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Section 1: 8-K (FORM 8-K TRACTOR SUPPLY COMPANY)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
 
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


 Date of Report (Date of Earliest Event Reported): October 25, 2018

  395475334_tscologoa20.jpg
Tractor Supply Company
__________________________________________
(Exact name of registrant as specified in its charter)
 
 
Delaware
000-23314
13-3139732
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
 
 
5401 Virginia Way, Brentwood, Tennessee
 
37027
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code:
(615) 440-4000

Not Applicable
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 ((§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] 





Item 2.02 Results of Operations and Financial Condition.
 
On October 25, 2018, Tractor Supply Company (the "Company") issued a press release reporting its results of operations for the third fiscal quarter ended September 29, 2018. Additionally, the Company updated its guidance for the results of operations expected for the full fiscal year ending December 29, 2018.
 
A copy of the press release is furnished herewith as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits:
 
This exhibit is furnished pursuant to Item 2.02 hereof and should not be deemed to be "filed" under the Securities Exchange Act of 1934.
 
 

 
 
 
 





SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
Tractor Supply Company
 
 
 
 
October 25, 2018
 
By:
/s/ Kurt D. Barton
 
 
 
 
 
 
 
Name: Kurt D. Barton
 
 
 
Title: Senior Vice President - Chief Financial Officer and Treasurer
 

 
 
 
 
 





EXHIBIT INDEX
 
 
 
 
Exhibit No.
 
Description
 
 
 
99.1
 






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Section 2: EX-99.1 (EXHIBIT 99.1 - PRESS RELEASE DATED OCTOBER 25, 2018)

Exhibit


395475334_tscologoa20.jpg
www.TractorSupply.com


TRACTOR SUPPLY COMPANY REPORTS THIRD QUARTER 2018 FINANCIAL RESULTS
Net Sales Increased 9.3%; Comparable Store Sales Increased 5.1%
Diluted Earnings Per Share Increased 31.9% to $0.95
$398.4 Million of Capital Returned to Shareholders Year to Date
Company Raises Fiscal 2018 Financial Guidance


Brentwood, TN, October 25, 2018 - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail chain in the United States, today announced financial results for its third quarter ended September 29, 2018.

“We are delighted with Tractor Supply’s third quarter results and are on track to deliver a strong year in 2018. Our 5.1% comparable store sales growth increase in the quarter was driven by continued execution of our ONETractor strategy that drove both average ticket and transaction count increases for the quarter. The team did a great job managing our product assortment, marketing events and store experience as we cycled a strong comparable store sales increase of 6.6% in the prior year’s third quarter. We have raised our full year outlook to reflect the strength of our business and the positive macro economic factors,” said Greg Sandfort, Tractor Supply’s Chief Executive Officer.

Third Quarter 2018 Results
Net sales for the third quarter 2018 increased 9.3% to $1.88 billion from $1.72 billion in the third quarter of 2017. Comparable store sales increased 5.1%, as compared to an increase of 6.6% in the prior year’s third quarter. The comparable store sales results included increases in comparable average ticket of 3.6% and comparable transaction count of 1.4%. The increase in comparable store sales was primarily driven by broad-based strength in everyday merchandise, along with robust growth across spring and summer seasonal categories. All merchandise categories delivered increased comparable store sales, as did all geographic regions.

Gross profit increased 8.8% to $653.1 million from $600.5 million in the prior year’s third quarter, and gross margin decreased 16 basis points to 34.7% from 34.9% in the prior year’s third quarter. The slight decline in gross margin resulted primarily from an increase in freight expense due to higher carrier rates and increased diesel fuel prices, partially offset by the strength of the Company’s price management program.
 
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 10.6% to $500.0 million from $452.2 million in the prior year’s third quarter. As a percent of net sales, SG&A expenses increased 31 basis points to 26.6% from 26.3% in the third quarter of 2017. The increase in SG&A as a percent of net sales was primarily attributable to higher incentive compensation from the strong year-over-year growth in comparable store sales, along with planned investments across infrastructure, labor wages and technology to support the Company’s strategic long-term growth initiatives. These SG&A increases were partially offset by leverage in occupancy and other costs from the increase in comparable store sales.

