UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

TRACTOR SUPPLY COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Delaware		13-3139732
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

200 Powell Place, Brentwood, Tennessee		37027
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (615) 440-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ     NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) YES o     NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Class		Outstanding at July 26, 2008
Common Stock, $.008 par value		36,430,077

 

 

TRACTOR SUPPLY COMPANY

INDEX

		Page No.
Part I. Financial Information			3
Item 1. Financial Statements			3
Consolidated Balance Sheets – June 28, 2008 (unaudited), December 29, 2007 and June 30, 2007 (unaudited)			3
Consolidated Statements of Income (unaudited) – For the Fiscal Three and Six Months Ended June 28, 2008 and June 30, 2007			4
Consolidated Statements of Cash Flows (unaudited) – For the Fiscal Six Months Ended June 28, 2008 and June 30, 2007			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
Item 3. Quantitative and Qualitative Disclosures About Market Risk			15
Item 4. Controls and Procedures			16
Part II. Other Information			17
Item 1. Legal Proceedings			17
Item 1A. Risk Factors			17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			17
Item 3. Defaults Upon Senior Securities			17
Item 4. Submission of Matters to a Vote of Security Holders			18
Item 5. Other Information			18
Item 6. Exhibits			18
SIGNATURE			18
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRACTOR SUPPLY COMPANY

		June 28,				December 29,				June 30,
		2008				2007				2007
		(Unaudited)								(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	62,957			$	13,700			$	30,912
Inventories			683,317				635,988				692,388
Prepaid expenses and other current assets			38,959				41,959				40,173
Deferred income taxes			—				277				6,999
Total current assets			785,233				691,924				770,472
Property and equipment, net of accumulated depreciation			357,151				332,928				321,463
Goodwill			10,258				10,258				10,258
Deferred income taxes			17,665				16,692				15,059
Other assets			6,012				6,169				6,069
Total assets		$	1,176,319			$	1,057,971			$	1,123,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	394,014			$	258,346			$	348,025
Other accrued expenses			101,310				115,601				110,237
Current portion of capital lease obligations			629				847				896
Income taxes currently payable			25,520				5,062				17,574
Deferred income taxes			2,600				—				—
Total current liabilities			524,073				379,856				476,732
Revolving credit loan			—				55,000				—
Capital lease obligations, less current maturities			2,093				2,351				2,410
Straight line rent liability			34,619				30,886				27,773
Other long-term liabilities			23,844				24,541				22,063
Total liabilities			584,629				492,634				528,978
Stockholders’ equity:
Preferred stock, 40,000 shares authorized, $1.00 par value; no shares issued			—				—				—
Common stock, 100,000,000 shares authorized; $.008 par value; 40,798,404 shares issued and 36,766,824 shares outstanding at June 28, 2008, 40,700,209 shares issued and 37,484,022 shares outstanding at December 29, 2007 and 40,506,299 shares issued and 39,286,707 shares outstanding at June 30, 2007			326				326				324
Additional paid-in capital			159,613				151,317				141,481
Treasury stock – at cost, 4,031,580 shares at June 28, 2008, 3,216,187 shares at December 29, 2007 and 1,219,592 shares at June 30, 2007			(177,858	)			(150,049	)			(63,720	)
Retained earnings			609,609				563,743				516,258
Total stockholders’ equity			591,690				565,337				594,343
Total liabilities and stockholders’ equity		$	1,176,319			$	1,057,971			$	1,123,321

The accompanying notes are an integral part of this statement.

TRACTOR SUPPLY COMPANY

		For the fiscal								For the fiscal
		three months ended								six months ended
		June 28,				June 30,				June 28,				June 30,
		2008				2007				2008				2007
		(Unaudited)								(Unaudited)
Net sales		$	898,327			$	790,929			$	1,474,535			$	1,350,761
Cost of merchandise sold			618,850				540,505				1,018,154				932,157
Gross margin			279,477				250,424				456,381				418,604
Selling, general and administrative expenses			187,343				166,959				350,528				314,146
Depreciation and amortization			15,008				12,357				29,380				24,370
Operating income			77,126				71,108				76,473				80,088
Interest expense, net			573				604				1,796				1,529
Income before income taxes			76,553				70,504				74,677				78,559
Income tax expense			29,535				26,747				28,811				29,803
Net income		$	47,018			$	43,757			$	45,866			$	48,756
Net income per share — basic		$	1.26			$	1.10			$	1.23			$	1.22
Net income per share — diluted		$	1.24			$	1.08			$	1.21			$	1.19

The accompanying notes are an integral part of this statement.

