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Tractor Supply (TSCO) Up 19.9% in 3 Months: More Room to Run?

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Tractor Supply Company (TSCO - Free Report) has been gaining from solid demand for seasonal categories as well as everyday merchandise, including consumable, usable and edible products. This led to impressive first-quarter 2021 results, wherein both top and bottom lines improved year over year. Notably, it marked the fifth straight quarter of earnings beat and fourth consecutive sales beat. Also, the company witnessed strength across all geographic regions.

Encouragingly, management raised its guidance for 2021 based on the strong first-quarter performance and current trends. The company now expects net sales of $11.4-$11.7 billion for 2021 compared with $10.7-$11 billion mentioned earlier. Comps are likely to increase 5-8% compared with the previously mentioned range of 2% decline to 1% growth. Operating margin is now anticipated to be 9.4-9.7% versus 9.3-9.6% stated earlier. Moreover, net income is now expected to be $820-$860 million for 2021. Earlier, the company predicted a net income of $750-$800 million. Earnings per share are now expected to be $7.05-$7.40 compared with $6.50-$6.90 mentioned earlier.

Cumulatively, shares of this Zacks Rank #2 (Buy) company have rallied 19.9% in the past three months, outperforming the industry’s growth of 6.3%.

What Else Should You Know?

Tractor Supply remains on track with the ‘ONETractor’ strategy that is aimed at connecting store and online shopping. Moreover, the company is benefiting from the rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores, enhancement of the Tractor Supply credit card offering and investments in its supply chain. Alongside these, other notable omnichannel services including curbside pickup, same day and next-day delivery, a re-launched website and a new mobile app contributed to the triple-digit digital sales growth in the first quarter. Also, its newly launched mobile app and the Neighbor's Club loyalty program bode well.

Further, it is progressing well with the Life Out Here strategy, which is aimed at offering a convenient shopping experience to customers and gaining market share. The company also provided long-term financial growth targets for the upcoming three to five years. It envisions achieving net sales growth of 6-7%, while comps are expected to grow between 4-5%. Operating margin is expected in the range of 9-9.5% and earnings per share are likely to grow 8-10%. Also, the company is focused on store expansion plans, improving marketing and merchandising initiatives as well as supply-chain efficiencies.

However, the company is still reeling under incremental costs related to the pandemic and higher incentive compensation. Notably, the company incurred incremental COVID-related costs of nearly $28 million in the first quarter, mainly due to the unexpected resurgence of COVID-19 cases late in 2020. Moreover, higher freight costs and fuel expenses are likely to persist in 2021. Also, rising transportation costs are expected to dent gross margins in the second quarter of 2021. Further, higher spending related to new in-store initiatives and supporting technology for the Life Out Here Strategy remain concerns. Moreover, management remains uncertain regarding the magnitude of the pandemic’s impact on the company’s performance in 2021.

Bottom Line

Although cost headwinds and other uncertainties related to the pandemic remain concerns, we believe that Tractor Supply’s strategic initiatives, solid online show and high demand are likely to drive growth further. Topping it, the Zacks Consensus Estimate for 2021 is pegged at $7.27 per share, rising 0.6% in the past seven days.

3 Other Stocks to Consider

Target Corporation (TGT - Free Report) currently has an impressive long-term earnings growth rate of 10.2% and a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Big Lots (BIG - Free Report) carries a Zacks Rank #2 and a long-term earnings growth rate of 11.2%.

Five Below (FIVE - Free Report) has a long-term earnings growth rate of 32.8%. The company flaunts a Zacks Rank #2.

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