TRACTOR SUPPLY CO /DE/ (TSCO)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended December 28, 2024 (our fiscal years 2024 and 2023). For a comparison of our results of operations for fiscal year December 30, 2023 and December 31, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 23, 2024. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements and information. See “Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this report.

Tractor Supply reports its financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Tractor Supply also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, Tractor Supply’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S. GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations.

Overview

Founded in 1938, Tractor Supply Company (the “Company” or “Tractor Supply” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle). As of December 28, 2024, we operated 2,502 retail stores in 49 states under the names Tractor Supply Company and Petsense by Tractor Supply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. We also operate websites under the names TractorSupply.com and Petsense.com, as well as a Tractor Supply Company mobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise:

•Livestock, Equine & Agriculture: livestock and equine feed & equipment, poultry, fencing, and sprayers & chemicals;

•Companion Animal: food, treats and equipment for dogs, cats, and other small animals as well as dog wellness;

•Seasonal & Recreation: tractor & rider, lawn & garden, bird feeding, power equipment, and other recreational products;

•Truck, Tool, & Hardware: truck accessories, trailers, generators, lubricants, batteries, and hardware and tools; and

•Clothing, Gift, & Décor: clothing, footwear, toys, snacks, and decorative merchandise.

Tractor Supply Company believes we can grow our business by being a more integral part of our customers’ lives as the dependable supplier of “Out Here” lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) expand and deepen our customer base by providing personal, localized, and memorable customer engagements by leveraging content, social media, and digital shopping experiences, attracting new customers and driving loyalty, (2) evolve customer experiences by digitizing our business processes and furthering our digital capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to grow our total addressable market by introducing new products and services through our test and learn strategy, (4) drive operational excellence and productivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities to support growth, scale and agility, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.

Achieving this strategy will require a foundational focus on: (1) connecting, empowering and growing our team to enhance their lives and the communities we call home, enabling them to provide legendary service to our customers, and (2) allocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions.

Over the past five years, we have experienced considerable growth in stores, growing from 2,024 stores (1,844 Tractor Supply retail stores and 180 Petsense by Tractor Supply retail stores) at the end of fiscal 2019 to 2,502 stores (2,296 Tractor Supply retail stores and 206 Petsense by Tractor Supply retail stores) at the end of fiscal 2024, and in net sales, with a compounded annual growth rate of approximately 12.2%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store

Table of Contents

sites, and we believe we have significant additional opportunities for new Tractor Supply stores. We also believe that there is opportunity for continued growth for Petsense by Tractor Supply stores.

Stock Split

On December 5, 2024, the Company’s Board of Directors authorized a five-for-one forward split (the “Stock Split”) of the Company’s outstanding shares of common stock, par value $0.008 per share. On December 20, 2024, stockholders of record at the close of business on December 16, 2024, received four additional shares of common stock for each share owned by such stockholder. The Certificate of Amendment to the Company’s Restated Certificate of Incorporation filed on December 19, 2024 effected the Stock Split and also proportionately increased the number of authorized common shares from 400.0 million to 2.00 billion. The par value of each share was not changed. All share and per-share information in this Annual Report on Form 10-K has been retroactively restated to reflect the Stock Split.

Executive Summary

In fiscal 2024, we opened 80 new Tractor Supply stores in 34 states and 11 new Petsense by Tractor Supply stores in seven states. In fiscal 2023, we opened 70 new Tractor Supply stores in 28 states and 13 new Petsense by Tractor Supply stores in nine states. This resulted in a selling square footage increase of approximately 2% in fiscal 2024 and 3% in fiscal 2023.

Net sales increased 2.2% to $14.88 billion in fiscal 2024 from $14.56 billion in fiscal 2023. Comparable store sales increased 0.2% in fiscal 2024 compared to a flat growth rate in fiscal 2023. Gross profit increased 3.2% to $5.40 billion in fiscal 2024 from $5.23 billion in fiscal 2023, and gross margin increased 34 basis points to 36.3% of net sales in fiscal 2024 from 35.9% of net sales in fiscal 2023. Operating income decreased 30 basis points to 9.9% of net sales in fiscal 2024 from 10.2% of net sales in fiscal 2023. For fiscal 2024, net income was $1.10 billion, or $2.04 per diluted share, compared to $1.11 billion, or $2.02 per diluted share, in fiscal 2023.

We ended fiscal 2024 with $251.5 million in cash and cash equivalents and outstanding long-term debt of $1.83 billion, after returning $1.03 billion to our stockholders through stock repurchases and quarterly cash dividends.

Performance Metrics

Comparable Store Metrics

Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations. An Orscheln store will be considered a comparable store one year after its point-of-sale system conversion. Comparable store sales are intended only as supplemental information and are not a substitute for net sales presented in accordance with U.S. GAAP.

Transaction Count and Transaction Value

Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.

Critical Accounting Estimates

Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements.  The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

Table of Contents

Merchandise Inventory:

We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.

We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months.

We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and merchandising strategies.

We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of December 28, 2024, would have affected net income by approximately $2.5 million in fiscal 2024. A 10% change in our shrinkage reserve as of December 28, 2024, would have affected net income by approximately $4.7 million in fiscal 2024.

Self-Insurance Reserves:

We self-insure a significant portion of our workers’ compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors.

The full extent of certain workers’ compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.

We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of December 28, 2024, would have affected net income by approximately $11.4 million in fiscal 2024.

Impairment of Long-Lived Assets:

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related

Table of Contents

asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

There were no significant long-lived assets impairment charges recognized in fiscal 2024.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information and selecting the discount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.

There were no goodwill or other indefinite-lived intangible assets impairment charges recognized in fiscal 2024.

Table of Contents

Results of Operations

The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.

(a) Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in Selling, general, and administrative expenses; refer to Note 1 – Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2024 Compared to Fiscal 2023

Net sales increased 2.2% to $14.88 billion in fiscal 2024 from $14.56 billion in fiscal 2023. Comparable store sales increased 0.2% from the prior year and represented $14.44 billion in sales. The comparable store average transaction value decreased 0.6% and comparable store average transaction count increased 0.8% for fiscal 2024, as compared to an increase of 0.4% and decrease of 0.4% in fiscal 2023, respectively. Comparable store sales performance reflects merchandise category performance within a relatively tight band, with strength in Seasonal categories and big ticket merchandise. The growth of C.U.E. products was in line with the chain average as positive unit growth was offset by average unit price pressure, principally due to commodity price deflation.

Sales from stores opened less than one year were $426.2 million in fiscal 2024, which contributed a net 2.1 percentage points of the 2.2% increase over fiscal 2023 net sales. Sales from stores opened less than one year and stores from the Orscheln acquisition were $652.8 million in fiscal 2023, which represented 4.1 percentage points of the 2.5% increase over fiscal 2022 net sales.

The following table summarizes our store growth during fiscal 2024 and 2023:

Table of Contents

The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2024 and 2023:

Gross profit increased 3.2% to $5.40 billion in fiscal 2024 compared to $5.23 billion in fiscal 2023. As a percent of net sales, gross margin increased 34 basis points to 36.3% for fiscal 2024 compared to 35.9% for fiscal 2023. The gross margin rate increase was primarily attributable to lower transportation costs along with disciplined product cost management and the continued execution of an everyday low price strategy. This was partially offset by unfavorable product mix, primarily from growth in big ticket categories, which have below chain-average margins.

Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 4.8% to $3.93 billion in fiscal 2024 from $3.75 billion in fiscal 2023. As a percent of net sales, SG&A expenses increased 63 basis points to 26.4% from 25.8%. The increase in SG&A as a percentage of net sales was primarily attributable to the Company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as modest deleverage of the Company’s fixed costs given the level of comparable store sales growth.

Our effective income tax rate decreased to 22.1% for fiscal 2024 compared to 22.7% in fiscal 2023. The primary drivers for the decrease in the Company's effective income tax rate year over year were a decrease in state income taxes and an increase in federal credits, partially offset by a reduction in the benefit from overall annual stock compensation activity.

Net income in fiscal 2024 was $1.10 billion, or $2.04 per diluted share, compared to $1.11 billion, or $2.02 per diluted share, in fiscal 2023.