TRACTOR SUPPLY COMPANY

		For the fiscal
		six months ended
		June 28,				June 30,
		2008				2007
		(Unaudited)
Cash flows from operating activities:
Net income		$	45,866			$	48,756
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,380				24,370
Gain on sale of property and equipment			(89	)			(281	)
Stock compensation expense			6,151				5,479
Deferred income taxes			1,904				81
Change in assets and liabilities:
Inventories			(47,329	)			(97,537	)
Prepaid expenses and other current assets			2,994				(3,154	)
Accounts payable			135,668				118,854
Other accrued expenses			(14,291	)			(1,025	)
Income taxes currently payable			20,458				6,024
Other			3,076				4,683
Net cash provided by operating activities			183,788				106,250
Cash flows from investing activities:
Capital expenditures			(53,467	)			(44,702	)
Proceeds from sale of property and equipment			234				963
Net cash used in investing activities			(53,233	)			(43,739	)
Cash flows from financing activities:
Borrowings under revolving credit agreement			329,868				356,193
Repayments under revolving credit agreement			(384,868	)			(356,193	)
Tax benefit on stock option exercises			211				2,433
Principal payments under capital lease obligations			(476	)			(567	)
Repurchase of common stock			(27,809	)			(63,720	)
Net proceeds from issuance of common stock			1,776				3,862
Net cash used in financing activities			(81,298	)			(57,992	)
Net increase in cash and cash equivalents			49,257				4,519
Cash and cash equivalents at beginning of period			13,700				26,393
Cash and cash equivalents at end of period		$	62,957			$	30,912
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	2,555			$	1,239
Income taxes			6,177				21,230

The accompanying notes are an integral part of this statement.

TRACTOR SUPPLY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation:

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. The results of operations for the fiscal three-month and six-month periods are not necessarily indicative of results for the full fiscal year.

Our business is highly seasonal. Historically, our sales and profits have been the highest in the second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable weather, excessive precipitation, drought, and early or late frosts may also affect our sales. We believe, however, that the impact of adverse weather conditions is somewhat mitigated by the geographic dispersion of our stores.

We experience our highest inventory and accounts payable balances during our first fiscal quarter each year for purchases of seasonal products in anticipation of the spring selling season and again during our third fiscal quarter in anticipation of the winter selling season.

Note 2 – Reclassifications:

Certain amounts in previously issued financial statements have been reclassified to conform to the fiscal 2008 presentation. Cash balances in our bank concentration account at June 30, 2007 have been reclassified and netted against the related book overdraft included in accounts payable in the Consolidated Balance Sheets.

Note 3 – Inventories:

Inventories are stated using the lower of last-in, first-out (LIFO) cost or market. Inventories are not in excess of market value. Quarterly inventory determinations under LIFO are based on assumptions as to projected inventory levels at the end of the fiscal year, sales for the year and the expected rate of inflation/deflation for the year. If the first-in, first-out (FIFO) method of accounting for inventory had been used, inventories would have been approximately $30.1 million, $25.5 million and $20.9 million higher than reported at June 28, 2008, December 29, 2007 and June 30, 2007, respectively.

Note 4 – Property and Equipment:

Property and equipment is comprised as follows:

		June 28,				December 29,				June 30,
		2008				2007				2007
Land		$	25,410			$	23,151			$	21,707
Buildings and improvements			297,679				279,313				255,888
Furniture, fixtures and equipment			187,895				175,941				163,484
Computer software and hardware			67,621				61,732				44,957
Construction in progress			23,461				10,006				30,164
			602,066				550,143				516,200
Accumulated depreciation and amortization			(244,915	)			(217,215	)			(194,737	)
		$	357,151			$	332,928			$	321,463

Note 5 – Share-Based Payments:

Pursuant to Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments” (“SFAS 123(R)”), we recognize compensation expense for share-based payments based on the fair value of the awards. Share-based payments include stock option grants and certain transactions under our other stock plans. SFAS 123(R) requires share-based compensation expense to be based on the following: a) grant date fair value estimated in accordance with the original provisions of SFAS 123 for unvested options granted prior to the adoption of SFAS 123(R); b) grant date fair value estimated in accordance with the provisions of SFAS 123(R) for all share-based payments granted subsequent to adoption; and c) the discount on shares sold to employees subsequent to adoption, which represents the difference between the grant date fair value and the employee purchase price. Share-based compensation expense lowered pre-tax income by $3.0 million and $2.8 million for the second quarter of fiscal 2008 and 2007, respectively, and $6.2 million and $5.5 million for the first six months of fiscal 2008 and 2007, respectively. The benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow.

