Kurt Barton
Executive Vice President, Chief Financial Officer and Treasurer at Tractor Supply
Thank you, Hal, and hello to everyone on the call. Our business continues to be incredibly resilient. This is a business that was built for all economic environments with stability in both revenue and earnings over multiple decades.
Comparable store sales have been remarkably consistent across all three quarters year-to-date. All regions of the country once again delivered positive sales comps. The geographic diversification of our store base worked to our advantage this quarter. The South Atlantic and Mid-Atlantic were our best-performing regions. As expected, we did experience softer performance in select regions of the country impacted by the severe heat and drought in particular, in the Far West and Texhoma regions, which, while positive, lagged the chain average. For background, July was the second hottest in 30-plus years. And during August, about 40% of the U.S. was under extreme drought conditions. As Hal shared, we believe that the less-than-ideal weather weighed on our transactions as well as our big ticket sales.
Much like the second quarter, retail price inflation contributed about 12 points to our comparable store sales as the team continues to navigate the ongoing cost pressures across the supply chain. The comparable average ticket growth of 7% benefited from inflation, partially offset by declines in big ticket sales and average units per transaction. Big ticket sales performance, while positive on a two-year stack, was impacted by the severe drought and cycling two hurricanes in the prior year. We saw the largest impact in categories such as generators, zero turns and trailers.
Moving on to gross margin. For the third quarter, our gross margin declined by 32 basis points to 35.6% of sales. Our price management actions and our other margin-driving initiatives were able to offset the pressures from cost inflation and higher transportation costs. With the continued robust growth in our C.U.E. categories, we saw pressure on our gross margin as C.U.E. runs below chain average on gross margin rate.
In regard to inflation, while moderating, we continue to see increasing costs in the commodity inputs in our product categories, as well as underlying variables like higher labor wages and transportation costs impacting both us and our vendor partners. We have remained agile and nimble to manage all the complexity of today's environment, effectively managing cost increases at the SKU level through our price management actions and other margin-driving initiatives. The team has also been working to capture efficiencies in the supply chain to reduce miles, continuing to limit promotions and leaning into the more efficient value provided through Neighbor's Club.
SG&A expenses, including depreciation and amortization, increased 9% to the prior year's third quarter. As a percent of net sales, SG&A expenses increased 16 basis points year-over-year to 26.3%. This increase was in line with our expectations, primarily attributable to our strategic growth initiatives, including depreciation and amortization and hourly wage and benefit investments in both our stores and our distribution centers. These items were partially offset by moderation of COVID-19 response costs, more normalized incentive compensation and leverage in our occupancy and other costs from the increase in comparable store sales.
Diluted EPS was $2.10, an increase of 7.7% from the third quarter of last year. Our balance sheet remains incredibly strong. At the end of the quarter, merchandise inventories were $2.7 billion, representing a 19.2% increase year-over-year in average inventory per store. The increase reflects growth to support the robust sales trends along with the impact of inflation.
Looking at our inventory growth on a three-year stack, it represents a 30% increase in average inventory per store compared to Q3 2019, meaningfully below our sales increase over the same period of time. There continue to be select product categories where we are still pursuing inventory, especially in C.U.E.
Stepping back, we believe our inventory position is in good shape. Our strong balance sheet and the consistency of our free cash flow continue to be a position of strength for Tractor Supply, allowing us to invest in the business for growth and return cash to shareholders. To further our financial flexibility, we just entered into a new five-year credit agreement on September 30 that increases our senior credit facility from $700 million to $1.2 billion. We also added two new banks to our banking group, including a minority-owned bank.
Moving now to our updated guidance for fiscal 2022. Our updated guidance reflects the strong results for the first three quarters of the year and the positive momentum we see in our business continuing into the fourth quarter. In addition, we are incorporating the impact of our recent acquisition of Orscheln Farm and Home. We are forecasting fiscal 2022 net sales of $14.06 billion to $14.12 billion including about $75 million in sales from Orscheln. This is the first time in the history of our Company that annual sales are forecast to be above $14 billion. Comparable store sales growth is anticipated to be in the range of 5.4% to 5.8%.
For the year, we now forecast an operating margin of 10.1% to 10.15%, in line with our prior guidance, but with modest pressure from the acquisition as the sales and earnings benefit from Orscheln Farm and Home are offset by incremental transaction expenses and early integration costs. We anticipate the impact of Orscheln to be relatively neutral to operating income, while we expect a modestly negative impact on net income due to the interest expense associated with funding the acquisition.
Diluted EPS is now forecast in a range of $9.55 to $9.63. This compares to our previous earnings range of $9.48 to $9.60 per diluted share. We entered October with momentum. With this updated guidance, we are forecasting comparable store sales growth for the fourth quarter of 5% to 7%. We now expect to open approximately 60 to 70 new Tractor Supply stores, which is modestly below our outlook as we entered the year. We continue to be on track for 10 Petsense store openings in 2022.
Given the conditions of the real estate and construction industries, the cadence of store openings for Tractor Supply has shifted a number of the openings into the fourth quarter. I give the cross-functional teams a lot of credit for completing over 250 projects this year as they lay the foundation for 2023 and beyond. Our new store pipeline continues to be solid and we expect to improve the cadence of openings in 2023 with more balance throughout the year. We remain committed to returning cash to shareholders through the combination of growing dividend and share repurchases. For 2022, we remain on track for anticipated share repurchases in a range of $750 million to $800 million.
As is customary, we will provide our full guidance for 2023 and at our fourth quarter earnings call. We are early in our planning cycle for the next year. I thought it'd be helpful to set the stage and share some preliminary insights and color into our thought process, given that there are a few moving parts between 2022 and 2023. Our business model has stood the test of time and has proven to be resilient. We have significant confidence with 2023 on the horizon. We are well positioned for any consumer and economic environment.
Further, we have consistent structural trends that will continue to benefit us. We continue to invest in our Life Out Here strategy to capture this growth. Now the discrete items that impact our earnings in 2023 are the lapping of the 53rd week benefit this year, and the accretion from Orscheln acquisition. As I've shared previously, we forecast that the 53rd week will add approximately 1.5% growth in net sales and about $0.15 to the EPS this year. As you saw in our press release earlier this month, we expect the Orscheln acquisition to be accretive to diluted earnings per share by at least $0.10.
When adjusting for the 2022 benefit from the 53rd week and the accretion from the Orscheln acquisition, we plan for 2023's performance to be consistent with our long-term EPS guidance of 8% to 11%, with our bias at this point in planning towards the midpoint of our range.
Despite what might play out with the economy, this needs-based demand-driven characteristics of our product offering support our ability to deliver on our long-term outlook. We are making great progress towards our long-term financial goals, and we look forward to sharing with you our 2023 plans in more detail at our fourth quarter earnings call in January.
Now to wrap up, we are continuing to separate Tractor Supply from the competition. In prior cycles, we have made investments that strengthened the Company. We believe the current environment is an opportunity for us to lean into our strengths and further expand our lead for years to come.
And with that, I'll turn the call back over to Hal.
