My High Conviction Stock: Stephen Arnold – Tractor Supply (NASDAQ: TSCO)

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. If you are joining us for the very first time, welcome and thank you for becoming an Equity Mates. If you're still getting up to speed with the basics, you can go and check out our Get Started Investing podcast. But my name is Bryce. And as always, I'm joined by my equity buddy, Ren. How you going? 

Alec: [00:00:40] I'm very good, Bryce. I am excited for this episode. We have a new expert and expert we haven't had on the show talking about a new company. Well, not new, but new for me. One that I haven't heard of before. 

Bryce: [00:00:52] Yeah, we love it. We've had great feedback from the summer series and we're going to deep dive into one company in this episode and it is our pleasure to welcome you to the studio. Stephen Arnold. Stephen, welcome. 

Stephen: [00:01:03] Thank you, guys. 

Bryce: [00:01:04] So Stephen is Managing Director and CEO of Aoris, a single fund of 15 highly profitable market leading global businesses, one of which we're going to crack into today. Stephen has been investing in offshore markets for over 28 years, with previous roles at Evans and Partners, Goldman Sachs and Platinum Asset Management. So plenty of experience cannot wait to get stuck in. 

Alec: [00:01:25] Yeah. Now, Stephen, we're looking at one company today. The company is Tractor Supply. It's listed on the Nasdaq with the ticker T-S-C-O. Now, as I said, I hadn't heard of Tractor Supply before we came across you and you suggested it. So for people who are new to the company. Tell us about it. What does it do? 

Stephen: [00:01:45] Well, first thing is what it doesn't do. It doesn't sell Tractors. So if you if you turn up, they're expecting to get a new a new ride on. You might be disappointed. But the tractor supply was founded in 1938 and their 2100 stores across America serving professional farmers and hobby farmers. And if you go on to the website, you'll see that they're for people that love the life out here is how they define themselves and their customers or their customers come to them to buy a pet food, livestock, food, workwear tools, agricultural supplies. 

Bryce: [00:02:18] No tractors, just like they should get some tractors. 

Alec: [00:02:22] I did say that tagline like the what is it? The life out here to live out here? 

Stephen: [00:02:27] Yeah. 

Alec: [00:02:27] Just like it was a real emotive thing. I was like, you know, if I was a farmer, if I was living in a rural area, you'd really resonate with that over like a Walmart or something. Yeah. 

Stephen: [00:02:37] And that is so powerful because their customers come to them feeling like I'm in a store, I'm buying stuff from people that get me. And that's where I think they're an advantage versus retailers that sell the same stuff. But they do it everywhere. They just don't get that emotional connection with their customers and they really work hard to feel like we get our customers. The people at work in our store have horses. They go to the same schools as our customers. They understand your needs. And that's part of the secret sauce, if you like.

Alec: [00:03:07] Yeah, yeah, yeah. 

Bryce: [00:03:08] The scale of American retail businesses always blows me away. 2100 stores. I think Woollies here has about 900 or so. 

Alec: [00:03:15] Yeah, I think it's cracked a thousand. How's it? Yeah. 

Bryce: [00:03:18] And then potentially Coles. 

Alec: [00:03:19] Is around 800 and something. 

Bryce: [00:03:21] But we had someone on talking about Chipotle and they were saying they're going to roll out to like 5000 stores or something. It's ridiculous. 

Stephen: [00:03:27] It's one on every street corner. Yeah. 

Bryce: [00:03:29] Your mind is pretty much so. Stephen Sort of very high level. Like what's the thesis and why Tractor Supply And then perhaps we'll dive into specifics around financials, management and those sorts of things. 