During fiscal 2024, we repurchased approximately 10.6 million shares of the Company’s common stock at a total cost of $566.4 million, including the 1% excise tax, as part of our share repurchase program.  In fiscal 2023, we repurchased approximately 13.7 million shares at a total cost of $602.9 million.

Fiscal 2023 Compared to Fiscal 2022

For a comparison of our performance and financial metrics for the fiscal years ended December 30, 2023 and December 31, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 23, 2024 (“2023 10-K”).

Liquidity and Capital Resources

In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.

Table of Contents

Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.

We plan to continue to leverage our sale-leaseback program on both existing owned stores and future new store openings in order to help fund our planned owned store development over the next several years.

We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, normal trade credit, and access to the long-term debt capital markets will be sufficient to fund our operations and our capital expenditure needs, including new store openings, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, and information technology improvements, for the next 12 months and the foreseeable future.

Debt

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):

We manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 28, 2024, and the date of this filing, February 20, 2025, the Company's senior unsecured debt is rated “Baa1,” by Moody’s Investor Services with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook. These ratings have been obtained with the understanding that Moody’s Investors Services and Standard & Poor’s will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or improve our current credit ratings.

On May 5, 2023, the Company completed the sale of $750 million aggregate principal amount of its 5.25% Senior Notes. The

entire principal amount of the 5.25% Senior Notes is due in full on May 15, 2033. Interest is payable semi-annually in arrears

on each May 15 and November 15. The terms of the 5.25% Senior Notes are governed by the Base Indenture (as defined below), as amended and supplemented by the Second Supplemental Indenture (as defined below) between the Company and Regions Bank, as trustee.

For additional information about the Company’s debt and credit facilities, refer to Note 4 to the Consolidated Financial Statements.

Table of Contents

Operating Activities

Operating activities provided cash of $1.42 billion and $1.33 billion in fiscal 2024 and 2023, respectively. The $86.8 million increase in net cash provided by operating activities in fiscal 2024 compared to fiscal 2023 was due to changes in the following (in millions):

The $86.8 million increase in net cash provided by operating activities is primarily driven by both increased accounts payable and timing of accruals and related payments.

Investing Activities

Investing activities used cash of $643.9 million and $653.1 million in fiscal 2024 and 2023, respectively.  The $9.2 million decrease in net cash used in investing activities, including capital expenditures, in fiscal 2024 compared to fiscal 2023 was due to changes in the following (in millions):

Capital expenditures for distribution center capacity and improvements in fiscal 2024 and fiscal 2023 are primarily related to the construction of Maumelle, Arkansas. The Maumelle, Arkansas distribution center began operations in the second quarter of fiscal 2024 and expanded our distribution capacity by approximately 1.2 million square feet.

The increase in capital expenditures for new stores, relocated stores, and stores not yet opened is primarily attributable to increased capital outlay associated with our owned store development program. Spending also reflects an investment in 80 new Tractor Supply stores, 11 new Petsense by Tractor Supply stores, and five store relocations during fiscal 2024. In fiscal 2023, we opened 70 new Tractor Supply stores and 13 new Petsense by Tractor Supply stores and had eight store relocations.

Table of Contents

Capital expenditures for information technology reflect continued support of our store growth and our Digital initiatives, as well as improvements in security and compliance and other strategic initiatives.

Capital expenditures for existing stores in fiscal 2024 and fiscal 2023 primarily reflect our strategic initiatives related to store remodels, including internal space productivity and side lot garden center transformations. Spending in both fiscal 2024 and fiscal 2023 also includes routine maintenance activity. Spending in fiscal 2023 also included Orscheln store conversions.

Capital expenditures for corporate and other are primarily attributable to spending on space productivity projects and building modifications at the Store Support Center.

In fiscal 2024, we sold and subsequently leased back 20 of our retail locations, including 15 existing stores and 5 new stores, resulting in proceeds of $130.8 million.

Our projected capital expenditures, net of sale leaseback proceeds, for fiscal 2025 are currently estimated to be in a range of approximately $650.0 million to $725.0 million. The capital expenditures include a plan to open approximately 90 Tractor Supply stores, continuing Project Fusion remodels and side lot garden center transformations, and opening approximately 10 new Petsense by Tractor Supply stores.

Financing Activities

Financing activities used cash of $922.5 million and $486.4 million in fiscal 2024 and 2023, respectively. The $436.1 million increase in net cash used in financing activities in fiscal 2024, compared to fiscal 2023, was due to changes in the following (in millions):

The increase in net cash used in financing activities in fiscal 2024 compared to fiscal 2023 is primarily due to the decrease in net borrowings under the debt facilities and an increase in cash dividends paid to shareholders, partially offset by a decrease in the repurchase of common stock.

Repurchase of Common Stock

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.

We repurchased approximately 10.6 million and 13.7 million shares of common stock under the share repurchase program and paid cash totaling $560.6 million and $594.4 million in fiscal 2024 and 2023, respectively.  Our projected share repurchases for fiscal 2025 are currently estimated to be in a range of approximately $525 million to $600 million.

Table of Contents

On February 12, 2025 the Company’s Board of Directors authorized a $1.00 billion increase to the existing share repurchase program, bringing the total amount authorized to date under the program to $7.50 billion.

Cash Dividends Paid to Stockholders

We paid cash dividends totaling $472.5 million and $449.6 million in fiscal 2024 and 2023, respectively. In fiscal 2024, we declared and paid cash dividends to stockholders of $0.88 per common share outstanding as compared to $0.82 per common share outstanding in fiscal 2023. These payments reflect an increase in the quarterly dividend in all four quarters of fiscal 2024 to $0.22 per share from $0.21 per share in all four quarters of fiscal 2023.

On February 12, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per share of the Company’s outstanding common stock.  The dividend will be paid on March 11, 2025, to stockholders of record as of the close of business on February 26, 2025.

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors which the Company’s Board of Directors deem relevant.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued pronouncements not yet adopted as of December 28, 2024.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended December 30, 2023 (our fiscal years 2023 and 2022). For a comparison of our results of operations for fiscal year December 31, 2022 and December 25, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements and information. See “Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this report.

Tractor Supply reports its financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Tractor Supply also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, Tractor Supply’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S. GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations.

Overview

Founded in 1938, Tractor Supply Company (the “Company” or “Tractor Supply” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle). As of December 30, 2023, we operated 2,414 retail stores in 49 states under the names Tractor Supply Company and Petsense by Tractor Supply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. We also operate websites under the names TractorSupply.com and Petsense.com, as well as a Tractor Supply Company mobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise:

•Livestock, Equine & Agriculture: livestock and equine feed & equipment, poultry, fencing, and sprayers & chemicals;

•Companion Animal: food, treats and equipment for dogs, cats, and other small animals as well as dog wellness;

•Seasonal & Recreation: tractor & rider, lawn & garden, bird feeding, power equipment, and other recreational products;

•Truck, Tool, & Hardware: truck accessories, trailers, generators, lubricants, batteries, and hardware and tools; and

•Clothing, Gift, & Décor: clothing, footwear, toys, snacks, and decorative merchandise.

Tractor Supply Company believes we can grow our business by being a more integral part of our customers’ lives as the dependable supplier of “Out Here” lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) expand and deepen our customer base by providing personal, localized, and memorable customer engagements by leveraging content, social media, and digital shopping experiences, attracting new customers and driving loyalty, (2) evolve customer experiences by digitizing our business processes and furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to grow our total addressable market by introducing new products and services through our test and learn strategy, (4) drive operational excellence and productivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities to support growth, scale and agility, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.

Achieving this strategy will require a foundational focus on: (1) connecting, empowering and growing our team to enhance their lives and the communities they live in, enabling them to provide legendary service to our customers, and (2) allocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions.

Over the past five years, we have experienced considerable growth in stores, growing from 1,940 stores at the end of fiscal 2018 to 2,414 stores (2,216 Tractor Supply retail stores and 198 Petsense by Tractor Supply retail stores) at the end of fiscal 2023, and in net sales, with a compounded annual growth rate of approximately 13.0%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store sites, and we believe we have significant additional opportunities for new Tractor Supply stores. We also believe that there is opportunity for continued growth for Petsense by Tractor Supply stores.