The effective income tax rate was 21.5% compared to 36.4% in the prior year’s third quarter. The decrease in the effective income tax rate was primarily related to the U.S. Tax Cuts and Jobs Act that was signed into law in December 2017 and, to a lesser extent, an incremental tax benefit associated with share-based compensation compared to the third quarter of 2017.

Net income increased 27.1% to $116.8 million from $91.9 million and diluted earnings per share increased 31.9% to $0.95 from $0.72 in the third quarter of 2017.






The Company opened 23 new Tractor Supply stores and seven new Petsense stores in the third quarter of 2018.

First Nine Months of Fiscal 2018 Results
Net sales for the first nine months of 2018 increased 8.9% to $5.78 billion from $5.30 billion in the first nine months of 2017. Comparable store sales increased 4.9% versus a 2.2% increase in the first nine months of 2017. Gross profit increased 8.9% to $1.99 billion from $1.82 billion and gross margin was 34.4%, consistent with the first nine months of 2017.

SG&A expenses, including depreciation and amortization, increased 10.9% to $1.46 billion and increased as a percent of net sales to 25.4% compared to 24.9% for the first nine months of 2017.

The effective income tax rate was 22.1% compared to 36.5% in the first nine months of 2017.

Net income increased 26.4% to $395.5 million from $312.9 million and diluted earnings per share increased 31.7% to $3.20 from $2.43 for the first nine months of 2017.

Year to date through the third quarter, the Company has repurchased approximately 4.3 million shares of its common stock for $289.2 million and paid quarterly cash dividends totaling $109.2 million.

During the first nine months of 2018, the Company opened 63 new Tractor Supply stores and 14 new Petsense stores and closed one Petsense store.

Fiscal 2018 Outlook
Based upon the results of the first nine months of fiscal 2018, the Company is providing the following updated guidance for the expected results of operations in fiscal 2018:

 
Updated
Previous
Net Sales
$7.84 billion - $7.87 billion
$7.77 billion - $7.80 billion
Comparable Store Sales
+4.0% - +4.5%
+3.0% - +3.5%
Net Income
$522 million - $528 million
$505 million - $517 million
Earnings per Diluted Share
$4.23 - $4.27
$4.10 - $4.20

The Company now forecasts capital expenditures in the range of $260 million to $280 million for fiscal 2018 and an effective tax rate of approximately 22.3% to 22.5%.

Conference Call Information
Tractor Supply Company will be hosting a conference call today, Thursday, October 25, 2018, at 9:00 a.m. CT / 10:00 a.m. ET, hosted by Greg Sandfort, Chief Executive Officer; Steve Barbarick, President and Chief Operating Officer; and Kurt Barton, Chief Financial Officer. The call will be webcast live at IR.TractorSupply.com.

The call will be broadcast simultaneously over the Internet on the Company’s website at IR.TractorSupply.com. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast. A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.

About Tractor Supply Company
Tractor Supply Company (NASDAQ: TSCO) is in its 80th year of operation and, since being founded in 1938, has grown to become the largest rural lifestyle retailer in the United States. With over 28,000 team members, more than 1,700 stores in 49 states and an e-commerce website, Tractor Supply is passionate about serving its unique niche, as a one-stop shop for recreational farmers, ranchers and all those who enjoy living the rural lifestyle. Tractor Supply offers an extensive mix of products necessary to care for home, land, pets and animals with a focus on product





localization, exclusive brands and legendary customer service that addresses the needs of the Out Here lifestyle. The Company leverages its physical store assets with digital capabilities to offer customers the convenience of purchasing products they need anytime, anywhere and any way they choose at the everyday prices they deserve. At September 29, 2018, the Company operated 1,748 Tractor Supply stores in 49 states and an e-commerce website at www.TractorSupply.com.

