer recommendations or offers or email them or text them specific content that's related to their needs. It's a hybrid solution. We're looking at the in-house to make sure that the data's secure, it's cost effective, we have complete control, but we're also leveraging the cloud technologies allow us flexibility with our cost structure, our partners, as well as to be able to move faster.
Next question. Let's see. Alan, we'll move over there on your side.
Hi. Thanks. Joe Feldman, Telsey Advisory Group. I want to go back to the BOPIS for a minute. What is it about BOPIS that your customer likes? I think there's this perception that you have this rural customer that would prefer to have things delivered. Can you explain what that is, why they go to the store? Is there a commonality among the products that they're picking up versus delivering?
Yeah, I'll go ahead and start with that. This is Steve. I don't think it's much of a surprise to me. A lot of what you heard us talk about in our presentation had to do with the connection that our customer has with people in that store. They're constantly coming, what they call either into town, across town, uptown, or downtown, depending upon which customer you talk to. Whenever they go into town, they typically do a kind of a milk cart run about all the different chores and things that they're gonna do while they're there. In some cases, for example, my grandmother used to pick up her mail there at the central portion of downtown because she didn't have a mailbox.
It's interesting that a lot of the folks that live life out here like to come in for that social aspect of things as well. Giving them the option is what we think is of the greatest value. Many of the things that they're picking up, they like the convenience of our team members picking that merchandise, staging it for them, and then when they get there, interacting with them, but having that convenient opportunity to pick it up and get out as well. There's a lot of different reasons I think that they use that. Most of what we find they use it for are some of the agricultural things that we have in our stores, which I find very interesting as well. That's probably the one common thread that I see on the items that are being picked up in store.
All right. Let's see. We've got time for maybe one more question. Let's see, who hasn't had a chance to go at all? Is there somebody here? Right over here. Thank you.
Thanks. Seth Basham with Wedbush. Steve, can you address the evolution with some premium brands such as Husqvarna? It's great to see that back in your store. Do you think that relationship could be expanded even without offering repair services, for example?
Yeah. First off, while we talk a lot about exclusive brands, our customers value strong national brands as well, and it is important that we have strong national brands to anchor those exclusive brands. The relationship with Husqvarna that we have is really growing, and over time as it grows, I would anticipate that our expansion of their brand might have a likelihood of growing in our stores. You've got brands such as Bad Boy Mowers, which are really important to our customers. They're commercial-oriented. You're not gonna find them just anywhere. We have, I would tell you, our merchant team is always looking to find those brands that are relevant to our lifestyle that you can't just find anywhere. I'll use the example of the Purina Checkerboard. A lot of farm and fleet channel, they don't have access to that brand. Tractor Supply does.
It's one more reason to bring people into Tractor Supply Company. The last thing I would leave you with on this topic is working with the branded suppliers to come up with exclusives that are solely for farm and ranch, and more importantly, just to Tractor Supply because of our store base and distribution. Our merchant teams are working with the big brands out there today that have only found at type of POP and signage. We will continue to grow our national brands, but do it in a way that's smart and that continues to differentiate us where possible.
Okay. That's going to conclude our webcast and our Q&A session. Thank you all for your time and attention.