Stephen: [00:03:42] Look, I think there are three things that are for us, make it a special business and we're always looking for special businesses. And I think some of them, if you thought in Australia walk in are going to I know what Bunnings does and that's pretty special. If I could just buy Bunnings, that would be an amazing equity investment and there's a lot of commonalities when we talk about tractor supply. So it's a good sort of mental model. So the first thing is scale. They're ten times the size of the nearest competitor. The second is customer service and customer connect if you like. And the third thing is its track record. So just a moment on each of those things. By being ten times larger than their nearest competitor, it means they get better deals from the vendors so they can deliver better prices. Everyone likes that. And too when things are hard to get hold of, which has been a common theme in the last couple of years. They get preferential access to scarce stuff that goes on shelves and customers like that. I've driven all the way to the shop and I don't want to get empty shelves. Then the third thing, it allows them to invest in their infrastructure and their e-commerce. You can imagine if I'm a little hardware store down the road from Bunnings, I probably don't have the world's best e-commerce site. So that's where scale is hugely beneficial and on the cusp beside, as you said, part of what makes people like shopping there is that they feel that they're walking into a store that gets them and their customer satisfaction scores are very, very high. And through the pandemic they hit record highs. And that's a good sign. And one last thing. When we come to the track record, they've increased their sales for 30 consecutive years. Quite remarkable. Wow. And. Through all that. There's been various agricultural cycles. There's of course been economic ups and downs and all sorts of ebbs and flows along the way. But through all of that, every single year has been a record year. Amazing. 

Alec: [00:05:24] Yeah, that is fascinating. One thing we're always interested in, you know, there's thousands of listed companies in the U.S., well, I think 40,000 listed around the world. There's just the universe is so big. How did you come across Tractor Supply? 

Stephen: [00:05:38] Well, sometimes you can do financial screening and that can unearth, well, businesses that exceed a certain level of comparability show businesses that have grown over time in a way that, you know, we're looking for and often speaks to a successful business, that growth over time. Show me businesses that have a capital structure that doesn't have too much debt in it, which is certainly the case attracted supply and then is just wide reaching and or sometimes it's travelling through America and you might see something interesting and, and a few years ago I did go into a tractor supply store and had management and walk me through and this is what we sell and this is why people like coming here. And so there's a few different ways you can discover these. But I think what's really helpful is having a pretty clear idea of what you're looking for, and that's certainly true for our style. 

Bryce: [00:06:24] So let's focus on the financials because, you know, a lot of investors, that's where they start. And we've got data galore. So when you're looking at the financials income statement, what sort of stands out to you? What excites you about it? Can you just talk us through it? 

Stephen: [00:06:39] So that the business has got a market capitalisation today in Australian dollars of about 40 billion? And so, you know, in a global context that would put it broadly in a mid-sized company, its profitability last year is about $1.4 billion. And in terms of its earnings, it's profit margin. So every dollar of sales converts to about $0.10 of pre-tax operating income. And so in the context of retailing, that's pretty good and that's been very consistent through time. We like retailers where it doesn't sort of ramp up too hard because that might make you nervous that maybe that's unsustainable, nor do you want to going in a negative direction. So this consistent straight through time is a really healthy sign. And in terms of the they've been able to grow their stores at about 70 per year or three or 4% new stores every year, and they've done that most their growth has been primarily through just opening new tractor supply stores rather than acquiring businesses that look like this and that organic growth avoids a lot of the problems that might come from retailers buying other retailers where your systems are different, your culture is different, your merchandise is different. And so a long track record of successful organic growth, consistent high levels of profitability and a business that is offices where they can keep growing for a long time. 

Alec: [00:08:01] So when you talk about those profit margins, we looked at post-tax margins and I think it was around mid sevens post-tax. And you know, for comparison, Wal-Mart is mid twos post-tax Coles, the US closes mid fours. I think Home Depot's pretty strong. They're in like that 10%. But you know the sort of mid 7% post-tax is really good for a giant US retailer. And then I guess the question is when you look at that and you think about sustainable competitive advantage because some companies have strong profit margins, but they'll be eroded over time by competition and then other companies have sustainable competitive advantages and they'll keep that profit margin. What gives you confidence that try to supply in the second bucket, not the first? 

Stephen: [00:08:47] Yeah, well, it's such a great question because, you know, the world's a competitive place and if you've got something special and you know, someone else is always trying to take a lot of luck. So I remember a few years ago when Woolworths in joint venture with Lowes, created the Masters business, and I thought, okay, look, here's a series. 

Bryce: [00:09:04] What a success that was. 

Alec: [00:09:05] For context, Bryce worked at Woollies when they did that. So I came into Woollies when it was up in flying. 

Alec: [00:09:12] All right. 