Under SFAS 123(R), forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

Stock Incentive Plan

Under our 2006 Stock Incentive Plan, options may be granted to officers, non-employee directors and other employees. The per share exercise price of options granted shall not be less than the fair market value of the stock on the date of grant and such options will expire no later than ten years from the date of grant. Also, the aggregate fair market value of the stock with respect to which incentive stock options are exercisable on a tax deferred basis for the first time by an individual in any calendar year may not exceed $100,000. Vesting of options commences at various anniversary dates following the dates of grant.

The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is recognized as compensation expense ratably over the vesting period. We have estimated the fair value of all stock option awards as of the date of the grant by applying a modified Black-Scholes pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense, including expected stock price volatility.

The following summarizes information concerning stock option grants during fiscal 2008 and 2007:

		Three months ended								Six months ended
		June 28, 2008				June 30, 2007				June 28, 2008				June 30, 2007
Stock options granted			28,000				22,600				584,874				437,450
Weighted average exercise price		$	36.41			$	51.56			$	38.32			$	46.44
Weighted average fair value		$	13.55			$	22.19			$	14.51			$	19.56
The weighted average key assumptions used in determining the fair value of options granted in the three and six months ended June 28, 2008 and June 30, 2007 are as follows:
		Three months ended								Six months ended
		June 28, 2008				June 30, 2007				June 28, 2008				June 30, 2007
Expected price volatility			32.5	%			35.2	%			34.0	%			36.1	%
Risk-free interest rate			2.6	%			4.0	%			2.6	%			4.1	%
Weighted average expected lives in years			4.7				5.0				5.0				4.8
Forfeiture rate			2.3	%			1.8	%			5.8	%			5.2	%
Dividend yield			0.0	%			0.0	%			0.0	%			0.0	%

As of June 28, 2008, total unrecognized compensation expense related to non-vested stock options and restricted stock units was $18,301,478 with a weighted average expense recognition period of 1.52 years.

Restricted Stock Units

During the first six months of 2008 and 2007, we issued 77,796 and 62,997 restricted stock units which vest over an approximate three-year term and had a grant date weighted average fair value of $38.27 and $46.46, respectively.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (the “ESPP”) whereby eligible employees have the opportunity to purchase, through payroll deductions, shares of our common stock at a 15% discount. Pursuant to the terms of the ESPP, we issued 28,815 and 24,654 shares of our common stock during the first six months of fiscal 2008 and 2007, respectively. Total stock compensation expense related to the ESPP was approximately $256,000 and $233,000 during the first six months of 2008 and 2007, respectively. At June 28, 2008, there were 3,270,588 shares of common stock reserved for future issuance under the ESPP.

There were no modifications to our share-based compensation plans during the six months ended June 28, 2008.

Note 6 – Net Income Per Share:

We present both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of income. As provided by SFAS 128 “Earnings per Share”, basic EPS is calculated as income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted EPS is calculated using the weighted average outstanding common shares and the treasury stock method for options and restricted stock.

Net income per share is calculated as follows (in thousands, except per share amounts):

		Three months ended												Three months ended
		June 28, 2008												June 30, 2007
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic net income per share:
Net income		$	47,018				37,193			$	1.26			$	43,757				39,617			$	1.10
Dilutive stock options and restricted stock outstanding			—				613				(0.02	)			—				962				(0.02	)
Diluted net income per share:
Net income		$	47,018				37,806			$	1.24			$	43,757				40,579			$	1.08

		Six months ended												Six months ended
		June 28, 2008												June 30, 2007
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic net income per share:
Net income		$	45,866				37,354			$	1.23			$	48,756				39,922			$	1.22
Dilutive stock options and restricted stock outstanding			—				624				(0.02	)			—				979				(0.03	)
Diluted net income per share:
Net income		$	45,866				37,978			$	1.21			$	48,756				40,901			$	1.19