Tractor Supply Company also owns and operates Petsense, a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-size communities, and offering a variety of pet products and services. At September 29, 2018, the Company operated 181 Petsense stores in 27 states. For more information on Petsense, visit www.petsense.com.






Forward-Looking Statements
As with any business, all phases of the Company’s operations are subject to influences outside its control. This information contains certain forward-looking statements, including statements regarding sales and earnings growth and estimated results of operations, including, but not limited to, net sales and comparable store sales, net income, earnings per share and capital expenditures. These forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company’s quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company’s operations. These factors include, without limitation, national, regional and local economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold, weather conditions, the seasonal nature of the business, transportation costs, including but not limited to, carrier rates and fuel costs, purchase price volatility (including inflationary and deflationary pressures), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses, including but not limited to, increases in wages, and execute key gross margin enhancing initiatives, the availability of favorable credit sources, the amount and timing of any share repurchases, capital market conditions in general, the ability to open new stores and distribution centers in the manner and number currently contemplated, the impact of new stores on the business, competition, including competition from online retailers, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified employees, product liability and other claims, changes in federal, state or local regulations, potential judgments, fines, legal fees and other costs, breach of information systems or theft of employee or customer data, ongoing and potential future legal or regulatory proceedings, management of the Company’s information systems, failure to develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes, including expected effects of the Tax Cuts and Jobs Act, and results of examination by taxing authorities, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, the ability to maintain an effective system of internal control over financial reporting, and changes in accounting standards, assumptions and estimates. Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

(Financial tables to follow)






Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)

 
THIRD QUARTER ENDED
 
NINE MONTHS ENDED
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
 
 
 
% of
 
 
 
% of
 
 
 
% of
 
 
 
% of
 
 
 
Sales
 
 
 
Sales
 
 
 
Sales
 
 
 
Sales
Net sales
$
1,881,625

 
100.0
%
 
$
1,721,704

 
100.0
%
 
$
5,777,775

 
100.0
%
 
$
5,303,544

 
100.0
%
Cost of merchandise sold
1,228,493

 
65.3

 
1,121,248

 
65.1

 
3,791,580

 
65.6

 
3,480,177

 
65.6

Gross profit
653,132

 
34.7

 
600,456

 
34.9

 
1,986,195

 
34.4

 
1,823,367

 
34.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
454,998

 
24.2

 
410,276

 
23.8

 
1,333,457

 
23.1

 
1,198,126

 
22.6

Depreciation and amortization
44,986

 
2.4

 
41,927

 
2.5

 
131,383

 
2.3

 
122,701

 
2.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
153,148

 
8.1

 
148,253

 
8.6

 
521,355

 
9.0

 
502,540

 
9.5

Interest expense, net
4,460

 
0.2

 
3,752

 
0.2

 
13,906

 
0.2

 
9,621

 
0.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
148,688

 
7.9

 
144,501

 
8.4

 
507,449

 
8.8

 
492,919

 
9.3

Income tax expense
31,904

 
1.7

 
52,605

 
3.1

 
111,943

 
1.9

 
180,063

 
3.4

Net income
$
116,784

 
6.2
%
 
$
91,896

 
5.3
%
 
$
395,506

 
6.9
%
 
$
312,856

 
5.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.96

 
 
 
$
0.73

 
 
 
$
3.22

 
 
 
$
2.44

 
 
Diluted
$
0.95

 
 
 
$
0.72

 
 
 
$
3.20

 
 
 
$
2.43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
121,876

 
 
 
126,416

 
 
 
122,818

 
 
 
128,293

 
 
Diluted
122,761

 
 
 
126,919

 
 
 
123,570

 
 
 
128,910

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share outstanding
$
0.31

 
 
 
$
0.27

 
 
 
$
0.89

 
 
 
$
0.78

 
 




















Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)

 
THIRD QUARTER ENDED
 
NINE MONTHS ENDED
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Net income
$
116,784

 
$
91,896

 
$
395,506

 
$
312,856

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Change in fair value of interest rate swaps,
net of taxes
227

