In this episode of Industry Focus: Consumer Goods, Emily Flippen and Motley Fool contributor Dan Kline take a deep dive into a high-performing yet underrated retail brand. Get to know the company, its business, its strategies, and its management structure. Find out what makes it a good value proposition, whether it is still a good investment right now, and much more.

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This video was recorded on July 7, 2020.

Emily Flippen: Welcome to Industry Focus. It's Tuesday, July 7, and I'm your host, Emily Flippen. This week, I'm joined by Motley Fool contributor Dan Kline as we take a deep dive into one of the most, in my opinion, underrated retail winners of the past decade: Tractor Supply Company (NASDAQ:TSCO). Dan, how are you?

Dan Kline: Emily, I'm good, and I will point out that this is one the Fools forced onto our radar. I agree with you, this is an underrated company. We're going to uncover a lot of really exciting things that, I didn't know any of this before we started preparing the show.

Flippen: Yeah, as you alluded to, the reason why we wanted to take a deep-dive into this company today is actually because of a lot of the feedback we received after our last Retail Madness Bracket showdown. I think Tractor Supply Company was one of the companies that we included in our bracket, and not only did it make it pretty far but we had a number of messages and comments asking us to talk more about the company, do a deeper dive. It was truly -- the outpour of support for Tractor Supply Company was amazing.

And I have to say, when I started digging into this company deeper, I was super impressed. Over the past decade, Tractor Supply Company is up nearly 1,000% versus a market up just under 200%. So while neither of those are particularly bad, of course, I think we have to answer the question of why Tractor Supply Company performs nearly 5 times better than the broader market, and if those results are still replicable today.

So for a brief outline, I think Dan and I will work our way through the business, its strategies, its financials, its management structure, and kind of, end with answering the question: Is Tractor Supply Company still a good business to invest in today? So I guess with that, let's just dive right into it.

Kline: Yeah. Emily, so this is a poorly named company. I think the name of the company works against itself. If your business is the Coffee Hut, I'm going to assume you sell coffee and that's pretty much it. Maybe you have some pastries, maybe you have some coffee-adjacent products. I drove by a Tractor Supply Company for two years. Out in front of the Tractor Supply Company, they had a tractor and some bags of feed. This company sells a diverse array of products that, yeah, they do speak to the farming audience -- you can buy chickens, they will deliver you chickens. They do sell all the supplies you need for that. But that's something that if you garden in your backyard, they have the supplies you need for that.

But they also sell pretty much everything to do with the outdoors. So in the time period, where I drove by that, I had a backyard, and in that backyard, we were thinking about putting up a swing set or other form of playground material. Well, you can buy that at Tractor Supply Company, and they never communicated that to me, and I easily could've stopped in. So there is a marketing program that I think is hurting them for the broader customer.

But their audience knows who they are. This is a business that shifts with the seasons. So I joked about, they'll deliver you chickens, well, they'll deliver your chickens in the seasonality of when chickens are hatched, and there's different times of year where it makes sense in different markets to be raising chickens and, you know, go through the chicken life cycle. Same thing with planting, same things with all the other -- hey, in the Northeast, you don't want baby chickens showing up in the winter, like that's not a great idea --

Flippen: Oh! so, you're talking about live animals, you're not talking chicken breasts. [laughs] I'm not going there to get my chicken for grocery purposes, I'm going there to get farming chickens.

Kline: Absolutely. And you can't walk in every day and have that, because they don't, there is some seasonality to it. They also have a thriving, let's call it, broad pet-based business. You can buy your cat supplies, you can buy your dog supplies, you can also buy your goat supplies, your bird supplies, all of the, sort of, exotic things you need. They also have a pet brand that they have a couple hundred stores of as well. This is a really diverse company, but they are not farmers only, to joke about the dating service, they are really for everyone that goes outside.

And, Emily, I know you're going camping this weekend, you and I are not the most outdoorsy of people, but I have a few outdoors things I like to do. I own a kayak, not that I've been near it, it's in New Hampshire and I'm in Florida. But I had to buy a paddle for my kayak, I had to buy a life jacket. These are likely things that, in the right season, you could get at Tractor Supply Company. And I'm blown away by this. I had no idea this company did all of those things.