Table of Contents

Executive Summary

In fiscal 2023, we opened 70 new Tractor Supply stores in 28 states and 13 new Petsense by Tractor Supply stores in nine states. In fiscal 2022, we opened 63 new Tractor Supply stores in 25 states and nine new Petsense by Tractor Supply stores in seven states. We also acquired 81 Orscheln Farm and Home stores in eight states, which were all rebranded as Tractor Supply stores as of the end of fiscal 2023. This resulted in a selling square footage increase of approximately 3% in fiscal 2023 and 11% in fiscal 2022.

Net sales increased 2.5% to $14.56 billion in fiscal 2023 from $14.20 billion in fiscal 2022. The prior year’s fourth quarter included an extra sales week as part of the Company’s 53-week calendar in 2022, which negatively impacted the overall sales increase by approximately 1.6 percentage points. Comparable store sales were even in fiscal 2023 versus a 6.3% increase in fiscal 2022. Gross profit increased 5.1% to $5.23 billion in fiscal 2023 from $4.97 billion in fiscal 2022, and gross margin increased 92 basis points to 35.9% of net sales in fiscal 2023 from 35.0% of net sales in fiscal 2022. Operating income increased 6 basis points to 10.2% of net sales in fiscal 2023 from 10.1% of net sales in fiscal 2022. For fiscal 2023, net income was $1.11 billion, or $10.09 per diluted share, compared to $1.09 billion, or $9.71 per diluted share, in fiscal 2022.

We ended fiscal 2023 with $397.1 million in cash and cash equivalents and outstanding long-term debt of $1.73 billion, after returning $1.05 billion to our stockholders through stock repurchases and quarterly cash dividends.

Performance Metrics

Comparable Store Metrics

Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations. An Orscheln store will be considered a comparable store one year after its point-of-sale system conversion. Fiscal 2023 includes 52 weeks and fiscal 2022 includes 53 weeks. For our calculation of comparable store sales in fiscal 2023, we compare weeks 1 through 52 in fiscal 2023 against weeks 2 through 53 in fiscal 2022. Comparable store sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with U.S. GAAP.

Transaction Count and Transaction Value

Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.

Significant Accounting Policies and Estimates

Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements.  The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

Table of Contents

Merchandise Inventory:

We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.

We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months.

We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and merchandising strategies.

We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of December 30, 2023, would have affected net income by approximately $2.7 million in fiscal 2023. A 10% change in our shrinkage reserve as of December 30, 2023, would have affected net income by approximately $4.9 million in fiscal 2023.

In addition, we receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”). The amounts received are subject to terms of vendor agreements, most of which are “evergreen”, reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product. Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold. During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors.

We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented. At the end of each fiscal year, a significant portion of the actual purchase activity is known. Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding. We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2023. If a 10% reserve had been applied against our outstanding vendor funding due as of December 30, 2023, net income would have been affected by approximately $3.5 million in fiscal 2023. Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.

For vendor funding, we estimate the purchase volume (and related vendor funding) based on our current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations. Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts. Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability.

Table of Contents

Self-Insurance Reserves:

We self-insure a significant portion of our workers’ compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors.

The full extent of certain workers’ compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.

We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of December 30, 2023, would have affected net income by approximately $10.7 million in fiscal 2023.

Impairment of Long-Lived Assets:

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

There were no significant long-lived assets impairment charges recognized in fiscal 2023.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

Table of Contents

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information and selecting the discount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.

There were no goodwill or other indefinite-lived intangible assets impairment charges recognized in fiscal 2023.

Results of Operations

The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.

(a) Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in Selling, general, and administrative expenses; refer to Note 1 – Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2023 Compared to Fiscal 2022

Net sales increased 2.5% to $14.56 billion in fiscal 2023 from $14.20 billion in fiscal 2022. The prior year included an extra sales week as part of the Company’s 53-week calendar in 2022, which negatively impacted the overall sales increase by approximately 1.6 percentage points. Comparable store sales were even with prior year and represented $13.89 billion in sales. Comparable store sales in 2022 increased by 6.3% from 2021. The comparable store average transaction value increased 0.4% and comparable store average transaction count decreased 0.4% for fiscal 2023, as compared to an increase of 6.9% and decrease of 0.6% in fiscal 2022, respectively. Comparable store sales performance reflects continued strength in core year-round merchandise, including consumable, usable and edible (“C.U.E.”) products which significantly outpaced the chain average. This performance largely offset declines in demand for seasonal goods and big-ticket items.

Table of Contents

Sales from stores opened less than one year and stores from the Orscheln acquisition were $652.8 million in fiscal 2023, which contributed a net 4.1 percentage points of the 2.5% increase over fiscal 2022 net sales. Sales from stores opened less than one year, including $80.0 million related to the acquisition of Orscheln Farm and Home, were $396.2 million in fiscal 2022, which represented 3.1 percentage points of the 11.6% increase over fiscal 2021 net sales.

The following table summarizes our store growth during fiscal 2023 and 2022:

The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2023 and 2022:

Gross profit increased 5.1% to $5.23 billion in fiscal 2023 compared to $4.97 billion in fiscal 2022.  As a percent of net sales, gross margin increased 92 basis points to 35.9% for fiscal 2023 compared to 35.0% for fiscal 2022. Gross margin continued to benefit from the Company’s ongoing execution of an everyday low price strategy, complemented by the use of its Neighbor’s Club loyalty program. The gross margin rate increase was attributable to ongoing lower transportation costs and disciplined product cost management, modestly offset by negative product mix.

Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 6.0% to $3.75 billion in fiscal 2023 from $3.54 billion in fiscal 2022. As a percent of net sales, SG&A expenses increased 86 basis points to 25.8% from 24.9%. The increase in SG&A as a percentage of net sales was primarily attributable to the Company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as higher medical claims and fixed cost deleverage. During fiscal 2023, the Company completed its strategically planned sale-leaseback of 15 Tractor Supply store locations, benefiting SG&A by approximately 25 basis points, net of transaction and repair costs.

Our effective income tax rate increased to 22.7% for fiscal 2023 compared to 22.5% in fiscal 2022. The primary drivers for the increase in the Company's effective income tax rate year over year were an increase in state income taxes and a decrease in Federal credits, partially offset by an increase in share-based compensation.

Table of Contents

Net income in fiscal 2023 was $1.11 billion, or $10.09 per diluted share, compared to $1.09 billion, or $9.71 per diluted share, in fiscal 2022. The benefit of the 53rd week contributed approximately $0.16 to diluted EPS in fiscal 2022.

During fiscal 2023, we repurchased approximately 2.7 million shares of the Company’s common stock at a total cost of $602.9 million, including the 1% excise tax, as part of our share repurchase program.  In fiscal 2022, we repurchased approximately 3.4 million shares at a total cost of $700.1 million.

Fiscal 2022 Compared to Fiscal 2021

For a comparison of our performance and financial metrics for the fiscal years ended December 31, 2022 and December 25, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023.

Liquidity and Capital Resources

In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.

Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit.  Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.

Additionally, we plan to continue to leverage our sale-leaseback program on both existing owned stores as well as future new store openings. This program will help fund our planned owned store development. We plan to execute sale-leaseback transactions of our existing portfolio of owned stores to fund the cash required by the new development program over the next eight to 10 years.

We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, normal trade credit, sale of existing stores, and access to the long-term debt capital markets will be sufficient to fund our operations and capital allocation needs in the short term, through the end of fiscal 2024, and in the longer term thereafter.

Debt

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):

Table of Contents

We manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 30, 2023, and the date of this filing, February 23, 2024, the Company's senior unsecured debt is rated “Baa1,” by Moody’s Investor Services with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook. These ratings have been obtained with the understanding that Moody’s Investors Services and Standard & Poor’s will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or improve our current credit ratings.

On May 5, 2023, the Company completed the sale of $750 million aggregate principal amount of its 5.25% Senior Notes. The entire principal amount of the 5.25% Senior Notes is due in full on May 15, 2033. Interest is payable semi-annually in arrears on each May 15 and November 15. The terms of the 5.25% Senior Notes are governed by the Base Indenture, as amended and supplemented by the Second Supplemental Indenture between the Company and Regions Bank, as trustee.