Note 7 – Credit Agreement:

We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group, which provides for borrowings up to $350 million (with sublimits of $75 million and $20 million for letters of credit and swingline loans, respectively). In February 2008, we exercised the Increase Option on this facility, increasing the overall capacity from $250 million to $350 million. Simultaneously, the Credit Facility was modified to: (1) add an additional Increase Option for $150 million (subject to additional lender group commitments); (2) modify the definition of swingline committed amount from $10 million to $20 million; and (3) revise the definition of the fixed charge coverage ratio covenant to remove certain defined charges. All pricing terms and the term of the facility remained the same.

The Senior Credit Facility is unsecured and matures in February 2012, with proceeds expected to be used for working capital, capital expenditures and share repurchases. Borrowings will bear interest at either the bank’s base rate or LIBOR plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted quarterly based on our performance (0.50% at June 28, 2008). We are also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity (0.10% at June 28, 2008). The agreement requires quarterly compliance with respect to fixed charge coverage and leverage ratios.

Note 8 – Treasury Stock:

We have a Board-approved share repurchase program which provides for repurchase of up to $200 million of common stock, exclusive of any fees, commissions, or other expenses related to such repurchases, through February 2010. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares will be held in treasury. The program may be limited or terminated at any time without prior notice.

We repurchased 738,368 and 806,100 shares under the share repurchase program during the second quarter of 2008 and 2007, respectively. The total cost of the share repurchases was $25.0 million and $42.4 million during the second quarter of 2008 and 2007, respectively. We repurchased 815,393 and 1,219,592 shares under the share repurchase program during the first six months of 2008 and 2007, respectively. The total cost of the share repurchases was $27.8 million and $63.7 million during the first six months of 2008 and 2007, respectively. As of June 28, 2008, we had remaining authorization under the share repurchase program of $22.3 million.

Note 9 – New Accounting Pronouncements:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), which amended SFAS 157 and delayed its effective date for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP 157-2. We adopted the remaining provisions of SFAS 157 effective December 30, 2007 (fiscal 2008). The adoption of SFAS 157 did not impact our financial condition, results of operations, or cash flow. We are currently evaluating the impact that the adoption of FSP 157-2 will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. We adopted SFAS 159 effective December 30, 2007 (fiscal 2008). The adoption of SFAS 159 did not impact our financial condition, results of operations, or cash flow.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” The FSP requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141, “Business Combinations.” The FSP is effective for fiscal years beginning after December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The FSP is not expected to have a significant impact on our financial condition, results of operations or cash flow.

In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles.” The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in conformance with generally accepted accounting principles. The statement is effective 60 days following the SEC’s pending approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have any impact on the Company’s financial condition, results of operations or cash flow.

Note 10 – Commitments and Contingencies:

Construction commitments

We had commitments for new store construction projects and a distribution center expansion project totaling approximately $8.7 million at June 28, 2008.

Litigation

We are involved in various litigation matters arising in the ordinary course of business. After consultation with legal counsel, our management expects these matters will be resolved without material adverse effect on our consolidated financial position or results of operations. Any estimated loss related to such matters has been adequately provided in accrued liabilities to the extent probable and reasonably estimable. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in circumstances relating to these proceedings.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. The following discussion and analysis also contains certain historical and forward-looking information. The forward-looking statements included herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). All statements, other than statements of historical facts, which address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as estimated results of operations in future periods, future capital expenditures (including their amount and nature), business strategy, expansion and growth of our business operations and other such matters are forward-looking statements. These forward-looking statements may be affected by certain risks and uncertainties, any one, or a combination of which could materially affect the results of our operations. To take advantage of the safe harbor provided by the Act, we are identifying certain factors that could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written.

Our business is highly seasonal. Historically, our sales and profits have been the highest in the second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable weather, excessive precipitation, natural disasters, drought, and early or late frosts may also affect our sales. We believe, however, that the impact of severe weather conditions is somewhat mitigated by the geographic dispersion of our stores.

We experience our highest inventory and accounts payable balances during our first fiscal quarter each year for purchases of seasonal products in anticipation of the spring selling season and again during our third fiscal quarter in anticipation of the winter selling season.