Flippen: Yeah, I'm with you in terms of both of your perspectives there, both, with the name of the company itself potentially being off-putting for somebody driving by, but also just maybe a lack of marketing and the different services they provide. Tractor Supply Company calls themselves "the largest rural lifestyle retailer in the U.S." And I love that, because I live near DC, I'm hardly living a [laughs] rural lifestyle, but to your point, I do occasionally go "out there," right, and I occasionally go camping. These are services that Tractor Supply Company does provide, but their core demographic has been people who are living what they call an "out here" lifestyle, people who are living in rural areas, who make repeat purchases for their, maybe, farm equipment. They get their chickens -- not their food, their animals, which could become food in the future [laughs] -- but they get those things regularly delivered to them from Tractor Supply Company.

And one thing that really stuck out to me was just the number of stores they have. They have over 2,000 Tractor Supply Company branded stores; that's not including their pet business.

Kline: Yeah, they have 200 Petsense stores. This is a company that knows its customer really well. And I think their room for growth is getting beyond the customer, because you said, Emily, rural lifestyle dealer. I don't want to be stereotypical here, but that conjures a certain image. I picture them selling overalls, chewing tobacco and a couple of other things, and that's not what they sell. You know, you're going camping, and I don't know how active your camping is going to be, but they sell the supplies you need. We're seeing a resurgence in RV sales in this country -- for obvious reasons, people want to take more solitary vacations with their families. All the things you need around an RV lifestyle, you could find at a Tractor Supply.

So the one negative I have about this company, and I hate to keep going back to it, is that they've somewhat pigeonholed themselves by serving their audience super-duper well. And they've done very well in the COVID-19 world. They've grown their sales, which is impressive. But I'm not sure that the outdoor gardener who wasn't an outdoor gardener six months ago didn't go to Lowe's or Home Depot, even if Tractor Supply is better supplied, maybe is a little more folksy in its approach, in its willingness to help you. It feels to me like there is a really unique opportunity that they could have capitalized on better.

Flippen: I'm going to push back against that a little bit, because I actually think this is where Tractor Supply Company's strategy comes into play. They aren't trying to compete with Home Depot or Lowe's, they're trying to understand their core market. And when you look at their sales, you alluded to this, nearly half of all their sales -- and this is consistent over time -- nearly half of all their sales are actually what they call life livestock products. So this is whether it's live chickens or feed, that's half of what they sell. So I think they like the fact that half of their sales go to people who can't get what they need at a Home Depot or a Lowe's, and they're focused on understanding that consumer, serving that consumer as best as possible, and making sure that person, who they've acquired as a customer, makes repeat purchases. That to me is their competitive advantage. I'm not sure how you view their competitive advantage, if they have any at all in your mind.

Kline: Yeah, they have a massive competitive advantage. So when you buy a chick -- and I just learned that a chick costs about $3 -- but you also need to go back and buy feed and all of the other necessary lifestyle -- there might be some medicines, there might be, I hate to say, some, let's call it, end-of-life tools you have to buy, when your chicken goes from being a chicken to being chicken. [laughs] And you're not necessarily doing that, there are markets you can sell into, but obviously, some people that are living this lifestyle are feeding their families with it.

So not only do they get you at the beginning, they have a very long cycle, and in theory, that cycle repeats. So that part I like a lot, and you pointed out in the notes, this is not a game Amazon wants to get into. It is very unlikely you're going to go to Amazon and they're going to like, "You know what we sell now" baby goats. [laughs] You want a baby goat? Come get it." So it's a niche, and that niche allows them to demonstrate to you that they understand. They can say, well, you're buying chicks, but are you buying those little warming lights that go in the little aquarium you keep the chicks in if you have them inside? I'm basing this on, like, three visits to farms; I don't know a ton about growing chickens, and I'm sure there are some free-roaming chicks that are allowed as well. But they can do that.

And while they're there, they could be like, "Oh, by the way, do you need this pair of pants that's going to handle well to working on the farm? Do you need this tool for cleaning up after your chickens?" Whatever it is, they sell it. And their ability to, sort of, take you through the process and expand that process, it's a pretty big moat, in my opinion.