For additional information about the Company’s debt and credit facilities, refer to Note 5 to the Consolidated Financial Statements.

Operating Activities

Operating activities provided cash of $1.33 billion and $1.36 billion in fiscal 2023 and 2022, respectively. The $23.0 million decrease in net cash provided by operating activities in fiscal 2023, compared to fiscal 2022, was due to changes in the following (in millions):

The $23.0 million decrease in net cash provided by operating activities in fiscal 2023, compared to fiscal 2022, is primarily driven by the net impact of changes in our operating assets and liabilities, primarily due to the Company's strategic initiatives as well as the timing of accruals and related payments.

Investing Activities

Investing activities used cash of $653.1 million and $1.09 billion in fiscal 2023 and 2022, respectively.  The $440.6 million decrease in net cash used in investing activities primarily reflects the acquisition of Orscheln Farm and Home in fiscal 2022 and the proceeds from the sale-leaseback transactions in fiscal 2023, partially offset by cash received from Orscheln stores divestiture in fiscal 2022.

Table of Contents

Investing activities, including capital expenditures, for fiscal 2023 and 2022 were as follows (in millions):

The spending for existing stores in fiscal 2023 and fiscal 2022 primarily reflects our strategic initiatives related to store remodels, including internal space productivity, side lot garden center transformations and Orscheln store conversions. Spending in both fiscal 2023 and fiscal 2022 also includes routine refresh activity.

The spending for distribution center capacity and improvements in fiscal 2023 and fiscal 2022 is primarily related to the construction of Maumelle, Arkansas, and Navarre, Ohio, respectively. On January 18, 2023, the Company opened its ninth distribution center located in Navarre, Ohio, which expanded the distribution center capacity by approximately 900,000 square feet. The Maumelle, Arkansas distribution center is currently expected to begin operations in the second quarter of fiscal 2024 and will expand our distribution capacity by approximately 1,200,000 square feet.

The spending on information technology represents continued support of our store growth and our omni-channel initiatives, as well as improvements in security and compliance and other strategic initiatives.

The above table reflects an investment in 70 new Tractor Supply stores, 13 new Petsense by Tractor Supply stores, and eight store relocations during fiscal 2023. In fiscal 2022, we opened 63 new Tractor Supply stores and nine new Petsense by Tractor Supply stores and had seven store relocations.

In fiscal 2022, we completed the acquisition of Orscheln Farm and Home and subsequently divested 85 stores to Bomgaars Supply, Inc. and Buchheit Enterprises, Inc. In fiscal 2023, we received $4.3 million from the Orscheln acquisition net working capital settlement and $10.0 million from the sale of Orscheln corporate headquarters and distribution center.

In fiscal 2023, we sold and subsequently leased back 15 of our retail locations, resulting in proceeds of $82.0 million.

Our projected capital expenditures, net of sale leaseback proceeds, for fiscal 2024 are currently estimated to be in a range of approximately $625.0 million to $700.0 million. The capital expenditures include a plan to open a total of approximately 80 Tractor Supply stores, continuing Project Fusion remodels and garden center transformations, completion of our 10th distribution center and opening a total of 10 to 15 new Petsense by Tractor Supply stores.

Financing Activities

Financing activities used cash of $486.4 million and $938.8 million in fiscal 2023 and 2022, respectively. The $452.4 million decrease in net cash used in financing activities in fiscal 2023, compared to fiscal 2022, was due to changes in the following (in millions):

Table of Contents

The decrease in net cash used in financing activities in fiscal 2023, compared to fiscal 2022, is primarily due to the increase in net borrowings under the debt facilities, namely the sale of $750.0 million 5.25% Senior Notes, and a decrease in the repurchase of common stock, partially offset by an increase in cash dividends paid to stockholder.

Repurchase of Common Stock

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.

We repurchased approximately 2.7 million and 3.4 million shares of common stock under the share repurchase program and paid cash totaling $594.4 million and $700.1 million in fiscal 2023 and 2022, respectively.  Our projected share repurchases for fiscal 2024 are currently estimated to be in a range of approximately $575 million to $625 million.

Cash Dividends Paid to Stockholders

We paid cash dividends totaling $449.6 million and $409.6 million in fiscal 2023 and 2022, respectively. In fiscal 2023, we declared and paid cash dividends to stockholders of $4.12 per common share outstanding as compared to $3.68 per common share outstanding in fiscal 2022. These payments reflect an increase in the quarterly dividend in all four quarters of fiscal 2023 to $1.03 per share from $0.92 per share in all four quarters of fiscal 2022.

On February 5, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $1.10 per share of the Company’s outstanding common stock.  The dividend will be paid on March 12, 2024, to stockholders of record as of the close of business on February 26, 2024.

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors which the Company’s Board of Directors deem relevant.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued pronouncements not yet adopted as of December 30, 2023.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended December 31, 2022 (our fiscal years 2022 and 2021). For a comparison of our results of operations for fiscal year December 25, 2021 and December 26, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, filed with the SEC on February 17, 2022. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements and information. See “Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this report.

Tractor Supply reports its financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Tractor Supply also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, Tractor Supply’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S. GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations.

Overview

Founded in 1938, Tractor Supply Company (the “Company” or “Tractor Supply” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle). As of December 31, 2022, we operated 2,333 retail stores in 49 states under the names Tractor Supply Company, Petsense by Tractor Supply, and Orscheln Farm and Home. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. We also operate websites under the names TractorSupply.com and Petsense.com, as well as a Tractor Supply Company mobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise:

•Equine, livestock, pet, and small animal products, including items necessary for their health, care, growth, and containment (i.e., fencing);

•Hardware, truck, towing, and tool products;

•Seasonal products, including heating, lawn and garden items, power equipment, gifts, and toys;

•Work/recreational clothing and footwear; and

•Maintenance products for agricultural and rural use.

Tractor Supply Company believes we can grow our business by being a more integral part of our customers’ lives as the dependable supplier of “Out Here” lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect at anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) expand and deepen our customer base by providing personal, localized, and memorable customer engagements by leveraging content, social media, and digital shopping experiences, attracting new customers and driving loyalty, (2) evolve customer experiences by digitizing our business processes and furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to grow our total addressable market by introducing new products and services through our test and learn strategy, (4) drive operational excellence and productivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities to support growth, scale and agility, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.

Achieving this strategy will require a foundational focus on: (1) connecting, empowering and growing our team to enhance their lives and the communities they live in, enabling them to provide legendary service to our customers, and (2) allocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions.

Over the past five years, we have experienced considerable growth in stores, growing from 1,853 stores at the end of fiscal 2017 to 2,333 stores (2,066 Tractor Supply retail stores, 186 Petsense by Tractor Supply retail stores, and 81 Orscheln Farm and Home retail stores) at the end of fiscal 2022, and in net sales, with a compounded annual growth rate of approximately 14.4%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store sites, and we believe we have significant

30

Index

additional opportunities for new Tractor Supply stores. We also believe that there is opportunity for continued growth for Petsense by Tractor Supply stores. In October 2022, we acquired 81 stores from Orscheln Farm and Home that will be rebranded to Tractor Supply by the end of 2023.

Executive Summary

In fiscal 2022, we opened 63 new Tractor Supply stores in 25 states and nine new Petsense by Tractor Supply stores in seven states. We also acquired 81 Orscheln Farm and Home stores in eight states. In fiscal 2021, we opened 80 new Tractor Supply stores in 27 states and seven new Petsense by Tractor Supply stores in four states. This resulted in a selling square footage increase of approximately 11% in fiscal 2022 and 4% in fiscal 2021.