As with any business, many aspects of our operations are subject to influences outside our control. These factors include general economic cycles affecting consumer spending, weather factors, operating factors affecting customer satisfaction, consumer debt levels, inflation, pricing and other competitive factors, the ability to attract, train and retain qualified employees, the ability to manage and fund growth and identify suitable locations and negotiate favorable lease agreements on new and relocated stores, the impact of new stores on our business, the timing and acceptance of new products in the stores, the mix of goods sold, the continued availability of favorable credit sources, capital market conditions in general, the ability to increase sales at existing stores, the ability to retain vendors, the risk of product liability and other claims, reliance on foreign suppliers, the ability to maintain and improve our management information systems and internal controls over financial reporting, potential legal proceedings, tax rate changes, and the seasonality of our business. We discuss in greater detail risk factors relating to our business in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. Forward-looking statements are based on our knowledge of our business and the environment in which we operate, but because of the factors listed above or other factors, 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 there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no 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.

Results of Operations

Fiscal Three Months (Second Quarter) and Six Months Ended June 28, 2008 and June 30, 2007

Net sales increased 13.6% to $898.3 million for the second quarter of 2008 from $790.9 million for the second quarter of 2007. Net sales increased 9.2% to $1.47 billion for the first six months of fiscal 2008 from $1.35 billion for the first six months of fiscal 2007. The net sales increase for the second quarter resulted primarily from the addition of new stores and a same-store sales improvement of 3.4%. The net sales increase for the first six months of fiscal 2008 was primarily the result of new store openings, partially offset by a 0.7% decrease in same-store sales. Our second quarter same-store sales improvements were driven by our core consumable categories, including animal health and pet supplies, offset in part by lower than expected performance in the seasonal merchandise category.

We opened 23 new stores during the second quarter of 2008 compared to 20 new store openings during the prior year’s second quarter. During the first six months of 2008, we opened 50 new stores with no relocations, compared to 42 new store openings and seven relocations during the first six months of 2007. We closed one store in the second quarter of 2007. We operated 814 stores at June 28, 2008, compared to 717 stores at June 30, 2007.

The following chart indicates the average percentage of sales represented by each of our major product categories during the second quarter and first six months of fiscal 2008 and 2007:

		Three months ended								Six months ended
		June 28,				June 30,				June 28,				June 30,
		2008				2007				2008				2007
Product Category:
Livestock and Pet			34	%			31	%			37	%			33	%
Seasonal Products			29				31				25				27
Hardware and Tools			13				13				14				15
Clothing and Footwear			6				6				7				7
Truck, Trailer and Towing			9				9				9				9
Agricultural			9				10				8				9
Total			100	%			100	%			100	%			100	%

Gross margin for the second quarter and the first six months of fiscal 2008 was $279.5 million and $456.4 million, respectively. This represents an increase of 11.6% and 9.0%, respectively, over the comparable periods of the prior year. Gross margin, as a percent of sales, was 31.1% for the second quarter of fiscal 2008 compared to 31.7% for the comparable period in fiscal 2007. The decline in gross margin rate for the quarter resulted from higher transportation costs and an increased LIFO charge, offset in part by increased product margin (principally from better buying and retail price increases). The increased transportation costs resulted from increased fuel costs and the mix of goods, offset in part by a reduction in import purchases. The LIFO charge is attributed to increases in costs for certain commodities, petroleum-based products and steel. For the first six months of fiscal 2008, the gross margin rate of 31.0% was consistent with the comparable period in the prior year.

Selling, general and administrative (“SG&A”) expenses decreased 30 basis points to 20.8% of sales in the second quarter of fiscal 2008 from 21.1% of sales in the second quarter of fiscal 2007. This second quarter improvement was primarily attributable to a focus on cost control and overall expense management, as well as a shift in marketing expenses (due to the timing of certain direct-mail initiatives) into the third quarter of fiscal 2008. SG&A expenses for the first six months of fiscal 2008 increased 50 basis points to 23.8% of sales from 23.3% in the first six months of fiscal 2007, primarily due to less sales leverage in the first quarter of fiscal 2008.