Bryce: [00:09:13] So I had nothing to do with it. 

Stephen: [00:09:16] So at the time you to look, there's probably no more serious competitive threat here than a combination of Woollies, who knows the Australian landscape and Lowe's, who knows hardware retailing and the fact that they packed up and left and shut it down after a couple of years is probably the strongest testament that you could possibly get to Bunnings strength. Now, likewise for Tractor Supply, in the last 30 years, both Walmart and Home Depot both had a go at Let's create a rural retailing concept to directly compete with Tractor Supply. And in both cases they packed up and shut it down. And in the subsequent years tractor supply has continued to take market share and they took a lot of share through the pandemic. They've won a lot of new customers, particularly interestingly, the profile of the new customers, a bit younger, more female demographic, slightly closer to urban centres. And they have been before and they've kept most of those customers. That's a really good sign. And we like businesses that have. Have a high retention rate of happy customers and the customer satisfaction rates have never been higher. So they have more people spending more of their monthly shopping, if you like, with Tractor Supply, and they're happier than they've ever been. And the tractor supply market share continues to rise. So that gives us a lot of confidence that the business is pretty durable. Now, we'd be concerned if you felt that, well, you know, they're a bit arrogant. They feel like they might take their foot off the gas. But as we see where they're investing, we're pretty confident that they want to continue to invest in the stores, deliver value for their customers and keep pushing, widening that gap versus competitors rather than giving any sniff to the competitors to catch up with them. 

Alec: [00:10:56] You would have to be a pretty brave retailer now to say Wal-Mart couldn't do it, Home Depot couldn't do it, but we're going to do it. 

Stephen: [00:11:03] Yeah, that's it. And I thought that's on. I think, look, if I was the guy down the road from Bunnings, life would be pretty tough. Yeah. And every year it gets a bit tougher because they've got all the advantages of scale e-commerce. And I think that's the same is true of Tractor supply. But it's a good thing that they know that life is competitive and, and like with Bunnings, everything you can buy at an attractive supply store, you can buy somewhere else. So if they're going to get people through the door, they know that they've got to deliver value, they know they have to invest in the stores. They know that I can keep finding new ways to deliver value through and they had a very successful loyalty program in the last couple of years. 

Alec: [00:11:41] Yeah, let's talk about that, because I saw that when we were researching the company, 28 million neighbours, club mates, 28 million. Like that's Not Australia, right? And that's a meaningful percentage of the U.S. population, especially for a rural focussed retailer. Yes. 

Stephen: [00:11:59] Yeah. Well it means that track to supply now knows more about their customers than I did before. That's really valuable. What are people like and when do they shop and what are some and it might inform their decisions about, you know, what else can we put on the stores and but it also means that customers feel like they're getting rewarded for their loyalty. So it's been a real, real winning initiative. 

Bryce: [00:12:20] I'm just having a look at your portfolio, Stephen, and you've got at least five out of 15 stocks retailers, LVMH, L'Oreal, Tractor, Costco, Nike. So there's probably a question at the end, why retail? I love retail, by the way. So good to see 

Alec: [00:12:34] But not all of those five companies. 

Bryce: [00:12:37] But you know what I mean? As your consumer product. 

Alec: [00:12:39] They all have stores.

Bryce: [00:12:40] Yeah. Consumer products when you're looking at it well for it, for us sitting here thinking about assessing financials of retailing companies, are there specifics that you look for on a balance sheet on the income statement different to perhaps tech companies or other industries that we should be keeping an eye on? 

Stephen: [00:13:00] Yeah, well, if those are retailing or consumer businesses that you mentioned, I think broadly we know that consumer is tough. Consumers' preferences change. They're always looking for something new. If you're selling through supermarkets, if you're a Procter Gamble or Coke, then the supermarket's got a lot of muscle to push back on pricing and so on. Our life is tough for most consumer facing businesses. So we're looking for something special and something that's been evidenced over a long period of time. So those businesses you mentioned, Costco is another kind of retailing concept that's got quite differentiated features. It's a membership model. It's been very successful in many countries, including Australia, and we feel like there's something very durable about that. In the case of Nike, business has been remarkably successful over a long period of time and it continues to grow in the face of changing consumer preferences and competition. They continue just to get bigger and more successful. And likewise the LVMH is and and the L'oreal's have something very durable and very special. And when we can see that management is hungry to keep investing and pull away from their competitors rather than take the foot off the gas and let competition catch up. So tough selling to consumers broadly. And there's many, many well known consumer businesses that you will never see in our portfolio. But the ones that are there are there because those special attributes. 