Net sales increased 11.6% to $14.20 billion in fiscal 2022 from $12.73 billion in fiscal 2021. The fiscal year included an extra sales week as part of the Company's 53-week calendar in 2022, which represented 1.8 percentage points of the 11.6% sales growth. Comparable store sales increased 6.3% in fiscal 2022 versus a 16.9% increase in fiscal 2021. Gross profit increased 11.1% to $4.97 billion in fiscal 2022 from $4.48 billion in fiscal 2021, and gross margin decreased 17 basis points to 35.0% of net sales in fiscal 2022 from 35.2% of net sales in fiscal 2021. Operating income decreased 16 basis points to 10.1% of net sales in fiscal 2022 from 10.3% of net sales in fiscal 2021. For fiscal 2022, net income was $1.09 billion, or $9.71 per diluted share, compared to $997.1 million, or $8.61 per diluted share, in fiscal 2021.

We ended fiscal 2022 with $202.5 million in cash and cash equivalents and outstanding debt of $1.16 billion, after returning $1.11 billion to our stockholders through stock repurchases and quarterly cash dividends.

Performance Metrics

Comparable Store Metrics

Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations.

Transaction Count and Transaction Value

Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.

Significant Accounting Policies and Estimates

Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements.  The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

31

Index

Merchandise Inventory:

We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.

We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months.

We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and merchandising strategies.

We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of December 31, 2022, would have affected net income by approximately $1.8 million in fiscal 2022. A 10% change in our shrinkage reserve as of December 31, 2022, would have affected net income by approximately $4.8 million in fiscal 2022.

In addition, we receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”). The amounts received are subject to terms of vendor agreements, most of which are “evergreen”, reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product. Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold. During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors.

We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented. At the end of each fiscal year, a significant portion of the actual purchase activity is known. Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding. We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2022. If a 10% reserve had been applied against our outstanding vendor funding due as of December 31, 2022, net income would have been affected by approximately $2.6 million in fiscal 2022. Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.

For vendor funding, we estimate the purchase volume (and related vendor funding) based on our current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations. Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts. Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability.

32

Index

Self-Insurance Reserves:

We self-insure a significant portion of our workers’ compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors.

The full extent of certain workers’ compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.

We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of December 31, 2022, would have affected net income by approximately $9.8 million in fiscal 2022.

Impairment of Long-Lived Assets:

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

There were no significant long-lived assets impairment charges recognized in fiscal 2022.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

33

Index

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information and selecting the discount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.

There were no goodwill or other indefinite-lived intangible assets impairment charges recognized in fiscal 2022.

Results of Operations

The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.

(a) Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in selling, general, and administrative expenses; refer to Note 1 – Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2022 Compared to Fiscal 2021

Net sales increased 11.6% to $14.20 billion in fiscal 2022 from $12.73 billion in fiscal 2021. The fiscal year included an extra sales week as part of the Company's 53-week fiscal calendar in 2022, which represented 1.8 percentage points of the 11.6% sales growth. Comparable store sales increased 6.3% to $13.80 billion versus a 16.9% increase in fiscal 2021. The comparable store average transaction value increased 6.9% and comparable store average transaction count decreased 0.6% for fiscal 2022, as compared to an increase of 9.8% and 7.1% in fiscal 2021, respectively. Comparable store sales growth reflects continued strength in every day, needs-based merchandise, including consumable, usable, and edible (“C.U.E.”) products, winter seasonal goods and year-round product categories, partially offset by a colder start to the spring selling season of fiscal 2022 along with

34

Index

severe drought during the summer months in many of our markets. The Company’s store sales in the prior year benefited from favorable weather conditions as well as government stimulus throughout fiscal 2021.

In addition to comparable store sales growth in fiscal 2022, sales from stores opened less than one year were $396.2 million in fiscal 2022, which represented 3.1 percentage points of the 11.6% increase over fiscal 2021 net sales. Sales from stores opened less than one year were $324.6 million in fiscal 2021, which represented 3.1 percentage points of the 19.9% increase over fiscal 2020 net sales. The acquisition of Orscheln Farm and Home in October 2022 added approximately $80.0 million to net sales in the fourth quarter, which were included in the sales from stores opened less than one year in fiscal 2022.

The following table summarizes our store growth during fiscal 2022 and 2021:

The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2022 and 2021:

Gross profit increased 11.1% to $4.97 billion in fiscal 2022 compared to $4.48 billion in fiscal 2021.  As a percent of net sales, gross margin decreased 17 basis points to 35.0% for fiscal 2022 compared to 35.2% for fiscal 2021. The decrease in gross margin as a percent of net sales was primarily driven by higher product cost inflation, higher transportation costs, and, to a lesser extent, product mix shift towards C.U.E. products, which run at a slightly lower margin rate. Heightened transportation costs were experienced in domestic and import freight, along with rising fuel prices. The Company's price management program and other key gross margin enhancing initiatives effectively offset a significant portion of these gross margin pressures.

Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 11.6% to $3.54 billion in fiscal 2022 from $3.17 billion in fiscal 2021. The Company's strategic growth initiatives, including related depreciation and amortization, investments in team member compensation and benefits, and, to a lesser extent, the impact of transaction expenses and early integration costs associated with the Orscheln Farm and Home acquisition contributed to an increase in SG&A as a percent of net sales. The increase was partially offset by a reduction of COVID-19 response costs, more

35

Index

normalized incentive compensation, and leverage in occupancy and other costs from the increase in comparable stores sales. This culminated in SG&A expenses, as a percent of net sales, being flat at 24.9% compared to fiscal 2021.

Our effective income tax rate increased to 22.5% for fiscal 2022 compared to 22.1% in fiscal 2021. The primary drivers for the increase in the Company's effective income tax rate were decreased share-based compensation activity and federal tax credits, partially offset by increased state income tax credits.

Net income in fiscal 2022 was $1.09 billion, or $9.71 per diluted share, compared to $997.1 million, or $8.61 per diluted share, in fiscal 2021. The benefit of the 53rd week contributed approximately $0.16 to diluted EPS in fiscal 2022.

During fiscal 2022, we repurchased approximately 3.4 million shares of the Company’s common stock at a total cost of $700.1 million as part of our share repurchase program.  In fiscal 2021, we repurchased approximately 4.4 million shares at a total cost of $798.9 million.

Fiscal 2021 Compared to Fiscal 2020

For a comparison of our performance and financial metrics for the fiscal years ended December 25, 2021 and December 26, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, filed with the SEC on February 17, 2022.

Liquidity and Capital Resources

In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.

Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit.  Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.

We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, normal trade credit, and access to the long-term debt capital markets will be sufficient to fund our operations and capital allocation needs through the end of fiscal 2023.

36

Index

Working Capital

At December 31, 2022, the Company had working capital of $781.6 million, which decreased $404.0 million from fiscal 2021.  The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):

Note: amounts may not sum to totals due to rounding

In comparison to December 25, 2021, working capital as of December 31, 2022 was impacted most significantly by changes in cash and cash equivalents, inventories, and accounts payable.

•The decrease in cash and cash equivalents was primarily driven by capital expenditures to support strategic growth, share repurchases, cash dividends to stockholders, and the acquisition of Orscheln Farm and Home, partially offset by positive cash flows generated from operations and net borrowings under the Company’s debt facilities.

•The increase in inventories and accounts payable resulted from an increase in average inventory per store driven by our commitment to support our strong sales trends, combined with the impact inflation had on retail prices. Additionally, overall inventory and accounts payable levels increased from the acquisition of Orscheln and the purchase of additional inventory to support new store growth.

37

Index

Debt

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):

We manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 31, 2022, and the date of this filing, February 23, 2023, the Company's senior unsecured debt is rated “Baa1,” by Moody’s Investor Services with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook. These ratings have been obtained with the understanding that Moody’s Investors Services and Standard & Poor’s will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or improve our current credit ratings.

On September 30, 2022, we entered into a new credit agreement, providing for a credit facility (the “2022 Senior Credit Facility”), consisting of a revolving credit facility (the “Revolving Credit Facility”) in the maximum principal amount of $1.20 billion (with a sublimit of $50.0 million for swingline loans and a sublimit of $150.0 million for letters of credit). In addition, we have an option to increase the Revolving Credit Facility or establish term loans in an amount not to exceed $500.0 million in the aggregate, subject to, among other things, the receipt of commitments for the increase amount. The 2022 Senior Credit Facility is unsecured and has a five year term with two options to request that the lenders extend the maturity date of the obligations owed to each lender for one year (and the right to replace any lenders electing not to extend).