Depreciation and amortization expense increased 10 basis points to 1.7% of sales in the second quarter of fiscal 2008 from 1.6% in the second quarter of fiscal 2007. As a percent of sales, depreciation and amortization expense increased 20 basis points to 2.0% in the first six months of fiscal 2008 from 1.8% in the first six months of fiscal 2007. The increases were related directly to new store growth and capital costs for infrastructure and technology.

Interest expense for the second quarter of 2008 remained consistent with the prior year at $0.6 million. For the first six months of fiscal 2008, interest expense increased slightly to $1.8 million compared to $1.5 million for the comparable period in fiscal 2007 due to a higher average outstanding balance on our credit facility, partially offset by a lower weighted-average interest rate. Our effective income tax rate increased to 38.6% in the second quarter and first six months of fiscal 2008 compared with 37.9% for the second quarter and first six months of fiscal 2007 largely due to recent increases in certain state tax rates.

As a result of the foregoing factors, net income for the second quarter of fiscal 2008 increased 7.4% to $47.0 million compared to $43.8 million in the second quarter of fiscal 2007. Net income for the first six months of fiscal 2008 decreased 5.9% to $45.9 million from $48.8 million in the first six months of the prior year. Net income, as a percent of sales, decreased 30 basis points to 5.2% for the second quarter of fiscal 2008 compared to 5.5% in the second quarter of fiscal 2007. For the first six months of fiscal 2008, net income as a percent of sales decreased 50 basis points to 3.1%, compared to 3.6% for the first six months of fiscal 2007. Net income per diluted share for the second quarter of fiscal 2008 increased to $1.24 from $1.08 and, for the first six months of fiscal 2008, increased to $1.21 from $1.19. Outstanding shares were reduced as a result of repurchases under the Share Repurchase Program.

Liquidity and Capital Resources

In addition to normal operating expenses, our primary ongoing cash requirements are for store expansion and remodeling programs, including inventory purchases and capital expenditures. Our primary ongoing sources of liquidity are funds provided from operations, commitments available under our revolving credit agreement and normal trade credit.

At June 28, 2008, we had working capital of $261.2 million, a $50.9 million decrease from December 29, 2007. This decrease was primarily attributable to changes in the following components of current assets and current liabilities (in millions):

		June 28,				Dec. 29,								June 30,
		2008				2007				Variance				2007				Variance
Current assets:
Cash and cash equivalents		$	63.0			$	13.7			$	49.3			$	30.9			$	32.1
Inventories			683.3				636.0				47.3				692.4				(9.1	)
Prepaid expenses and other current assets			38.9				41.9				(3.0	)			40.2				(1.3	)
Deferred income taxes			—				0.3				(0.3	)			7.0				(7.0	)
			785.2				691.9				93.3				770.5				14.7
Current liabilities:
Accounts payable			394.0				258.3				135.7				348.0				46.0
Other accrued expenses			101.3				115.6				(14.3	)			110.2				(8.9	)
Current portion of capital lease obligation			0.6				0.8				(0.2	)			0.9				(0.3	)
Income tax currently payable			25.5				5.1				20.4				17.6				7.9
Deferred tax liabilities			2.6				—				2.6				—				2.6
			524.0				379.8				144.2				476.7				47.3
Working capital		$	261.2			$	312.1			$	(50.9	)		$	293.8			$	(32.6	)

The increase in inventories since year-end resulted primarily from normal seasonal purchases as well as the purchase of additional inventory for new stores. These increases were offset by a decrease in average inventory per store due to planned initiatives to reduce inventory levels coupled with more aggressive clearance. The increase in accounts payable resulted from the increase in inventories as well as improved vendor financing. Trade credit arises from our vendors granting extended payment terms for inventory purchases. Payment terms generally vary from 30 days to 180 days depending on the inventory product. Income taxes payable have increased since year-end due to the timing of estimated tax payments.

The increase in cash and accounts payable from the prior year quarter is due primarily to improved vendor dating. The decrease in inventory is due to planned initiatives to reduce inventory levels and more aggressive clearance activity.

