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Tractor Supply (TSCO) Meets Earnings Estimates, Stock Down
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Tractor Supply Company (TSCO - Free Report) posted a decent second-quarter 2016, wherein the bottom line met estimates and the top line surpassed marginally. Both sales and earnings surged year over year. However, the company posted soft comparable sales (comps) results due to adverse weather conditions. This led the company to lower its earnings and sales forecasts for 2016.
Consequently, shares of this farm and ranch store retailer declined 2.3% in after-hours trading yesterday.
The company’s earnings of $1.16 per share rose 3.6% year over year and were in line with the Zacks Consensus Estimate.
The top line grew 4.5% year over year to $1,852.5 million and was marginally ahead of the Zacks Consensus Estimate of $1,851 million. Quarterly comps of this Zacks Rank #4 (Sell) company dipped 0.5% compared with a 5.6% increase recorded a year ago.
The comps decline in the quarter is mainly attributable to weaker-than-anticipated sales of spring season categories due to unseasonably cold weather in many parts of the country, offset by ongoing strength in the Livestock and Pet categories. Extreme weather patterns in the first two months of the quarter largely weighed on its comps performance as it hurt the seasonal segments of its business. During the quarter, comparable average ticket fell 1.9%. Nonetheless, comparable store transaction count marked its 33rd consecutive quarter of growth, rising 1.5% in the second quarter.
Weakness in sales of big ticket items including riding lawn mowers, outdoor recreation, tillers and other power equipment, along with sales decline in key spring items like live goods, mower parts and attachments, and other lawn and garden categories, adversely affected comps. This decline was compensated partly by strength in its Livestock and Pet categories, which delivered mid-single digit comps growth in every month of the quarter.
Margins & Costs
The company’s gross profit jumped 3.8% year over year to $649.2 million. However, gross margin contracted 30 basis points (bps) to 35% primarily due to an adverse mix shift of products sold and higher freight expenses from an increase in inbound miles and transportation costs. This was partly negated by lower diesel fuel costs. The company noted that these factors nullified the gains from its ongoing margin initiatives.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 20 bps to 21.6% due to a fall in comps as well as additional costs related to the company’s new distribution facilities, offset by stringent expense management and lower incentive compensation expense. In dollar terms, SG&A expenses, including depreciation and amortization, increased 5.2% to $400 million.
Operating income margin contracted 50 bps to 13.4% in second-quarter 2016. Also, operating income, in dollar terms, rose 1.6% to $249.2 million.
Financial Position
Tractor Supply ended the second quarter with cash and cash equivalents of $151.1 million, and total stockholders’ equity of $1,501.9 million, as of Jun 25, 2016.
Further, the company incurred $64.3 million in capital expenditure in the second quarter, with about $101 million spent in the first half of 2016. The company also generated $267.9 million as cash flow from operating activities in the six months of 2016.
Store Update
During the second quarter, Tractor Supply opened 22 stores and closed one Del’s store, compared with the addition of 17 stores and 1 closure in second-quarter 2015. Consequently, the company ended the reported quarter with 1,542 stores.
Guidance
Following the seasonal trough seen in the second quarter, Tractor Supply is not very optimistic about the sales shift to the third quarter. Further, the company has become cautious on its forecast for the rest of the year, though last year’s second-half performance was favorable.
Thus, the company reiterated its recently lowered forecast for 2016. Management now sees sales to range from $6.8 billion to $6.9 billion in 2016, down from $6.9 billion to $7.0 billion expected earlier. Comps are now expected to increase by 2.5%−3.5%, down from the previous forecast of 3.5%−5.0% growth.
Further, Tractor Supply anticipates gross margin to contract by 25–30 basis points from last year, as benefits from its gross margin initiatives are likely to be more than offset by an unfavorable product mix and increased transport expenses. Also, owing to the drab comps view, the company expects selling, general and administrative expenses, as a percentage of sales, to escalate.
Consequently, earnings per share for 2016 are now projected in a range of $3.35−$3.40, down from the previous forecast of $3.40−$3.48.
However, the company still anticipates capital expenditures for 2016 in the range of $230–$250 million. It also expects to incur part of this on about 115–120 store openings during the year.
Some better-ranked stocks in the same industry are Barnes & Noble Inc. , Cabela’s Inc. and ULTA Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) , each with a Zacks Rank #2 (Buy).