Alec: [00:14:23] Some very high quality businesses there. So let's talk to one of the key differentiators when it comes to these tough industries like consumer, which is the quality of management. So you mentioned that you've met some attractive suppliers management when you went to the US. That's unfortunately a luxury that a lot of retail investors can't enjoy. So I guess tell us about management. You know, what were your impressions and how do you, you know, keep an ongoing finger on the pulse and, you know, continue to assess them? Well, in this case. 

Stephen: [00:14:55] Of Tractor Supply, they introduced the first external CEO in early 2020, right before the pandemic began. So sort of pretty tough times. He did get dropped into the CEO seat and how Lawton came from Home Depot, which I thought was a pretty interesting background. He was a merchant. Pricing and head of e-commerce. And I think what's been really valuable for tractor supplies. We do lots well, we've got a lot of long tenured management, but we could also benefit from some new perspectives. And so a few things that he's brought to the business are let's invest in our e-commerce proposition, let's make it really good. And it's been very successful. So about 10% of the sales are now e-commerce. But as you can imagine, a lot of pet food and stuff you buy there doesn't lend itself to being dropped at your front door. So 80% of that gets picked up in the store and lo and behold, oftentimes people will go into the store and buy other stuff when they do that. So e-commerce is one. Knowing that you've got to keep investing in the stores to make it a good environment for people to shop in. So he's putting quite a lot of capital into let's refresh the stores, make them look nice and make the layout easy to navigate. And the third thing he's done is on the land that tractor supply sits on, Only about half of it is occupied by the store. Well, what could we do with the other half? What they're doing is a garden centre. Now, what The first thing is, before they decided to do that, they asked their customers, What's the one thing that you'd like to get from us that we don't currently supply? And Garden Centres was the number one. 

Alec: [00:16:26] It wasn't tractors. Must've been a close second. 

Stephen: [00:16:31] All this land out there, we can put stacks of tractors. That would make a lot of sense. The customers said we like garden centres. It's been remarkably successful for Bunnings. I know that we go there as a family, you know, once a quarter and then you walk the aisles and you buy a bunch of other stuff you never thought you needed at the same time. Yeah. And so for the tractor supply, that's a really smart way to use that extra land and it brings in customers that may not have otherwise shop there. Different profiles of customers gets people shopping more regularly. So that's been a really beneficial fresh perspective for the business that he's brought in. Really energised. But what he has doubled down on is that customer connect that you mentioned before Ren that we love outdoors, we love the country environment and we want people to know that we love what they love and that really solidifying that emotional connect with our customers has been really a strong message from the top. 

Alec: [00:17:23] One takeaway that I'm taking from this interview and an interview we actually did yesterday where we spoke about another US retailer floor and decor is that Home Depot seems to be a real training ground for retail CEOs because Foreign to call also has an ex Home Depot executive who's now their CEO. So it's similar to track to supply little. 

Stephen: [00:17:45] I think the Home Depot has been remarkably successful in. I doubt there's a lot of executives there that feel like my path in Home Depot is going to be limited. Where else can I go and get a very senior job? So that certainly attracts supply. 

Bryce: [00:17:56] Yeah. So just to kind of close out on the management piece, what are some of the key resources that we can use as retail investors to keep abreast of what management are doing? Like in the earnings calls, there's, you know, the report that they put at the top of all the annual reports as well. What do you use outside of flying and speaking to them actually. 

