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Tractor Supply Co. (TSCO - Analyst Report) reported strong results for the fourth quarter and fiscal 2012. The company’s earnings surged nearly 15.6% to $1.11 per share in the fourth quarter of 2012, beating the Zacks Consensus Estimate of $1.03. The company’s results benefited mainly from strong top-line performance and improved operating margin.

For the full year, the company reported earnings per share of $3.80, an increase of 26.2% from the prior year and higher than the Zacks Consensus Estimate of $3.72.

Detailed Analysis

Net sales in the quarter improved 3.7% to $1,286.2 million from $1,240.0 million in the comparable prior-year quarter. Moreover, total revenue beat the Zacks Consensus Estimate of $1,284 million. For fiscal 2012, net sales increased 10.2% to $4,664.1 million, beating the Zacks Consensus Estimate of $4,661 million.

Tractor Supply has been witnessing increasing trends in same-store sales. The reported quarter was no exception as robust performance in core consumable, usable and edible (C.U.E) products − mainly for pet food and animal feed − acted as a catalyst for a 4.7% increase in same-store sales on top of a 7.6% rise in the previous-year quarter.

Gross profit during the quarter increased 5.3% to $424.6 million compared with $403.2 million in the prior-year quarter. Gross margin expanded 50 basis points to 33.0% from 32.5% in the year-ago quarter, benefiting from key margin-driving initiatives, including strategic sourcing, inventory and markdown management and price optimization, offset by the continued mix shift to lower-margin, freight-intensive C.U.E. products.

Better cost containment related to store personnel and lower incentive compensation expenses resulted in a 20 basis point (bp) contraction in selling, general and administrative expenses, as a percentage of sales, which came in at 23.3% versus 23.5% in the prior-year quarter. Consequently, operating margin during the quarter expanded 70 bps to 9.7% versus 9.0% in the prior-year quarter.

Financial Position

Tractor Supply ended the year with cash and cash equivalents, including restricted cash of $147.0 million compared with $198.8 million at the end of the year-ago quarter. Stockholders’ equity came in at $1.054 billion compared with $1,025.0 million at the end of fiscal 2012. Long-term debt as of Dec 29, 2012 stood at $1,242.0 million versus $1,284.0 million.

Store Update

In the fourth quarter, Tractor Supply opened 25 new stores, bringing total store openings for the year to 93. As of Dec 29, 2012, the company operated as many as 1,176 stores in 45 states.

Management Guidance

For fiscal 2013, the company expects net sales to range from $5.07 billion – $5.17 billion, with comps expected to improve in the range of 3%−5%. The company anticipates fiscal 2013 earnings in the range of $4.32 − $4.40 per share, including estimated costs of 6 cents to 7 cents per share related to relocation of its Southeast distribution center and its corporate data center.

Moreover, Tractor Supply expects capital expenditure in the range of $240 – $250 million in fiscal 2013, comprising $100 – $105 million slated to be spent toward new store openings and the construction of the company’s Southeast distribution center and new Store Support Center, which are expected to open in 2013 and 2014, respectively.

Our Take

Other companies expected to post positive earnings beat this quarter are Big 5 Sporting Goods Corporation (BGFV - Analyst Report), which has a Zacks Rank #1 (Strong Buy) and Home Depot Inc. (HD - Analyst Report) and Abercrombie & Fitch Company (ANF - Analyst Report), both of which carry a Zacks Rank #2 (Buy). Currently, Tractor Supply has a Zacks Rank #3 (Hold).

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