For additional information about the Company’s debt and credit facilities, refer to Note 5 to the Consolidated Financial Statements.

Sources and Uses of Cash

Our primary source of liquidity is cash provided by operations and funds available under our debt facilities.  Principal uses of cash for investing activities are capital expenditures and acquisitions while principal uses of cash for financing activities are repurchase of the Company’s common stock and cash dividends paid to stockholders.

38

Index

The following table presents a summary of cash flows provided by or used in operating, investing, and financing activities for fiscal years 2022 and 2021 (in millions):

Operating Activities

Operating activities provided cash of $1.36 billion and $1.14 billion in fiscal 2022 and 2021, respectively. The $218.3 million increase in net cash provided by operating activities in fiscal 2022, compared to fiscal 2021, was due to changes in the following (in millions):

The $218.3 million increase in net cash provided by operating activities in fiscal 2022, compared to fiscal 2021, is primarily driven by a year-over-year increase in our net income as well as the net impact of changes in our operating assets and liabilities, primarily due to the Company's strategic initiatives as well as the timing of accruals and related payments.

Investing Activities

Investing activities used cash of $1.09 billion and $627.3 million in fiscal 2022 and 2021, respectively.  The $466.4 million increase in net cash used in investing activities primarily reflects the acquisition of Orscheln Farm and Home as well as an increase in capital expenditures in fiscal 2022 compared to fiscal 2021, partially offset by cash received from Orscheln stores divestitures.

39

Index

Investing activities, including capital expenditures, for fiscal 2022 and 2021 were as follows (in millions):

The increase in spending for existing stores in fiscal 2022 as compared to fiscal 2021 primarily reflects our strategic initiatives related to store remodels, including internal space productivity and the outside garden center transformations. Spending in both fiscal 2022 and fiscal 2021 also includes routine refresh activity, as well as security enhancements.

The increase in spending for distribution center capacity and improvements in fiscal 2022 as compared to fiscal 2021 is primarily related to the construction of new distribution centers in Navarre, Ohio and Maumelle, Arkansas. On January 18, 2023, the Company opened its ninth distribution center located in Navarre, Ohio, which expanded the distribution center capacity by approximately 900,000 square feet. The Maumelle, Arkansas distribution center is currently expected to begin operations in the first quarter of fiscal 2024 and will expand our distribution capacity by approximately 1,200,000 square feet.

The above table reflects an investment in 63 new Tractor Supply stores, nine new Petsense by Tractor Supply stores, and seven store relocations during fiscal 2022. In fiscal 2021, we opened 80 new Tractor Supply stores and seven new Petsense by Tractor Supply stores and had three store relocations.

The increase in spending for new and relocated stores and stores not yet opened in fiscal 2022 as compared to fiscal 2021 is primarily due to the timing of stores openings, as well as acceleration of spend in 2022 for stores expected to open in 2023.

The spending on information technology represents continued support of our store growth and our omni-channel initiatives, as well as improvements in security and compliance and other strategic initiatives.

Overall cash flow used in investing activities was also impacted by the acquisition of Orscheln Farm and Home and the subsequent store divestitures to Bomgaars Supply, Inc. and Buchheit Enterprises, Inc.

Our projected capital expenditures for fiscal 2023 are currently estimated to be in a range of approximately $700.0 million to $775.0 million. The capital expenditures include a plan to open approximately 70 new Tractor Supply stores, complete the Orscheln conversions to Tractor Supply, continue the remodeling of our stores (“Project Fusion”) and garden center transformations, and open 10 to 15 new Petsense by Tractor Supply stores. Additionally, we anticipate the continued build out of our tenth distribution center in Maumelle, Arkansas during 2023 with operations beginning in the first quarter of fiscal 2024. We also plan to support our continued improvements in technology and infrastructure at our existing stores, along with ongoing investments to enhance our digital and omni-channel capabilities to better serve our customers.

Financing Activities

Financing activities used cash of $938.8 million and $975.1 million in fiscal 2022 and 2021, respectively. The $36.3 million decrease in net cash used in financing activities in fiscal 2022, compared to fiscal 2021, was due to changes in the following (in millions):

40

Index

The decrease in net cash used in financing activities in fiscal 2022, compared to fiscal 2021, is primarily due to borrowings under our new 2022 Senior Credit Facility and increased returns of capital to our stockholders in the form of cash dividends and repurchases of common stock.

Repurchase of Common Stock

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases. The authorized amount reflects a $2.00 billion increase to the share repurchase program which was approved by our Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.

We repurchased approximately 3.4 million and 4.4 million shares of common stock under the share repurchase program at a total cost of $700.1 million and $798.9 million in fiscal 2022 and 2021, respectively.  Our projected share repurchases for fiscal 2023 are currently estimated to be in a range of approximately $575 million to $675 million.

Cash Dividends Paid to Stockholders

We paid cash dividends totaling $409.6 million and $239.0 million in fiscal 2022 and 2021, respectively. In fiscal 2022, we declared and paid cash dividends to stockholders of $3.68 per common share outstanding as compared to $2.08 per common share outstanding in fiscal 2021. These payments reflect an increase in the quarterly dividend in all four quarters of fiscal 2022 to $0.92 per share from $0.52 per share in all four quarters of fiscal 2021.

On February 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $1.03 per share of the Company’s outstanding common stock.  The dividend will be paid on March 14, 2023, to stockholders of record as of the close of business on February 27, 2023.

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors which the Company’s Board of Directors deem relevant.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued pronouncements not yet adopted as of December 31, 2022.

41

Index

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended December 25, 2021 (our fiscal years 2021 and 2020). For a comparison of our results of operations for fiscal year December 26, 2020 and December 28, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed with the SEC on February 18, 2021. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements and information. See “Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this report.

Tractor Supply reports its financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Tractor Supply also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, Tractor Supply’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S. GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations.

Overview

Founded in 1938, Tractor Supply Company (the “Company” or "Tractor Supply" or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle). As of December 25, 2021, we operated 2,181 retail stores in 49 states under the names Tractor Supply Company, Petsense, and Del’s Feed & Farm Supply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. We also operate websites under the names TractorSupply.com and Petsense.com as well as a Tractor Supply Company mobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise:

•Equine, livestock, pet, and small animal products, including items necessary for their health, care, growth, and containment (i.e. fencing);

•Hardware, truck, towing, and tool products;

•Seasonal products, including heating, lawn and garden items, power equipment, gifts, and toys;

•Work/recreational clothing and footwear; and

•Maintenance products for agricultural and rural use.

Tractor Supply Company believes we can grow our business by being an integral part of our customers’ lives as the dependable supplier of "Out Here" lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect at anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) expand and deepen our customer base by providing personal, localized, and memorable customer engagements by leveraging content, social media, and digital shopping experiences, attracting new customers and driving loyalty, (2) evolve customer experiences by digitizing our business processes and furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to grow our total addressable market by introducing new products and services through our test and learn strategy, (4) drive operational excellence and productivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities to support growth, scale and agility, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.

Achieving this strategy will require a foundational focus on: (1) connecting, empowering and growing our team to enhance their lives and the communities they live in, enabling them to provide legendary service to our customers, and (2) allocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions.

Over the past five years, we have experienced considerable growth in stores, growing from 1,738 stores at the end of fiscal 2016 to 2,181 stores (2,003 Tractor Supply and Del’s retail stores and 178 Petsense retail stores) at the end of fiscal 2021, and in net sales, with a compounded annual growth rate of approximately 13.4%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store sites, and we believe we have significant additional opportunities for new Tractor Supply stores. We also believe that there is opportunity for continued growth for Petsense stores.

30

Index

Executive Summary

In fiscal 2021, we opened 80 new Tractor Supply stores in 27 states and seven new Petsense stores in four states. In fiscal 2020, we opened 80 new Tractor Supply stores in 31 states and nine new Petsense stores in three states. This resulted in a selling square footage increase of approximately 4% in each of fiscal 2021 and fiscal 2020.