Stephen: [00:18:15] Look, I think in the same way that you think what will you be very sensitive to? What we're sensitive to like is any departure from what works in ways that might upset customers. So retailers start to get a bit aggressive on price. You're like, you know what? I could we could charge 5% more for everything. And would people really know and over time that they will know. So if your proposition is that we want to put high quality goods on the shelf at good value prices and you start to get a bit greedy, Number two would be just not investing in the stores. It's like any building over time, they just get tired and the retail environment will suffer. And with Tractor supply, as I mentioned, that they're really pushing a lot of capital into improving those stores. And number three would be the people. A really key part of a shopping experience is the quality of people. Are there enough their are they motivated to service the customers, help you navigate the store checkout queues and so on. So you can read the transcript and then the reports. But the shopping experience, if you're a local investor in Australia, you can get pretty close to the action when you walk into a Woollies recalls or a JB Hi-Fi or any other listed retailer. I think those three is a store. Is it well serviced? And is pricing starting to feel a bit no longer good value? 

Bryce: [00:19:35] MM Well Stephen, we are about to chat about competitive threats, risks and the future of tractors. But if you're sitting at home and really enjoying what Stephen is saying, the good news is that we found out just before we kicked off this interview, Aorus is about to be listed on the ASX in a couple of months time to give retail investors access to the concentrated portfolio that we're talking about now. So Stephen, do we just keep an eye on the website? How do we do what's best for our listeners if they want to know when it's listed?

Stephen: [00:20:05] I think if people keep an eye on the website we're currently expecting in April or May. Okay. Unit trust to be accessible by the ASX. So the website's best way to keep abreast of it. 

Bryce: [00:20:19] Awesome. Well, yeah, we'll put a link in the show notes to the website, but we're going to take a very quick break and on the other side start having a chat about the competitive threats and risks and as I said, where the company is going. All right. We're chatting with Steven Arnold, managing director and CEO of Aorus. But before we get back into it, a reminder that if you're interested in upskilling and learning more about valuation and how to apply it to your investing journey, we currently have $100 off our Value Investor program, an online course that we've developed with Alan Rusk that'll teach you everything that you need to know about the basics of valuation. Great. Course Ren. Use the code mates at checkout for $100 off. Link in the show notes. 

Alec: [00:20:59] How good. Well Stephen. Let's get back to Tractor Supply. And I guess we've spoken a little bit about competitors. You know, we've spoken about Wal-Mart and Home Depot trying to muscle in on this space. Seems like track two suppliers beaten them back. So I guess the question is, what keeps you up at night when you're thinking about this company? What competitors make you worried or just generally what makes you are?

Stephen: [00:21:23] I think the few things we look for online is a natural competitive consideration, if you like. There's all the lots that we can buy on Amazon and other places as well. Unfortunately for Tractor Supply, just the heavy nature means that delivery costs are always going to be an impediment to making the economics work well. So I think that the tractors supply business is pretty well positioned for that. But what online does is also provides price transparency. We're going back to the issue of pricing. In order for a retail concept to be durable, then price has got to stay fair and competitive. And it's a lot easier for people to know. Well, I could buy this a tractor supply, but what are other retailers charging for it? And in a way that pre-Internet, it just wasn't as visible. So that's one I think we'd be nervous if we felt that management was suddenly trying to get to the destination fast if they got a bit impatient. And if they can keep opening 70 stores a year on a base of 2000, that's about 3%. That's pretty manageable. But if you tried to do 200, then the staff required to make that work is going to get pretty stretched and problems are more likely to happen. So the steady nature of growth, I think is key. Impatience would be a problem. And then also in a tight labour market, your staff and keeping them in the store motivated and happy is important. So the wage rate is important. We know we're in an inflationary environment. We know we're in a tight labour market and tractor supply I think has got to be to recognise that and make sure that their wage rates keep pace with what competitors are offering. 

Bryce: [00:22:59] How have they been able to manage inflation over the last couple of years? Well, 12 months. 

Stephen: [00:23:05] They've done a good job and there's a lot of retailers aware. I think too, two problems have happened. One is that you haven't got stock so empty shelves then customers are disappointed. They go elsewhere or two suddenly supply chains ease up and you've got too much stuff and then you've got to clear it. And that's costly. And tractor supply, perhaps leaning back on the advantages of scale and the logistics infrastructure network, have struck a good balance. They haven't had too much or too little. That's been key. And then in terms of price inflation, they've done a good job of passing it through without being aggressive, if you like, and not looking at, well, the cost of this product is up by 10%, but we can charge 12% more and get away with it. I think that mindset that we're here for our customers is important and working hard, using that scale leverage to push back on your vendors to try and get the best deal possible and and passing on what you need to pass on and on that they have are about a third of what they sell goes on to their own private label brand. And that's a big advantage because it means that if a vendor number one isn't coming to the party, then under your private label brand, you can deliver value. You can change the manufacturer of your private label brand that there's a lot of advantages that come with having an established, trusted brand. And that's important in areas like livestock and pet food and apparel. They have that private label brand, which in an inflationary environment is an extra tool in the toolbox. 