 
36

 
2,611

 
165

Total other comprehensive income
227

 
36

 
2,611

 
165

Total comprehensive income
$
117,011

 
$
91,932

 
$
398,117

 
$
313,021








Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

 
September 29,
2018
 
September 30,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
71,302

 
$
70,046

Inventories
1,737,273

 
1,591,555

Prepaid expenses and other current assets
109,478

 
75,618

Income taxes receivable
23,655

 
4,776

Total current assets
1,941,708

 
1,741,995

 
 
 
 
Property and equipment:
 
 
 
Land
100,250

 
99,323

Buildings and improvements
1,096,222

 
1,013,937

Furniture, fixtures and equipment
632,985

 
593,329

Computer software and hardware
334,497

 
259,508

Construction in progress
117,454

 
56,006

Property and equipment, gross
2,281,408

 
2,022,103

Accumulated depreciation and amortization
(1,169,359
)
 
(1,025,266
)
Property and equipment, net
1,112,049

 
996,837

 
 
 
 
Goodwill and other intangible assets
124,492

 
124,492

Deferred income taxes
13,485

 
40,592

Other assets
29,200

 
24,435

Total assets
$
3,220,934

 
$
2,928,351

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
683,672

 
$
609,883

Accrued employee compensation
51,673

 
34,497

Other accrued expenses
209,199

 
186,037

Current portion of long-term debt
26,250

 
22,500

Current portion of capital lease obligations
3,747

 
3,545

Income taxes payable

 
15,732

Total current liabilities
974,541

 
872,194

 
 
 
 
Long-term debt
547,505

 
487,228

Capital lease obligations, less current maturities
29,690

 
33,509

Deferred rent
108,487

 
104,617

Other long-term liabilities
65,414

 
59,402

Total liabilities
1,725,637

 
1,556,950

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock
1,372

 
1,362

Additional paid-in capital
793,090

 
703,292

Treasury stock
(2,420,106
)
 
(2,088,145
)
Accumulated other comprehensive income
5,969

 
1,557

Retained earnings
3,114,972

 
2,753,335

Total stockholders’ equity
1,495,297

 
1,371,401

Total liabilities and stockholders’ equity
$
3,220,934

 
$
2,928,351







Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
NINE MONTHS ENDED
 
September 29, 2018
 
September 30, 2017
Cash flows from operating activities:
 
 
 
Net income
$
395,506

 
$
312,856

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation and amortization
131,383

 
122,701

(Gain) / loss on disposition of property and equipment
(285
)
 
509

Share-based compensation expense
22,787

 
22,931

Deferred income taxes
5,009

 
4,626

Change in assets and liabilities:
 

 
 

Inventories
(284,065
)
 
(221,899
)
Prepaid expenses and other current assets
(21,226
)
 
14,939

Accounts payable
107,104

 
90,361

Accrued employee compensation
20,000

 
9,251

Other accrued expenses
667

 
(33,259
)
Income taxes
(29,667
)
 
9,154

Other
6,206

 
8,792

Net cash provided by operating activities
353,419

 
340,962

Cash flows from investing activities:
 
 
 
Capital expenditures
(193,693
)
 
(152,040
)
Proceeds from sale of property and equipment
2,029

 
10,880

Net cash used in investing activities
(191,664
)
 
(141,160
)
Cash flows from financing activities:
 
 
 
Borrowings under debt facilities
968,500

 
1,010,000

Repayments under debt facilities
(820,750
)
 
(773,750
)
Debt issuance costs
(346
)
 
(599
)
Principal payments under capital lease obligations
(2,725
)
 
(1,554
)
Repurchase of shares to satisfy tax obligations
(622
)
 
(771
)
Repurchase of common stock
(289,205
)
 
(326,647
)
Net proceeds from issuance of common stock
54,706

 
9,619

Cash dividends paid to stockholders
(109,159
)
 
(99,970
)
Net cash used in financing activities
(199,601
)
 
