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Tractor Supply Company’s (TSCO - Free Report) third-quarter 2016 results maintained its trend of beating and meeting earnings estimates in alternate quarters. Also, both top and bottom lines improved year over year. However, the top line lagged estimates, as the company posted soft comparable sales (comps) results due to adverse economic and weather conditions.
Consequently, shares of this farm and ranch store retailer declined 2.1% in after-hours trading yesterday.
The company’s earnings of 67 cents per share rose 4.7% year over year, beating the Zacks Consensus Estimate by a penny.
The top line grew 4.5% year over year to $1,542.7 million, but fell short of the Zacks Consensus Estimate of $1,547 million. Further, quarterly comps of this Zacks Rank #5 (Strong Sell) company dipped 0.6% as against a 2.9% increase recorded a year ago.
As revealed by Tractor Supply in its preliminary results, third-quarter sales were largely hurt by a challenging economic backdrop at the agricultural and energy sectors, that took a toll on consumer spending – particularly in the Midwest and South Central regions. Also, the company witnessed soft demand for pre-season cold weather and heating products, like heating fuel and wood stoves, which hurt its sales trends in the Northeast. During the quarter, comparable average ticket fell 1.1%. Nonetheless, comparable store transaction count reflected growth for the 34th consecutive quarter, rising 0.5% in the third quarter.
On a regional basis, the West and Southeast regions witnessed robust comps, which were more than offset by softness noted across the Midwest, South Central and Northeast regions. Taking a look at categories, Tractor Supply continued to benefit from solid demand for the basic daily use products. Notably, the Livestock and Pet categories generated mid-single digit increase in comps.
Margins & Costs
The company’s gross profit rose 4.5% year over year to $535.3 million, while the gross margin remained flat at 34.7%. Management stated that benefits from the initiatives to drive margin were countered by an adverse mix shift of products sold and sales-boosting efforts. Also, reduced fuel and container costs, coupled with lower outbound stem miles were offset completely by an increase in lane costs, and greater inbound and outbound expenses associated with unfavorable mix.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 20 basis points (bps) to 25.5% 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 5.4% to $393.3 million.
Operating income margin contracted 20 bps to 9.2% in third-quarter 2016. Also, operating income, in dollar terms, rose 2% to nearly $142 million.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $55.5 million, long-term debt of $283.8 million, and total stockholders’ equity of $1,464.7 million, as of Sep 24, 2016.
Further, the company incurred $167.2 million in capital expenditure in the first nine months of 2016, with about $66.2 million spent in the third quarter. The company also generated about $274 million as cash flow from operating activities in the first three quarters of 2016.
Store Update
During the third quarter, Tractor Supply opened 34 stores and closed 1 Del’s store, compared with the addition of 30 stores and 3 store closures in third-quarter 2015. Consequently, the company ended the reported quarter with 1,575 stores.
Considering the economic obstacles faced by the agricultural and energy spaces, coupled with a seasonal trough seen in the quarter, Tractor Supply had issued a cautious forecast for 2016, with its preliminary third-quarter update on Sep 7. Following the earnings release, the company reiterated its recently lowered forecast for 2016.
Management sees sales in the range of $6.70–$6.75 billion for 2016, with expected comps growth of 1.0%–1.7%. Further, the company anticipates net income of $432–$438 million with earnings per share envisioned in the band of $3.22–$3.26. Tractor Supply anticipates gross margin to come in a range of flat to marginally down, for the fourth quarter and 2016, on accounting for the unfavorable product mix and increased transport costs.
Further, the company now anticipates capital expenditures for 2016 in the range of $235–$245 million, compared with $230–$250 million projected earlier. It expects to incur part of this for the opening of about 113 stores during the year. Clearly, the company is well on track to achieve its long-term domestic store expansion target of 2500.
Management stated that the aforementioned guidance includes the expected impact of an additional 53rd week in 2016, while the recent buyout of Petsense is not expected to have any material effect on the company’s operational performance in 2016.
Management also revealed that in an attempt to fight the current barriers, it is committed to boosting sales and undertaking efforts to efficiently manage inventories and costs. Further, the company remains focused on improving its merchandise products and services to customers to drive profitable growth and shareholder value in the long run.
Dick's Sporting, with a long-term EPS growth rate of 12.3%, has seen positive estimate revisions for 2016, over the past 60 days. Also, the company has topped earnings by an average of 4.7% over the trailing four quarters.
Big 5, with a long-term EPS growth rate of 12%, currently has an Earnings ESP of +3.33%. Also, estimates for the current fiscal have witnessed an uptrend in the last 30 days.
ULTA Salon has to its credit a spectacular earnings trend as the company hasn’t delivered a negative earnings surprise even once over the past four quarters. Moreover, its long-term EPS growth rate of 19.5% and positive estimate revisions over the past 30 days help it stand strong against the industry.
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Tractor Supply (TSCO) Stock Dips Despite Q3 Earnings Beat
Tractor Supply Company’s (TSCO - Free Report) third-quarter 2016 results maintained its trend of beating and meeting earnings estimates in alternate quarters. Also, both top and bottom lines improved year over year. However, the top line lagged estimates, as the company posted soft comparable sales (comps) results due to adverse economic and weather conditions.