Alec: [00:24:30] And I guess zooming out from Tractor Supply and just thinking about your portfolio as a whole, you know, we've just got through earnings season. It seems like earnings season never ends in the US, but what do you like? What's the general sentiment that you're hearing across your portfolio companies? Because it felt like last year, you know, there was a lot of inflationary pressures in transport and then, you know, we saw like commodities, like lumber and, you know, energy and all of that stuff. And now, you know, is it labour? How sticky is it just generally, what sense are you getting across your portfolio at the moment? 

Stephen: [00:25:02] I think across our portfolio businesses, the outlook for 2023 is okay, there's no business we own today that we expect to earn less this coming year than last year. But I think for the economic picture, perhaps the economy will grow, that the pocket where it grows might change this year. I think the housing market's one big part of the US economy that's going to maybe be smaller this year than last year and the spend through retailers like Home Depot. They will reflect that. And we just gone through a couple of years where people are spent more than normal on the home and then you come out the other side and naturally people spend a bit less. But what they are doing more is that they're still they're travelling more. Maybe there's hospitality is benefiting from that. The employment market seems pretty healthy. Unemployment rates close to a record low. People are getting paid more, but where they're spending money is changing a little bit. 

Alec: [00:25:53] So that doesn't seem like, you know. 

Stephen: [00:25:59] I Think that's the case that there's always going to be through a through I think the key message that we've been learning through the last year or so is that the better businesses do a better job in all of this. So Tractor Supply is going to navigate these challenges better than their small appears. I think L'Oreal in their markets doing a better job than their smaller peers and taking share. So that's our overarching principle own the best and we're not interested in the second best at any price. It's it's the best or nothing for us. 

Alec: [00:26:23] Yeah, it's a very simple statement, but it really sums up a lot of investing. The better businesses do the best. 

Stephen: [00:26:30] I think that it's served us well and it's probably been really valuable through the pandemic. If you go I in good times, the analogy I use, if I can share that with you, is a couple of mornings a week, I might go for a bike ride before work. And when you're going downhill, you know, everyone's going downhill pretty fast because the hills doing the work and that's like good economic times. Everyone's doing pretty well. But when you're going up a hill, the stronger riders really pull away and then you can see who's best. And that's very much the case in tougher economic conditions, the better businesses pull away from their peers in ways that aren't so obvious in good times. 

Bryce: [00:27:05] Just to touch on Home Depot, we as we said, we had an interview yesterday about floor and decor. And it's just constantly a company that comes up is like the number one threat for all of these more, I guess, niche retailing businesses in America. But it's also compared to Bunnings. It's one of those just amazing retailers over in the States. Is there a reason that it's not in your portfolio? Like how do you if it's such a great business, what are the reasons that it's been excluded? 

Stephen: [00:27:30] Only owning 15 businesses allows us to set up a quality and price criteria very, very high. So there's lots of great businesses that don't just fit into the portfolio today based on what else is there, it perhaps it's not the best time because of valuation or there's just better opportunities. So it's a business that we admire. They've done a fantastic job the last decade. And while perhaps Lowe's has struggled and then Home Depot has pulled away, but it might be that Loews gets their act together and provides more effective competition to Home Depot. So there's lots to like about it. For us, the best 15 businesses just don't include it right now. Yeah, yeah. 

Alec: [00:28:08] I was actually listening to a podcast this morning talking about this has become a Home Depot website and they were talking about Home Depot's report because I think they reported this week or late last week and the share price fell about 6%. Wow. So is a bit soft. Yeah. 