(183,672
)
Net change in cash and cash equivalents
(37,846
)
 
16,130

Cash and cash equivalents at beginning of period
109,148

 
53,916

Cash and cash equivalents at end of period
$
71,302

 
$
70,046

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest                                                                        
$
15,445

 
$
8,010

Income taxes
137,041

 
166,027

 
 
 
 
Supplemental disclosures of non-cash activities:
 
 
 
Property and equipment acquired through capital lease
$

 
$
11,395

Non-cash accruals for construction in progress
15,521

 
15,949






Selected Financial and Operating Information (a) 
(Unaudited)
 
 
THIRD QUARTER ENDED
 
NINE MONTHS ENDED
 
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Sales Information:
 
 
 
 
 
 
 
 
Comparable store sales increase
 
5.1
%
 
6.6
%
 
4.9
%
 
2.2
%
New store sales (% of total sales)
 
4.0
%
 
5.8
%
 
4.0
%
 
6.1
%
Average transaction value
 
$44.96
 
$43.39
 
$45.43
 
$44.23
Comparable store average transaction value increase
 
3.6
%
 
1.5
%
 
2.7
%
 
0.2
%
Comparable store average transaction count increase
 
1.4
%
 
5.0
%
 
2.1
%
 
2.0
%
Total selling square footage (000’s)
 
29,333
 
27,762
 
29,333
 
27,762
Exclusive brands (% of total sales)
 
31.5
%
 
31.6
%
 
31.4
%
 
31.8
%
Imports (% of total sales)
 
11.0
%
 
11.4
%
 
11.5
%
 
11.7
%
 
 
 
 
 
 
 
 
 
Store Count Information:
 
 
 
 
 
 
 
 
Tractor Supply
 
 
 
 
 
 
 
 
Beginning of period
 
1,725
 
1,630
 
1,685
 
1,595
New stores opened
 
23
 
36
 
63
 
74
Stores closed
 

 
(1
)
 

 
(4
)
End of period
 
1,748
 
1,665
 
1,748
 
1,665
Petsense
 
 
 
 
 
 
 
 
Beginning of period
 
174
 
160
 
168
 
143
New stores opened
 
7
 
2
 
14
 
19
Stores closed
 

 

 
(1
)
 

End of period
 
181
 
162
 
181
 
162
Consolidated end of period
 
1,929
 
1,827
 
1,929
 
1,827
 
 
 
 
 
 
 
 
 
Pre-opening costs (000’s)
 
$2,826
 
$3,863
 
$7,034
 
$8,519
 
 
 
 
 
 
 
 
 
Balance Sheet Information:
 
 
 
 
 
 
 
 
Average inventory per store (000’s) (b)
 
$828.2
 
$796.5
 
$828.2
 
$796.5
Inventory turns (annualized)
 
3.12
 
3.11
 
3.19
 
3.15
Share repurchase program:
 
 
 
 
 
 
 
 
Cost (000’s)
 
$36,660
 
$78,500
 
$289,205
 
$326,647
Average purchase price per share
 
$81.23
 
$55.07
 
$67.33
 
$62.44
 
 
 
 
 
 
 
 
 
Capital Expenditures (in millions):
 
 
 
 
 
 
 
 
Information technology
 
$23.9
 
$14.8
 
$62.4
 
$49.1
Distribution center capacity and improvements
 
19.4
 
6.3
 
53.2
 
12.6
New and relocated stores and stores not yet opened
 
19.3
 
24.3
 
52.1
 
59.5
Existing stores
 
14.3
 
10.0
 
25.8
 
30.7
Corporate and other
 
0.1
 
0.0
 
0.2
 
0.1
Total
 
$77.0
 
$55.4
 
$193.7
 
$152.0

(a) Beginning in the fourth quarter ended December 31, 2016, selected financial and operating information includes the consolidation of Petsense unless otherwise noted. Petsense stores are not considered comparable stores until 12 months after the date of acquisition.  
(b) Assumes average inventory cost, excluding inventory in transit.  



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