Consequently, shares of this farm and ranch store retailer declined 2.1% in after-hours trading yesterday.
The company’s earnings of 67 cents per share rose 4.7% year over year, beating the Zacks Consensus Estimate by a penny.
The top line grew 4.5% year over year to $1,542.7 million, but fell short of the Zacks Consensus Estimate of $1,547 million. Further, quarterly comps of this Zacks Rank #5 (Strong Sell) company dipped 0.6% as against a 2.9% increase recorded a year ago.
As revealed by Tractor Supply in its preliminary results, third-quarter sales were largely hurt by a challenging economic backdrop at the agricultural and energy sectors, that took a toll on consumer spending – particularly in the Midwest and South Central regions. Also, the company witnessed soft demand for pre-season cold weather and heating products, like heating fuel and wood stoves, which hurt its sales trends in the Northeast. During the quarter, comparable average ticket fell 1.1%. Nonetheless, comparable store transaction count reflected growth for the 34th consecutive quarter, rising 0.5% in the third quarter.
On a regional basis, the West and Southeast regions witnessed robust comps, which were more than offset by softness noted across the Midwest, South Central and Northeast regions. Taking a look at categories, Tractor Supply continued to benefit from solid demand for the basic daily use products. Notably, the Livestock and Pet categories generated mid-single digit increase in comps.
Margins & Costs
The company’s gross profit rose 4.5% year over year to $535.3 million, while the gross margin remained flat at 34.7%. Management stated that benefits from the initiatives to drive margin were countered by an adverse mix shift of products sold and sales-boosting efforts. Also, reduced fuel and container costs, coupled with lower outbound stem miles were offset completely by an increase in lane costs, and greater inbound and outbound expenses associated with unfavorable mix.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 20 basis points (bps) to 25.5% 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 5.4% to $393.3 million.
Operating income margin contracted 20 bps to 9.2% in third-quarter 2016. Also, operating income, in dollar terms, rose 2% to nearly $142 million.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $55.5 million, long-term debt of $283.8 million, and total stockholders’ equity of $1,464.7 million, as of Sep 24, 2016.
Further, the company incurred $167.2 million in capital expenditure in the first nine months of 2016, with about $66.2 million spent in the third quarter. The company also generated about $274 million as cash flow from operating activities in the first three quarters of 2016.
Store Update
During the third quarter, Tractor Supply opened 34 stores and closed 1 Del’s store, compared with the addition of 30 stores and 3 store closures in third-quarter 2015. Consequently, the company ended the reported quarter with 1,575 stores.
TRACTOR SUPPLY Price, Consensus and EPS Surprise
TRACTOR SUPPLY Price, Consensus and EPS Surprise | TRACTOR SUPPLY Quote
Guidance
Considering the economic obstacles faced by the agricultural and energy spaces, coupled with a seasonal trough seen in the quarter, Tractor Supply had issued a cautious forecast for 2016, with its preliminary third-quarter update on Sep 7. Following the earnings release, the company reiterated its recently lowered forecast for 2016.
Management sees sales in the range of $6.70–$6.75 billion for 2016, with expected comps growth of 1.0%–1.7%. Further, the company anticipates net income of $432–$438 million with earnings per share envisioned in the band of $3.22–$3.26. Tractor Supply anticipates gross margin to come in a range of flat to marginally down, for the fourth quarter and 2016, on accounting for the unfavorable product mix and increased transport costs.
Further, the company now anticipates capital expenditures for 2016 in the range of $235–$245 million, compared with $230–$250 million projected earlier. It expects to incur part of this for the opening of about 113 stores during the year. Clearly, the company is well on track to achieve its long-term domestic store expansion target of 2500.
Management stated that the aforementioned guidance includes the expected impact of an additional 53rd week in 2016, while the recent buyout of Petsense is not expected to have any material effect on the company’s operational performance in 2016.
Management also revealed that in an attempt to fight the current barriers, it is committed to boosting sales and undertaking efforts to efficiently manage inventories and costs. Further, the company remains focused on improving its merchandise products and services to customers to drive profitable growth and shareholder value in the long run.
Stocks to Consider
Better-ranked stocks in the same space include Dick's Sporting Goods Inc. (DKS - Free Report) , with a Zacks Rank #1 (Strong Buy), Big 5 Sporting Goods Corp. (BGFV - Free Report) and ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dick's Sporting, with a long-term EPS growth rate of 12.3%, has seen positive estimate revisions for 2016, over the past 60 days. Also, the company has topped earnings by an average of 4.7% over the trailing four quarters.
Big 5, with a long-term EPS growth rate of 12%, currently has an Earnings ESP of +3.33%. Also, estimates for the current fiscal have witnessed an uptrend in the last 30 days.
ULTA Salon has to its credit a spectacular earnings trend as the company hasn’t delivered a negative earnings surprise even once over the past four quarters. Moreover, its long-term EPS growth rate of 19.5% and positive estimate revisions over the past 30 days help it stand strong against the industry.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>