Stephen: [00:28:23] Okay. Well, one of the advantages that within our portfolio, the retailer that we own is Costco. What makes them one of the many things that makes them perhaps attractive and effective is that they sell lots of stuff. So Home Depot is a bit of a narrow business where it's very much serving a home construction renovation and detail y and so on. Whereas Costco, as people spending shifts away from buying barbecues to buying something else, then through their store, they can just reposition their merchandise to where the customer dollar has been. And that's been really effective. And that gives us confidence that while pockets of the economy, like the housing market might ebb and flow and their business is much broader and it allows them to navigate those fluctuations in different sectors more effectively than an Arab narrow business. 

Alec: [00:29:09] And one thing that will never change with Costco is the dollar 50 hot dog and Coke combination. 

Stephen: [00:29:14] That's right. That's right. 

Alec: [00:29:15] About that Business. 

Stephen: [00:29:17] That's right. The pizza slices, the dollar 50 hotdog combo. Yeah. Yeah. It's really integral to the ethos of the company.  Alec: [00:29:26] So as we get to the end of this interview, we really want to finish with a conversation of where Tractor Supply sees itself going and, you know, if the management can execute well what this business looks like in ten years, is it just that consistent organic store growth? Is it new concepts where the management team today talking about where the business is going to be in the future? 

Stephen: [00:29:49] Look, I think the next ten years will be more of the same. That's what we want to see is let's open another 70 stores a year and there's lots of America where there's big, big geographic regions. They're not well represented, so there's plenty of room for growth. But if it's measured, if it's thoughtful, then then that will work. Well, continue to invest in existing stores such that more customers want to spend more money there. And let's think about what else we can offer customers. I think. Well, I think a good retailer has what I call optionality with customers. If people trust in a Bunnings, there's lots of stuff that Bunnings can sell that might seem same outside of the, if you like, the DIY remit, but people come there they trust that you're going to put. Good value in front of them. And they'll buy all sorts of a wide variety of things. So for tractor supply, garden supplies is one right now, and there might be other categories that they can successfully utilise that customer relationship. One of the other advantages that they got versus other retailers is it's just proximity to their customers. So they kind of act as a trip consolidator in order to. If I wasn't shopping a tractor supply, I might have to go to three other stores to get all of my stuff. So they're saving people time and travelling and gas costs, if you like. So there's more things that they can put in their aisles that save customers from travelling somewhere else and that people are really willing to entrust tractor supply with their dollars. So I think sort of consistency, investing in the stores, finding other ways that they can serve their customers will mean I think the next ten years is going to look a lot like the last, which means sales grow about 8% per annum, pretty consistent profit margins. And maybe that translates with share repurchases to EPS growth of in on a 10%. And and if they do that, that'll be a great outcome for shareholders. 

Alec: [00:31:40] Great. Well, Bruce and I are actually going to be in Nebraska in a couple of months. We're going to Warren Buffett's annual meeting. And I assume there's a few tractor supply stores across Nebraska. So maybe. 

Bryce: [00:31:54] We should try and visit all the American retail companies that we've spoken about. I call Chipotle. Anyway this heaps. Stephen, thank you so much. It's been an absolute pleasure. We've taken a lot out of this interview. It's been fascinating, great sort of insight into how you think about not only tractor, but just broadly approaching retail companies. It's it's been really good. We do have one last question. Every year, Equity Mates holds the Equity Mates Awards where we sort of recognise platforms, products and people that are contributing to our community. As an expert, you are now in the running to win this. Anyone who appears on the show default entry at the end of the year, our community vote on who they think was one of the most enjoyable and valuable interviews to help them with that. If you were to win, where would you put the trophy? Kind of like that. So it's a glass thing. 

Stephen: [00:32:53] Oh, like maybe tucked behind the books on our bookshelf. 

Bryce: [00:32:58] Not on public display. Interesting. Now, we do appreciate it. So thank you so much. If you're listening at home, a reminder to keep your eye on the website as Aoris is listed on the exchange. In the next few months, we'll put a link to the website in the show notes. Please write and review the Equity Mates Investing podcast if you can. It goes a long way to helping us get in front of new people on the charts and we really do appreciate getting your feedback. But Stephen, thank you so much for the interview today. We really appreciate your time. 

Stephen: [00:33:29] Thanks, Bryce. Thanks, Ren. 

Alec: [00:33:30] Thanks, Stephen.