Operations provided net cash of $183.8 million and $106.3 million in the first six months of fiscal 2008 and fiscal 2007, respectively. The $77.5 million increase in net cash provided in 2008 over 2007 is primarily due to changes in the following operating activities (in millions):

		Six months ended
		June 28,				June 30,
		2008				2007				Variance
Net income		$	45.9			$	48.8			$	(2.9	)
Depreciation and amortization			29.4				24.4				5.0
Inventories and accounts payable			88.3				21.3				67.0
Prepaid expenses and other current assets			3.0				(3.1	)			6.1
Other accrued expenses			(14.3	)			(1.0	)			(13.3	)
Income taxes currently payable			20.5				6.0				14.5
Other, net			11.0				9.9				1.1
Net cash provided by operations		$	183.8			$	106.3			$	77.5

The improvement in net cash provided by operations in the first six months of fiscal 2008 compared with the first six months of fiscal 2007 was primarily due to reductions in average inventory levels and improved vendor financing. The change in cash used for income taxes relates to the timing of payments of income taxes.

Investing activities used $53.2 million and $43.7 million in the first six months of fiscal 2008 and fiscal 2007, respectively. The majority of this cash requirement relates to our capital expenditures.

Capital expenditures for the first six months of fiscal 2008 and fiscal 2007 were as follows (in millions):

		Six months ended
		June 28,				June 30,
		2008				2007
New/relocated stores and stores not yet opened		$	22.5			$	20.4
Distribution center capacity and improvements			9.0				1.4
Existing store properties acquired from lessor			8.5				6.9
Information technology			7.8				7.0
Existing stores			5.6				9.0
Other			0.1				—
		$	53.5			$	44.7

The above table reflects 50 new stores in the first six months of fiscal 2008, compared to 49 new/relocated stores during the first six months of fiscal 2007.

Financing activities used $81.3 million and $58.0 million in the first six months of fiscal 2008 and fiscal 2007, respectively. This increase in net cash used is largely due to a higher level of repayments under the Senior Credit Facility.

We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group, which provides for borrowings up to $350 million (with sublimits of $75 million and $20 million for letters of credit and swingline loans, respectively). In February 2008, we exercised the Increase Option on this facility, increasing the overall capacity from $250 million to $350 million. Each of the nine lenders within our credit facility bank group participated in the increase. Simultaneously, the Credit Facility was modified to: (1) add an additional Increase Option for $150 million (subject to additional lender group commitments); (2) modify the definition of swingline committed amount from $10 million to $20 million; and (3) revise the definition of the fixed charge coverage ratio covenant to remove certain defined charges. All pricing terms and the term of the facility remained the same.

The Senior Credit Facility is unsecured and matures in February 2012, with proceeds expected to be used for working capital, capital expenditures and share repurchases. Borrowings will bear interest at either the bank’s base rate or LIBOR plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted quarterly based on our performance (0.50% at June 28, 2008). We are also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity (0.10% at June 28, 2008). The agreement requires quarterly compliance with respect to fixed charge coverage and leverage ratios.

We believe that our cash flow from operations, borrowings available under our Senior Credit Facility, and normal trade credit will be sufficient to fund our operations and capital expenditure needs, including store openings and renovations, over the next several years.

Share Repurchase Program

We have a Board-approved share repurchase program which provides for repurchase of up to $200 million of common stock, exclusive of any fees, commissions, or other expenses related to such repurchases, through February 2010. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares will be held in treasury. The program may be limited or terminated at any time without prior notice.

We repurchased 738,368 and 806,100 shares under the share repurchase program during the second quarter of 2008 and 2007, respectively. The total cost of the share repurchases was $25.0 million and $42.4 million during the second quarter of 2008 and 2007, respectively. We repurchased 815,393 and 1,219,592 shares under the share repurchase program during the first six months of 2008 and 2007, respectively. The total cost of the share repurchases was $27.8 million and $63.7 million during the first six months of 2008 and 2007, respectively. As of June 28, 2008, we had remaining authorization under the share repurchase program of $22.3 million.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are limited to operating leases and outstanding letters of credit. Leasing buildings and equipment for retail stores and offices rather than acquiring these significant assets allows us to utilize financial capital to operate the business rather than maintain assets. Letters of credit allow us to purchase inventory in a timely manner.

We had outstanding letters of credit of $29.4 million at June 28, 2008.

Significant Contractual Obligations and Commercial Commitments

In addition to commitments related to construction for new stores of $4.4 million, we have a remaining contractual commitment of $4.3 million for the expansion of our Waco, TX distribution center. There has been no other material change in our contractual obligations and commercial commitments other than in the ordinary course of business since the end of fiscal 2007.