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Tractor Supply (TSCO) Meets Earnings Estimates, Stock Down
Tractor Supply Company (TSCO - Free Report) posted a decent second-quarter 2016, wherein the bottom line met estimates and the top line surpassed marginally. Both sales and earnings surged year over year. However, the company posted soft comparable sales (comps) results due to adverse weather conditions. This led the company to lower its earnings and sales forecasts for 2016.
Consequently, shares of this farm and ranch store retailer declined 2.3% in after-hours trading yesterday.
The company’s earnings of $1.16 per share rose 3.6% year over year and were in line with the Zacks Consensus Estimate.
The top line grew 4.5% year over year to $1,852.5 million and was marginally ahead of the Zacks Consensus Estimate of $1,851 million. Quarterly comps of this Zacks Rank #4 (Sell) company dipped 0.5% compared with a 5.6% increase recorded a year ago.
The comps decline in the quarter is mainly attributable to weaker-than-anticipated sales of spring season categories due to unseasonably cold weather in many parts of the country, offset by ongoing strength in the Livestock and Pet categories. Extreme weather patterns in the first two months of the quarter largely weighed on its comps performance as it hurt the seasonal segments of its business. During the quarter, comparable average ticket fell 1.9%. Nonetheless, comparable store transaction count marked its 33rd consecutive quarter of growth, rising 1.5% in the second quarter.
Weakness in sales of big ticket items including riding lawn mowers, outdoor recreation, tillers and other power equipment, along with sales decline in key spring items like live goods, mower parts and attachments, and other lawn and garden categories, adversely affected comps. This decline was compensated partly by strength in its Livestock and Pet categories, which delivered mid-single digit comps growth in every month of the quarter.
Margins & Costs
The company’s gross profit jumped 3.8% year over year to $649.2 million. However, gross margin contracted 30 basis points (bps) to 35% primarily due to an adverse mix shift of products sold and higher freight expenses from an increase in inbound miles and transportation costs. This was partly negated by lower diesel fuel costs. The company noted that these factors nullified the gains from its ongoing margin initiatives.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 20 bps to 21.6% due to a fall in comps as well as additional costs related to the company’s new distribution facilities, offset by stringent expense management and lower incentive compensation expense. In dollar terms, SG&A expenses, including depreciation and amortization, increased 5.2% to $400 million.
Operating income margin contracted 50 bps to 13.4% in second-quarter 2016. Also, operating income, in dollar terms, rose 1.6% to $249.2 million.
Financial Position
Tractor Supply ended the second quarter with cash and cash equivalents of $151.1 million, and total stockholders’ equity of $1,501.9 million, as of Jun 25, 2016.
Further, the company incurred $64.3 million in capital expenditure in the second quarter, with about $101 million spent in the first half of 2016. The company also generated $267.9 million as cash flow from operating activities in the six months of 2016.
Store Update
During the second quarter, Tractor Supply opened 22 stores and closed one Del’s store, compared with the addition of 17 stores and 1 closure in second-quarter 2015. Consequently, the company ended the reported quarter with 1,542 stores.
Guidance
Following the seasonal trough seen in the second quarter, Tractor Supply is not very optimistic about the sales shift to the third quarter. Further, the company has become cautious on its forecast for the rest of the year, though last year’s second-half performance was favorable.
Thus, the company reiterated its recently lowered forecast for 2016. Management now sees sales to range from $6.8 billion to $6.9 billion in 2016, down from $6.9 billion to $7.0 billion expected earlier. Comps are now expected to increase by 2.5%−3.5%, down from the previous forecast of 3.5%−5.0% growth.
Further, Tractor Supply anticipates gross margin to contract by 25–30 basis points from last year, as benefits from its gross margin initiatives are likely to be more than offset by an unfavorable product mix and increased transport expenses. Also, owing to the drab comps view, the company expects selling, general and administrative expenses, as a percentage of sales, to escalate.
Consequently, earnings per share for 2016 are now projected in a range of $3.35−$3.40, down from the previous forecast of $3.40−$3.48.
However, the company still anticipates capital expenditures for 2016 in the range of $230–$250 million. It also expects to incur part of this on about 115–120 store openings during the year.
TRACTOR SUPPLY Price, Consensus and EPS Surprise
TRACTOR SUPPLY Price, Consensus and EPS Surprise | TRACTOR SUPPLY Quote
Stocks to Consider
Some better-ranked stocks in the same industry are Barnes & Noble Inc. , Cabela’s Inc. and ULTA Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) , each with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>