Flippen: Yeah. And for all the people who listen to our podcast and are, like, oh, I already knew all this about Tractor Supply Company, I'm learning nothing. If you took away one thing, now you know a chick costs about $3. Look, it's a new fact. You learned something new. [laughs]

Kline: And, folks, don't go buy chickens if you're not ready to raise chickens. And I only point that out because rabbit sales go up every year around Easter. And I had a rabbit. My brother had a rabbit as a kid; it was kind of a miserable pet. You can't really let them out in the house. They're not all that easy to train. So you really don't get to interact with them that much. Chicks are cute; they turn into chickens. Chickens aren't all that cute; they're not great. You don't want to cuddle up with a chicken. [laughs] So think a little bit about why you're buying. And I made Emily laugh here, but I thought that a public service announcement was necessary.

Flippen: [laughs] The life lessons you learn.

So let's move on to their strategy, because we talked a little bit about their growth over the past decade. And part of what's contributed to that growth has just been a huge number of new store builds. I said they already have over 2,000 stores. They're a $15 billion company. I think it's fair to say the cat might be out of the bag here in terms of the explosive growth potential that Tractor Supply had over the past decade. What is their strategy for fueling growth for the next decade?

Kline: It's two things. One is to just get better at what I was talking about before. Retaining your customers and selling them more things that relate to the overall lifestyle. The second piece of it, and this is where real value could be unlocked, is improving their supply chain and their distribution and handling more of it themselves. So ideally -- and this was hastened by COVID-19. Obviously, they had to roll out things like curbside pickup, and that hasn't been done well everywhere.

So we had to buy a shower curtain this weekend; we did curbside pickup at Bed Bath & Beyond. It wasn't that we didn't want to go into Bed Bath & Beyond, it was that we ordered it online and that seemed to be the easiest way to do it. And they do it a lot like how Tractor Supply does it. You go to the store, you park in a designated space, you call them and you say which space you're in, then they come out and do it. The problem is, at Bed Bath & Beyond, they didn't tell you what the name of the space was. So there were a number of spaces. In the case of Tractor Supply, there's only two spaces. I'm in space one, I'm in space two, they are marked. They'll put it in your trunk, you can go on your merry way. They have very quickly had to spin up that kind of innovation. Same-day delivery was something that wasn't particularly on their radar. They had to get to that very quickly.

That's going to allow them to unlock growth potential, where maybe your Tractor Supply is a little farther away from you than some of your other options. Obviously, there's many more Lowe's and Home Depots. But if you like Tractor Supply, if you're a loyal customer and they can get it to you same day, well, maybe you won't go to Lowe's or Home Depot or some other alternative. So they're in, I would say, the early days of being a truly omnichannel retailer, but they understand how it needs to be done. They've already had a really good relationship with their customer.

So let's go back to the pre-app days at Starbucks. Because Starbucks customers like Starbucks, when you go in and your phone says, do you want to download the app? You go, "Yeah, I want to download the app. I like this company; I identify with this company." That is an advantage, I think, Tractor Supply Company has, that when they try something new, their customers should adopt it, and they're working way faster than they were previously, because there are some people who can't or don't want to go into stores right now, but they're very well positioned going forward.

Flippen: Yeah. And part of that growth strategy, in my mind as well, is even just retaining the success of the business that they've seen over the past decade. You alluded to the app experience. One of the things that Tractor Supply Company has done, I think starting in 2017, was roll out a loyalty program. I believe it's called Neighbor's Club. And it's a free program, but the idea is to create closer relationships with the most frequent customers. And there are actually a lot of merchants and suppliers that will provide exclusive coupons to people who are members of Neighbor's Club. And that's largely because the customer base of Tractor Supply is so niche; it's not an easily substitutable product that they sell that you can just order online, as you alluded to, for Amazon earlier.

So I think part of the growth strategy is retaining success from the customers that they've spent time and money to acquire in the past.

Kline: Yeah. Think of this like ESPN. ESPN doesn't have the biggest audience of any network, but has a very well-defined audience. So it generally has the highest ad rates. You know that men ages 18 to 54 are going to be watching ESPN; that is an overwhelmingly large part of their audience. That's also a really desirable demographic, because once you're older than that, advertisers don't care about you all that much, unfortunately. So they get to charge more per person. In the case of those exclusive deals, the companies Tractor Supply deals that want access to the Tractor Supply audience, that's really, really valuable. Like, you want to be on their shelves, because you know it can make and break your brand. So that's when you get into companies paying you for shelf space. You know, if you want to break into a grocery store, not only do they have to approve you, but you're buying that shelf space and hoping you're selling through enough to make money on it. That's really rare for specialty retail.

