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Bear of the Day: Tractor Supply (TSCO)

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Tractor Supply Company (TSCO - Free Report) is feeling the pinch of the farming and energy slowdown. This Zacks Rank #5 (Strong Sell) recently warned and lowered full year guidance.

Tractor Supply is a retail chain with 1542 stores in 49 states. Despite its name, it doesn't sell tractors but supplies products for recreational farmers, ranchers and others in the rural areas.

Its motto has long been "For Life Out Here."

It sells equine, livestock, pet and small animal products; hardware, truck, towing and tool products; seasonal products including heating, lawn and garden like riding mowers, power equipment and gifts and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use.

Warned on the Third Quarter

On Sep 7, Tractor Supply warned that comparable store sales for the third quarter would likely range from flat to a decrease of 1% versus an increase of 2.9% in 2015's third quarter.

The company is seeing a number of "economic headwinds" especially in the energy and agricultural market areas.

The prolonged downturn in the energy industry is now starting to hit consumers in those regions. They are experiencing a decline in comparable store sales and transaction counts.

With farming incomes declining for the third year in a row, those areas are also being hit as the farming community cuts back on discretionary spending.

Tractor Supply also said its seeing lower demand for pre-season heating related products such as wood stoves and heating fuel.

Where Is It Doing Well?

The strongest regional performance in the third quarter has been in the Southeast and the West. Neither has extensive exposure to farming or energy.

Livestock and Pet categories continue to be strong with mid-single digit comparable store sales.

Lowered Full Year Guidance

With the third quarter tracking weaker than expected, Tractor Supply lowered its full year earnings and sales guidance.

Earnings are now expected in the range of $3.22 to $3.26, down from the previous range of $3.35 to $3.40.

Comparable store sales are forecast in the range of 1% to 1.7% down from the former range of 2.5% to 3.5%.

The analysts, as you can expect, have lowered their estimates.

The Zacks Consensus Estimate has dropped to $3.24 from $3.38 in the last 30 days. But even with the cuts, Tractor Supply is still expected to grow earnings by 8% this year.

Given the pain in the retail sector, that's not too shabby.

Shares Sold Off

The shares plunged on the news.

But even with the big sell off, Tractor Supply isn't that cheap. It trades with a forward P/E of 21.

Investors do get a dividend, currently yielding 1.4%, for their patience.

There aren't a lot of places to hide in retail right now. But for investors still looking to get into the space you might want to consider Big 5 Sporting Goods Corporation (BGFV - Free Report) . It's a Zacks Rank #2 (Buy).

[In full disclosure, the author of this article owns shares of TSCO.]

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