Net sales increased 19.9% to $12.73 billion in fiscal 2021 from $10.62 billion in fiscal 2020 as we experienced significant demand for our products across all product categories, geographies and channels in fiscal 2021 as we acquired new customers who entered our markets and our existing customers focused on the care of their homes, land, and animals while navigating the COVID-19 pandemic. Comparable store sales increased 16.9% in fiscal 2021 versus a 23.1% increase in fiscal 2020. Gross profit increased 19.0% to $4.48 billion in fiscal 2021 from $3.76 billion in fiscal 2020, and gross margin decreased 25 basis points to 35.2% of net sales in fiscal 2021 from 35.4% of net sales in fiscal 2020. Operating income increased 88 basis points to 10.3% of net sales in fiscal 2021 from 9.4% of net sales in fiscal 2020. For fiscal 2021, net income was $997.1 million, or $8.61 per diluted share, compared to $749.0 million, or $6.38 per diluted share, in fiscal 2020.

We ended fiscal 2021 with $878.0 million in cash and cash equivalents and outstanding debt of $986.4 million, after returning $1.04 billion to our stockholders through stock repurchases and quarterly cash dividends.

Information Regarding COVID-19 Coronavirus Pandemic

The Company has been and continues to closely monitor the impact of the COVID-19 pandemic on all facets of our business. This includes the impact on our team members, customers, suppliers, vendors, business partners, and supply chain networks.

The health and safety of our team members and customers are the primary concerns of our management team. We have taken and continue to take numerous actions to promote health and safety, including, encouraging vaccination efforts, providing personal protective equipment to our team members, following local and federal guidance regarding the use of masks in our facilities, maintaining enhanced services for cleaning and sanitation, continuing to provide additional functionality to support contactless shopping experiences, promoting social distancing in our stores, and continuing to offer remote work plans at our Store Support Center.

As further described in the results of operations, our net sales have significantly increased due to unprecedented customer demand across all major product categories, channels, and geographic regions. However, the net incremental costs of doing business during this crisis have increased as a result of the aforementioned actions we have taken to support and promote the safety and well-being of our team members and customers, and we believe some of these incremental costs will continue after the pandemic is over.

There are numerous uncertainties surrounding the pandemic and its impact on the economy and our business, as further described in the Risk Factors section under Part I Item 1A. of this Form 10-K, which make it difficult to predict the impact on our business, financial position, or results of operations in fiscal 2022 and beyond. While our stores, distribution centers, and e-commerce operations are open and plan to remain open, we cannot predict the uncertainties, or the corresponding impacts on our business, at this time.

Performance Metrics

Comparable Store Metrics

Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations.

31

Index

Transaction Count and Transaction Value

Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.

Significant Accounting Policies and Estimates

Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements.  The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

Merchandise Inventory:

We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.

We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months.

We receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”). The amounts received are subject to terms of vendor agreements, most of which are “evergreen”, reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product. Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold. During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors.

We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and merchandising strategies.

For vendor funding, we estimate the purchase volume (and related vendor funding) based on our current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations. Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts. Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability.

32

Index

We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of December 25, 2021, would have affected net income by approximately $1.3 million in fiscal 2021. A 10% change in our shrinkage reserve as of December 25, 2021, would have affected net income by approximately $4.2 million in fiscal 2021.

We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented. At the end of each fiscal year, a significant portion of the actual purchase activity is known. Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding. We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2021. If a 10% reserve had been applied against our outstanding vendor funding due as of December 25, 2021, net income would have been affected by approximately $2.3 million in fiscal 2021. Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.

Self-Insurance Reserves:

We self-insure a significant portion of our workers’ compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors.

The full extent of certain workers’ compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.

We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of December 25, 2021, would have affected net income by approximately $8.4 million in fiscal 2021.

Impairment of Long-Lived Assets:

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10%

33

Index

change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

There were no significant long-lived assets impairment charges recognized in fiscal 2021.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information and selecting the discount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.

There were no goodwill or other indefinite-lived intangible assets impairment charges recognized in fiscal 2021.

34

Index

Results of Operations

The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.

(a) Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in selling, general, and administrative expenses; refer to Note 1 – Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2021 Compared to Fiscal 2020

Net sales increased 19.9% to $12.73 billion in fiscal 2021 from $10.62 billion in fiscal 2020. Comparable store sales increased 16.9% to $12.43 billion versus a 23.1% increase in fiscal 2020. The comparable store average transaction value increased 9.8% and comparable store average transaction count increased 7.1% for fiscal 2021, as compared to an increase of 12.2% and 10.9% in fiscal 2020, respectively.

Our sales performance continued to benefit from the shift of consumer behavior trends due to the COVID-19 pandemic as customers focused on the care of their homes, land, and animals, targeted investments in marketing to increase our unaided brand awareness, and other key initiatives to enhance customers' shopping experience, including the relaunch of the Neighbor's Club loyalty program. These factors led to growth in new customer acquisition and increased spend from existing customers, which further resulted in an increase in comparable store sales across all major product categories, driven by robust growth for everyday merchandise, including C.U.E. products, and solid demand for seasonal categories. In addition, the Company’s e-commerce sales experienced double-digit percentage growth in fiscal 2021 as compared to fiscal 2020.

In addition to comparable store sales growth in fiscal 2021, sales from stores opened less than one year were $324.6 million in fiscal 2021, which represented 3.1 percentage points of the 19.9% increase over fiscal 2020 net sales. Sales from stores opened less than one year were $355.3 million in fiscal 2020, which represented 4.3 percentage points of the 27.2% increase over fiscal 2019 net sales.

35

Index

The following table summarizes our store growth during fiscal 2021 and 2020:

The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2021 and 2020:

Gross profit increased 19.0% to $4.48 billion in fiscal 2021 compared to $3.76 billion in fiscal 2020.  As a percent of net sales, gross margin decreased 25 basis points to 35.2% for fiscal 2021 compared to 35.4% for fiscal 2020. The decrease in gross margin as a percentage of net sales was primarily driven by higher product cost inflation, higher transportation costs driven by increased pressures on domestic freight, import freight, and rising fuel prices, and product mix shift towards C.U.E. products, which run at a slightly lower margin rate. Partially offsetting the decrease was the Company's price management program and limited promotional and clearance activity, which effectively offset a significant portion of the inflation and transportation pressures.

Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization and asset impairment, increased 14.7% to $3.17 billion in fiscal 2021 from $2.76 billion in fiscal 2020.  SG&A expenses, as a percent of net sales, improved 113 basis points to 24.9% in fiscal 2021 from 26.0% in fiscal 2020.  The SG&A expenses in fiscal 2020 were impacted by discrete non-cash impairment charges for the Petsense business of $74.1 million due primarily to a strategic reassessment of the business and a decision to reduce the number of new store openings planned over the long term and, to a lesser extent, the impairment of long-lived assets at underperforming locations. On an adjusted basis, excluding the impact of the discrete impairment charges in the prior year, SG&A expenses increased 17.8% to $3.17 billion in fiscal 2021 from $2.69 billion in fiscal 2020. On an adjusted basis, SG&A expenses, as a percent of net sales, improved 43 basis points to 24.9% in fiscal 2021 from 25.3% in fiscal 2020. The improvement in SG&A as a percent as net sales was primarily attributable to strong leverage in occupancy and other fixed costs from the increase in comparable store sales and lower COVID-19 pandemic response costs. COVID-19 pandemic response costs in fiscal 2021 of $63.3 million consisted of sick pay, benefits, and other health and safety related expenses, as compared to $117.1 million in fiscal 2020. The leverage from these SG&A expenses was partially offset by higher store wage rates, additional store labor hours, and investment in the Company's strategic initiatives.

Our effective income tax rate decreased to 22.1% for fiscal 2021 compared to 22.6% in fiscal 2020. The primary drivers for the decrease in the Company's effective income tax rate were additional benefits from share-based compensation, a reduction in

36

Index

disallowed executive compensation, and increases in available tax credits, partially offset by a small increase in the Company's provision for state taxes.