Back in my toy store days, the toy companies all wanted me to sell their toys; they weren't paying me to do so. And frankly, some of the big companies, like, Hasbro, didn't want me to sell their toys. Tractor Supply has a real advantage of having a well-defined audience.

Flippen: And between expanding their omnichannel presence, expanding their relationships with customers, there still is the potential for them to build out stores. I was skeptical about the number of stores that Tractor Supply had -- or at least I think I presented it, kind of, skeptically, in the context of 2,000 stores is a lot. And we've seen a lot of retailers overextend themselves in terms of their physical store presence without investing enough into their omnichannel presence. And while I have some of that fear with any brick-and-mortar retail store, I think it's interesting that Tractor Supply, even at the large number of stores it has today, still thinks that long term, they can build out another 600 Tractor Supply stores and another 800 Petsense stores. That's a lot of growth potentially still ahead of it.

Kline: Yeah. And those numbers don't surprise me, because 2,000 stores, in the relative scheme of things, isn't that many. And some of this is, what are the demographic shifts that are happening right now? People who are learning how to garden in their backyard out of boredom, some percentage of those people are going to keep doing that, and they're going to get more sophisticated. So they might grow from, "Yeah, I bought my supplies wherever I bought my supplies, I got my seeds at the grocery store, I got some other things at Home Depot or Lowe's." That customer might research and find out about Tractor Supply or be more willing to go into a Tractor Supply.

There's going to be a natural shift of people to the suburbs if work-from-home becomes more of a thing. Now, do I think people are going to flee the cities? I absolutely don't. I live in a city, there's a lot of positives to living in a city, I don't have an outside -- you know, I don't have my own private yard, so I can't grow anything, and I'm just fine with that. But I do think it's a natural cycle that as people's kids get older, they want more space, they move to the suburbs. A lot of people live in a city because it gives them access to work. If you no longer have to do that and you weren't a city person in the first place, you're more likely to move to a suburb or maybe even a rural area. That's going to open up new markets for Tractor Supply Company.

And with Petsense, basically there's an endless need for pet food. That's a tough space. I feel a lot better about the Tractor Supply brand, which is very unique, than being in the pet food brand, which is more generic; I don't care that much, I don't have particular loyalty to where I buy my pet food. We buy our pet food at the grocery store, whichever grocery store we happen to be in, as long as they carry the brand. We tend to order litter online; we've done it from Amazon; I have two cats. And I'm not particularly loyal to any of those; I'll buy it wherever I happen to be going by. So I'm not as bullish on 600 new Petsense stores, though I'm guessing they do sell a wider range of pet food than maybe your traditional pet store.

But I do think 600 new Tractor Supply, especially if they open up their marketing a little bit, because lots of people are not farmers, but they do live an outside lifestyle, they do want play areas for their kids. A lot of people are building fire pits -- which seems to me like it's going to end up with a lot of people with minor burns -- but that is becoming a trend. All of those supplies can be purchased at Tractor Supply, they just need to tell more people that.

Flippen: Yeah. And I think that's a really good segue into their financial performance. I agree with a little bit of your skepticism of the Petsense. For anybody who has listened to me talk about the pet industry in the past, they know I'm a big fan and shareholder of a company called Chewy, which is owned by PetSmart, so that's a problem within [laughs] itself, you could argue, but is operating in the e-commerce space for pet products. And it's a competitive industry, but I think in the context of Tractor Supply Company, which does see a lot of overlap between the farmers and the rural lifestyle enthusiasts who shop at their stores and the people who own pets. And the problem is that the products they sell at a company like Petsense are typically lower margin and more easily substituted than the products that they're selling at their core Tractor Supply stores. So I can understand that there might be some connection, some overlap in that customer base, that could give some economies of scale, if you will, to the expansion of their Petsense stores.

But I am generally more enthusiastic about their home-branded Tractor Supply stores, because as I alluded to earlier, their margins for that are actually higher than I would've expected before diving into this company. So maybe we can just answer the question about, how does all of this work? All of this investment, all of this customer acquisition, how is it translated into their financial performance?