Significant Accounting Policies and Estimates

Our discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:

	•		Revenue recognition and sales returns
	•		Inventory valuation
	•		Stock-based compensation
	•		Self-insurance reserves
	•		Sales tax audit reserve
	•		Tax contingencies
	•		Goodwill
	•		Long-lived assets

See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 29, 2007 for a discussion of our critical accounting policies. Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have no separate investments subject to market risk, however we remain exposed to changes in interest rates primarily from our Senior Credit Facility (the “Credit Agreement”). The Credit Agreement bears interest at either the bank’s base rate (5.00% and 8.25% at June 28, 2008 and June 30, 2007, respectively) or LIBOR (2.48% and 5.32% at June 28, 2008 and June 30, 2007, respectively) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted quarterly, based on our performance (0.50% at June 28, 2008 and June 30, 2007). We are also required to pay, quarterly in arrears, a commitment fee ranging from 0.06% to 0.18% based on the daily average unused portion of the Credit Agreement (0.10% at June 28, 2008 and June 30, 2007). See Note 7 of the Notes to the Consolidated Financial Statements included herein for further discussion regarding the Credit Agreement.

Although we cannot determine the full effect of inflation on our operations, we believe our sales and results of operations are affected by inflation. We are subject to market risk with respect to the pricing of certain products and services, which include, among other items, steel, grain, petroleum, corn, soybean and other commodities as well as diesel fuel and transportation services and utility costs. If the cost of these products and services continues to increase, consumer demand may fall and/or we may not be able to pass all such increases on to our customers and, as a result, sales and/or gross margins could decline. Our strategy is to reduce or mitigate the effects of inflation principally by taking advantage of vendor incentive programs, economies of scale from increased volume of purchases, increasing retail prices and selectively buying from the most competitive vendors without sacrificing quality. Due to the competitive environment, such conditions have and may continue to adversely impact our gross margin.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “1934 Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of June 28, 2008. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 28, 2008, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the second fiscal quarter of 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various litigation matters arising in the ordinary course of business. After consultation with legal counsel, management expects these matters will be resolved without material adverse effect on our consolidated financial position or results of operations. Any estimated loss related to such matters has been adequately provided in accrued liabilities to the extent probable and reasonably estimable. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in circumstances relating to these proceedings.

Item 1A. Risk Factors

There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

We have a share repurchase program which provides for repurchase of up to $200 million of our outstanding common stock through February 2010. Stock repurchase activity during the second quarter of fiscal 2008 was as follows:

										Total Number
										of Shares				Maximum Dollar
										Purchased as				Value of Shares
		Total								Part of Publicly				That May Yet Be
		Number of				Average				Announced				Purchased Under
		Shares				Price Paid				Plans or				the Plans or
Period		Purchased				Per Share				Programs				Programs
March 30, 2008 – April 26, 2008			138,381			$	36.96				138,381			$	42,089,262
April 27, 2008 – May 24, 2008			248,297			$	34.09				248,297			$	33,631,385
May 25, 2008 – June 28, 2008			351,690			$	32.35				351,690			$	22,263,381
As of June 28, 2008			738,368								738,368			$	22,263,381

We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with regulations of the Securities and Exchange Commission.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

(a)

Our Annual Meeting of Stockholders was held on May 1, 2008 at our corporate headquarters in Brentwood, Tennessee.

(b)

The stockholders elected, for a one-year term, the directors set forth below.

(c)

The stockholders voted on the following matters at the Annual Meeting:

1.

The election of nine directors for a one-year term ending at the 2009 Annual Meeting of Stockholders:

Nominees For Directors		For				Withheld
James F. Wright			35,206,210				362,824
Johnston C. Adams			35,516,543				52,491
William Bass			35,516,233				52,801
Jack Bingleman			35,517,250				51,784
S.P. Braud			35,511,281				57,753
Richard W. Frost			35,516,951				52,083
Cynthia T. Jamison			35,514,933				54,101
Gerard E. Jones			35,510,172				58,862
George MacKenzie			35,514,515				54,519
Edna K. Morris			35,513,980				55,054

2.

Ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 27, 2008.

For		Against				Abstain
35,528,388			24,603				16,043

Item 5. Other Information

None

Item 6. Exhibits

Exhibits
	31.1			Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2			Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1			Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

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 thereunto duly authorized.