Net income in fiscal 2021 was $997.1 million, or $8.61 per diluted share, compared to $749.0 million, or $6.38 per diluted share, in fiscal 2020. The aforementioned non-cash impairment expense related to the Petsense business had an after-tax impact on fiscal 2020 net income of approximately $57.3 million or $0.49 per diluted share. On an adjusted basis, considering the after-tax impact of the non-cash impairment charges related to the Petsense business, net income was $806.2 million, or $6.87 per diluted share, for fiscal 2020. Adjusted net income and adjusted net income per diluted share are non-GAAP measures which have been provided in order to enhance comparability for the periods presented given that the impairment charges related to the Petsense business are non-recurring in nature. A reconciliation of these non-GAAP financial measures is included in the following table.

Reconciliation of Non-GAAP Financial Measures

(in thousands, except per share amounts)

(a) Comprised of $68.97 million of impairment of goodwill and other intangible assets along with $5.08 million of impairment of other long-lived assets related to the Petsense reporting unit

During fiscal 2021, we repurchased approximately 4.4 million shares of the Company’s common stock at a total cost of $798.9 million as part of our share repurchase program.  In fiscal 2020, we repurchased approximately 3.4 million shares at a total cost of $343.0 million. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020 until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic.

Fiscal 2020 Compared to Fiscal 2019

For a comparison of our performance and financial metrics for the fiscal years ended December 26, 2020 and December 28, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed with the SEC on February 18, 2021.

Liquidity and Capital Resources

In addition to normal operating expenses and expenses associated with COVID-19, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.

Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit.  Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.

We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, and normal trade credit will be sufficient to fund our operations, including expenses associated with COVID-19, and our capital expenditure needs, including new store openings, existing store remodeling and improvements,

37

Index

store relocations, distribution facility capacity and improvements, and information technology improvements through the end of fiscal 2022. We are not aware of any trends or events that would materially affect our capital requirements or liquidity.

Working Capital

At December 25, 2021, the Company had working capital of $1.19 billion, which decreased $329.3 million from fiscal 2020.  The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):

In comparison to December 26, 2020, working capital as of December 25, 2021 was impacted most significantly by changes in cash and cash equivalents, inventories, accounts payable and other accrued expenses.

•The decrease in cash and cash equivalents was primarily driven by share repurchases, capital expenditures to support strategic growth, and cash dividends to stockholders.

•The increase in inventories resulted from an increase in average inventory per store driven by our commitment to support our strong sales trends, along with the impact of inflation and the purchase of additional inventory to support new store growth.

•The increase in accounts payable resulted from the purchase of additional inventory to support new store growth and strong sales volume trends.

•Other accrued expenses increased primarily due to increases in freight and other payables due to the growth in sales.

38

Index

Debt

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):

On October 30, 2020, the Company issued and sold, in a public offering, $650 million in aggregate principal amount of senior unsecured notes due November 1, 2030 bearing interest at 1.75% per annum (the “1.75% Senior Notes”). In support of the issuance of the 1.75% Senior Notes, we obtained credit ratings from Moody's Investor Services and Standard & Poor's.

We manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 25, 2021, and the date of this filing, February 17, 2022, the Company's senior unsecured debt is rated “Baa1,” by Moody’s Investor Services with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook. These ratings have been obtained with the understanding that Moody’s Investors Services and Standard & Poor’s will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or improve our current credit ratings.

We also maintain a $500 million revolving credit facility (the “Revolver”) under the senior credit facility (the "Senior Credit Facility") with a sublimit of $50 million for swingline loans and a sublimit of $150 million for letters of credit.

For additional information about the Company’s debt and credit facilities, refer to Note 4 to the Consolidated Financial Statements.

Sources and Uses of Cash

Our primary source of liquidity is cash provided by operations and funds available under our debt facilities.  Principal uses of cash for investing activities are capital expenditures while principal uses of cash for financing activities are repurchase of the Company’s common stock and cash dividends paid to stockholders.

39

Index

The following table presents a summary of cash flows provided by or used in operating, investing, and financing activities for fiscal years 2021 and 2020 (in millions):

Operating Activities

Operating activities provided cash of $1.14 billion and $1.39 billion in fiscal 2021 and 2020, respectively. The $255.8 million decrease in net cash provided by operating activities in fiscal 2021, compared to fiscal 2020, was due to changes in the following (in millions):

The $255.8 million decrease in net cash provided by operating activities in fiscal 2021, compared to fiscal 2020, is primarily driven by a significant increase in inventory and timing of payments and accruals, partially offset by an increase in our net income.

Investing Activities

Investing activities used cash of $627.3 million and $292.2 million in fiscal 2021 and 2020, respectively.  The $335.1 million increase in net cash used in investing activities primarily reflects an increase in capital expenditures in fiscal 2021 compared to fiscal 2020.

40

Index

Investing activities, including capital expenditures, for fiscal 2021 and 2020 were as follows (in millions):

The increase in spending for existing stores in fiscal 2021 as compared to fiscal 2020 principally reflects our strategic initiatives related to store remodels, including internal space productivity and the outside side lot improvements. The spending on information technology represents continued support of our store growth and our omni-channel initiatives, as well as improvements in security and compliance, enhancements and upgrades to our customer loyalty program, mobility in our stores, and other strategic initiatives.

The increase in spending for distribution center capacity and improvements in fiscal 2021 as compared to fiscal 2020 is principally related to beginning construction of a new distribution center in Navarre, Ohio, which is expected to be approximately 900,000 square feet and is currently anticipated to be completed in the fall of fiscal 2022.

The above table reflects an investment in 80 new Tractor Supply stores, and seven new Petsense stores during fiscal 2021. In fiscal 2020, we opened 80 new Tractor Supply stores, nine new Petsense stores, and had one store relocation.

Our projected capital expenditures for fiscal 2022 are currently estimated to be in a range of approximately $625 million to $675 million. The capital expenditures include a plan to open approximately 75 to 80 new Tractor Supply stores, remodel more than 150 stores and transform the side lots in approximately 100 locations, along with opening 10 new Petsense stores. We also anticipate the opening of our ninth distribution center in Navarre, Ohio in the fall of 2022. Additionally, we plan to begin construction in the middle of fiscal 2022 on a new distribution center in Maumelle, Arkansas, which is currently anticipated to be complete in late 2023. In addition, we plan to support our continued improvements in technology and infrastructure at our existing stores, and ongoing investments to enhance our digital and omni-channel capabilities to better serve our customers.

Financing Activities

Financing activities used cash of $975.1 million in fiscal 2021, while financing activities provided $155.2 million in fiscal 2020. The $1.13 billion decrease in net cash provided by financing activities in fiscal 2021, compared to fiscal 2020, was due to changes in the following (in millions):

41

Index

The decrease in net cash from financing activities in fiscal 2021, compared to fiscal 2020, is principally due to actions taken in fiscal 2020 intended to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic, including borrowings under our debt facilities as well as a temporary suspension of our share repurchase program.

Repurchase of Common Stock

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases. The currently authorized amount reflects a $2.0 billion increase to the existing share repurchase program which was approved by our Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.

We repurchased approximately 4.4 million and 3.4 million shares of common stock under the share repurchase program at a total cost of $798.9 million and $343.0 million in fiscal 2021 and 2020, respectively.  As of December 25, 2021, prior to the expanded $2.0 billion repurchase authorization, the Company had remaining authorization under the share repurchase program of $345.0 million, exclusive of any fees, commissions, or other expenses. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020 until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic. Our projected share repurchases for fiscal 2022 are currently estimated to be in a range of approximately $700 million to $800 million.

Cash Dividends Paid to Stockholders

We paid cash dividends totaling $239.0 million and $174.7 million in fiscal 2021 and 2020, respectively. In fiscal 2021, we declared and paid cash dividends to stockholders of $2.08 per common share outstanding as compared to $1.50 per common share outstanding in fiscal 2020. These payments reflect an increase in the quarterly dividend in the first quarter of fiscal 2021 to $0.52 per share from $0.40 per share and an increase in the quarterly dividend in the third quarter of fiscal 2020 from $0.35 per share.

On January 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.92 per share of the Company’s outstanding common stock.  The dividend will be paid on March 8, 2022, to stockholders of record as of the close of business on February 21, 2022.

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors which the Company’s Board of Directors deem relevant.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued pronouncements not yet adopted as of December 25, 2021.