Kline: So in the middle of a pandemic, their same-store sales were up 7.5%. Same-store sales means stores that have been open at least a year, so you have a full-year to compare, did they grow? The fact that they're up at all is stunning in this market, but when you dig into their business, you understand why.

Your goat still needs to eat even if there's a pandemic. Your garden probably still needs to get planted. Your farm still needs its pesticides. You're still wearing out your farming gloves and your tools. And I have no idea what tools farmers wear, I'm picturing them all dressed like scarecrows, and I don't think [laughs] that's how it works anymore. All of those things don't care that there's a pandemic going on. So we've seen an interesting shift in business. They have less visitors, but those visitors are spending more money. That basically fits the pattern of any successful retail business during the pandemic.

I used to go to Target three times a week; I go to Target maybe once every two weeks now, and I'm buying more when I do it. Same with grocery pickup. This is a company with very little debt. They retain their customers incredibly well. And they are able to raise [laughs] their margins even selling something that's pretty much a commodity. I'm not really sure how they do that, but my guess is, as they're growing, they just have more and more leverage over their suppliers. And much like Home Depot and Walmart can go to their suppliers every year and say, "We want you to cut costs by 2%, we don't care how you do it, but we want you to do it." I'm guessing, in a lot of cases they can do that.

Emily, what stood out for you on their financials?

Flippen: Yeah, one thing really stood out to me, but I think you might have just answered the question that I was about to pose, which was about how they retain such a stable business admitting increasing labor cost? Because what stood out to me is, I don't think I've ever looked at a business that is as [laughs] perfectly stable as Tractor Supply is. Their sales for the past five years have been 47%, just that livestock and equipment. I mean, every single year, it's -- they know their demographic, they know their audience, they know their customer so well. The business itself is so stable. And the margins have been incredibly stable despite the fact that labor costs continue to rise. When I looked at it, my immediate thought was, well, they obviously invest a lot in their employees, having people who subscribe to the "out there" lifestyle; living and breathing that customer experience, working in their stores, maybe that keeps their costs lower, because there's less employee turnover. I didn't think about it from your perspective that you raised, though, which is maybe they have leverage with their suppliers, which prevents them from passing these costs on to their customers.

Kline: They have an incredibly loyal employee base, which I think is absolutely essential for this business. I mentioned Barnes & Noble earlier as a company that lost its advantage. You used to be able to walk into a Barnes & Noble and know that the people who work there knew books really, really well; that is no longer the case. Tractor Supply is holding on to its employees, that means when I walk into a Tractor Supply and say, "I have no idea how to do any of this. I have a small little plot that I would like to plant, I'd like it to be pretty flowers that don't die very easily. Could you tell me what I need and what I'm supposed to do?" That's not their core customer, but it's an essential customer if they're going to grow. So they need to do that, they need to have workers that move up within the company.

But, Emily, that brings me to the one thing I don't like about this company, and you pointed it out. Their CEO, Hal Lawton, has only been there since the beginning of the year. He's not an insider. The previous CEO had been there since 2012, Hal Lawton was the President of Macy's; and he also oversaw the expansion of Home Depot's internet strategy, that's not a good one, that's not a feather in your cap; and merchandising at eBay. You pointed out in the notes, like, is that even a thing? [laughs]

Flippen: Yeah, I was so confused, I didn't know eBay had merchandising. [laughs]

Kline: So I question, you know, did they pick a name out of a hat? Like, why didn't they have someone internal who could be the CEO? It doesn't speak to their culture to me.

Flippen: I completely agree. When I was putting some of these notes together, before I got into the management team, of which I knew very little, I actually went to the company culture first. I was really interested, it was a natural expansion of everything we just talked about, the labor cost. You know, I was thinking to myself, employees must stay there a long time. And reading through their financial statements and the management discussion, I was very much hearing that process reiterated. Their employees participate in a company incentive program that provides bonuses based on company performance. So employees are really invested in the performance of the company. And they even explicitly state that they specifically promote from within.

So I agree, Dan. I was shocked to see that for a company that's quite literally stating to shareholders, "W like to develop internal talent and promote from within so that our employees see this not as a job but as a career." And then they bring an outsider from, of all companies, Macy's in to lead; that, to me, was a really big head scratcher.

