Rebased, Not Yet Re-Rated

Research evidence excerpt

Rebased, Not Yet Re-Rated

July 24, 2026

What we liked: Gross margin strength; CUE/needs-based; Digital; sequential improvement in companion animal,

April/June positive. Adj. GM improved 24bps despite a tough backdrop as disciplined cost management and tariff refunds (we

estimate TSCO paid ~$80mn in IEEPA tariffs in C25, figure 2) more than offset higher freight, gas prices, and price investments.

CUE categories were positive in 2Q, and mgmt. flagged early positive response to value investments on core CUE items. Digital

posted double-digit growth again on higher traffic and better conversion. Comps were positive in both April and June and trends in

companion animals saw a sequential improvement (albeit still negative) vs ~-4% y/y in 1Q. Initiatives (rollout of Freshpet, premium

nutrition, localized assortment) are translating with >40% of buyers that are new to TSCO or reactivated buyers.

What to watch: Guidance cut; Traffic -1.7%; earnings more heavily weighted to 4Q. As expected, mgmt. lowered FY26

guidance to reset expectations. May was weak due to big-ticket items and hardlines declining MSD, a ~200bps drag to comps. Ex

May, traffic would have been ~-0.4%. Comps 3Q to date is tracking inline with expectations and management expects both 3Q and

4Q to fall within the implied comp guide in 2H. TSCO is comping a strong July last year (up HSD%) which moderated in Aug and

was flattish in Sep. More price investments are expected in 2H with a focus on needs based products to drive store traffic. Gross

margin in 2H will be lower than 1H with higher YoY pressure in 3Q (down ~25-50bps YoY) vs 4Q. Tougher comps, freight costs,

elevated fuel prices, and smaller YoY impact from tariff refunds will pressure 2H vs 2Q, partially offset by supply chain benefits