Kline: And I hope this is one of those scenarios where you have a very active board, you didn't make a lot of other changes in the C suite, and Hal Lawton is going to come in and not fix what isn't broken. What concerns me about this is, all three of those are not digital success stories. And the area where they have to adapt -- now, I'll give Hal Lawton credit, they've adapted really well to COVID-19; that makes me somewhat encouraged about his ability to lead this, much more so than his resume. You know, they need to become a fully omnichannel company, and his past says he doesn't exactly understand how to do that. But perhaps he learned from the lessons. Home Depot is still not a great online shopping experience. Neither is Macy's, and eBay; I'm not even going to talk about it there. So this is really my one red flag on a company that otherwise is very green to me.

Flippen: Yeah. Although I have to admit, normally, I'm pretty willing to overlook one negative thing. I think it's very rare that you find a company that looks perfect in all respects, and if you do find a company that looks perfect in all respects, maybe you aren't taking a deep enough look at it. Because I think with any company, you can make a good argument about why it will or will not succeed. That being said, if I'm going to overlook a red flag for a retail company, the last thing I want it to be is management, because as we've had these conversations week over week, month after month in Industry Focus: Consumer Goods, the single thing, I think, that we always come back to, Dan, is the belief that management was not smart in retaining their retail strategy, that a lot of these retailers could have been saved if they had more proactive management. And while Tractor Supply Company doesn't need saving right now, if in the future it does, I don't know if I trust Hal to be the person to save this company.

Kline: He's done well so far, and I'll give him that credit. And there may be reasoning behind this that we don't know. Maybe he came up through the Tractor Supply system from the age of 19 to 25 and he knows that part of the business well. Maybe he was, you know, friends with Board members and they realized he was the right fit and everyone internal passed on this for a decade. But this does feel to me like a company, when you had a CEO who retired, voluntarily retired -- so, something he was likely aware of, unless it was a sudden retirement, which I don't think it was -- it feels to me that there should have been two or three internal candidates competing for the job in a pleasant way and maybe forming an office of the CEO or one of them gets elevated, somebody else is named COO, somebody else is named president, and you keep this run like, sort of, a family business.

When you have a lot of promoting from within, the challenge can be to identify that people are good at their current job. And I come from a family business. If you're a good truck driver, it doesn't mean you're a good sales person. But there's extensive training at Tractor Supply to identify where you might be good and where you could be slotted and how you can have a career and not a job. It feels to me that in a company that has 2,000 Tractor Supply stores, somewhere there were people in the system, in the past decade, that could have been flagged as the next CEO. But we don't know the whole story, maybe people didn't want that stress. Maybe there were absolutely developed candidates, and for some reason or other, they couldn't take the job. It's not a deal breaker for me. Frankly, I think the name is worse than the CEO issue.

I wouldn't feel that way if I hadn't seen how Hal Lawton has pivoted the company during COVID-19. I assume he's got the right people around him and he's being respectful of the company. It doesn't feel like he came in and stepped all over the tradition or put a bunch of his people in. So so far, I like what he's doing. Boy! I wish they had a tagline that explained their company a little bit better to people who don't live this lifestyle. You know, they could expand beyond their core, but those are nitpicks so far.

Flippen: So to lead off here, and to, kind of, answer the last question of how we feel about the company, you know, it's obviously [laughs] done well over the last 10 years, maybe about how we feel about the company 5 to 10 years in the future is... Is it fair to say that -- you know, you seem to me to be pretty fond of it, especially if they manage to maybe rebrand. [laughs]

Kline: So the only reason I'm not investing in this company today, besides the fact that I can't, because we're doing a show on it, is I don't invest in a retailer until I visited one of their stores, and I haven't looked around. I'm just going to assume -- I live in Florida, there's probably a Tractor Supply Company somewhere in my neighborhood or maybe in the Orlando area; where there's a lot of farmland, amazingly. You think of Orlando as being dense and Disney World, but it's a really big city that has a lot of outlying orange groves and farmland and things like that.

So once I see one and see if they are merchandised well -- I assume they are, based on all the feedback we've read. But I just want to see what the store works. Do they greet me when I come in? You know, one of my negatives on Lowe's and Home Depot is, if you're not handy, it could be very overwhelming. If I go in as a total neophyte to this, and say, "Hey, here's what I'd like to do, could you help me?" Are they able to help me do that, do they have that expertise? I think they're going to check all those boxes off, but until I get to physically visit one, it's not a buy for me. But I think it probably will be after I get to physically visit one.

Flippen: I love that mentality. And I remember when I was pitching Panera back when I was only an intern at The Motley Fool, I did lots of "research trips" to Panera, as they're changing their 2.0 strategy around. And I love the idea of, kind of, getting the sense about what the experience is like as a customer, especially because I'm not sure we're the best people to be judging [laughs] rural lifestyle, but if someone can come in, from our perspectives as people who do live in cities, right, and come in and say, "I have a question, right, I'm coming from a place of relative ignorance." If they are staffing and employing people who are capable of handling [laughs] even that level of case, I think it's only a promising thing from there.

Kline: Yeah, I want to feel welcome. We've talked a lot about this with menus. If I go into a restaurant, you know, let's say, you've never had Vietnamese food and you don't know what pho is, I want the person to explain -- on the menu or the waiter -- it's a big bowl of soup, here's what the broth can be based in, here's what's in it. Oh, you don't like that? You don't have to have that, here's what comes next to it, you can put as much or as little in as you want. That removes the intimidation factor.

So I know my wife wants -- there's a little type of palm tree that she wants to put on our other house, where we actually do have a little bit of land. And I know it's allowed, because I've seen other neighbors have them. So I need to fill out a form, and then I need to go by one and learn all the things associated with doing that. I'm not saying Tractor Supply sells that. I'll probably have to go to a dedicated farming, you know, a tree store, but all the other tools and things that are around that might be something I'd purchase at Tractor Supply. I'd expect them, if I go in and say, "This is the type of tree I'm buying, what do I need to go with that? Do I need fertilizer, do I need those little sticks that hold the tree up while its roots take hold?" I would expect them to be able to answer that. If they can't answer that, then their market is limited to people who already understand their product. And that's fine, but that can be very limiting.

Flippen: And potentially stifle growth in the future. I think I agree with a lot of what you're saying. For myself personally, I'm really interested in this company. I think, as a relatively young investor, I tend to give preference to high-growth companies. For instance, buying a company like Chewy versus buying a company like Tractor Supply. And as a result, I think I can overlook slower-growing but really strong-performing companies like Tractor Supply, which probably hurts my portfolio over the long-term.

For myself, I see the company, I think it's definitely a strong winner in niche retail. They're trading at 31 times enterprise value to free cash flow. Which is really just a fancy way of saying that if you look at how much cash the business generates that they could deploy to shareholders, it looks a little expensive right now, but I never let valuation keep me away from a good company. And this might be a case where, if I can keep my mouth shut about it long enough, I should probably get myself (A) into a Tractor Supply Company and (B) some exposure [laughs] to Tractor Supply.

Kline: Oh! There's no chance. We're going to be talking Tractor Supply every day at four o'clock on the rundown. No, just kidding. [laughs] But it is hard for us sometimes to buy stocks, because we don't remember it to be quiet about it. That is one of the blessings of The Motley Fool, the fact that not only do we have those periods, but also, we have to hold stocks for a certain period of time, at least 10 days, but I've never heard of a Fool [laughs] who's held a stock for 10 days. That would be like if something catastrophic happened [laughs] in your life and you just needed to cash out.

But, yeah, I like this. This isn't an amazing growth stock, but this is kind of a rural Costco, this is something that it looks like, you could put it in your portfolio and it's just going to be a steady performer. They're not going to double in size, they're not going to, you know, add 25% to their audience, but they are in a period that's winning them new customers, and that is going to pay off for a long time to come.

Flippen: Well, Dan, I know that I really enjoyed this last hour or so -- oh! 30 minutes or so; hour? What am I talking about? [laughs]

Kline: [laughs] We don't get to leave just quite yet.

Flippen: [laughs] This last 30 minutes or so. And for all the listeners out there who put in their comments, left us messages, emailed saying they wanted a deep dive into Tractor Supply, we appreciate it.

If you have any of those thoughts, you can always reach out to us. Email us at IndustryFocus@Fool.com, reach out to us @MFIndustryFocus on Twitter. We love to hear that.

But until then, Dan, thank you, again, so much for joining.

Kline: Thanks for having me.

Flippen: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for his work behind the screen today. For Dan Kline, I'm Emily Flippen. Thanks for listening, and Fool on!