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Tractor Supply (TSCO) Gains on Solid Online Show: Know How?

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Although stores have reopened because of accelerating vaccine programs across the United States, the online shopping boom witnessed since the onset of the pandemic continues. Tractor Supply Company (TSCO - Free Report) is one of the beneficiaries of this online trend in the retail space. Driven by healthy online demand, the company recorded triple-digit percentage sales growth in the e-commerce business during first-quarter 2021, marking the fourth consecutive quarter of triple-digit growth in e-commerce sales.

The company’s omnichannel investments, including curbside pickup, same-day and next-day deliveries, a re-launched website and the new mobile app, contributed to online growth. In the quarter under review, about 75% of its omnichannel sales were picked up at a Tractor Supply store. Apart from these, its newly launched mobile app and the Neighbor's Club loyalty program bode well.

Moreover, the company retained investors' bullish sentiments by maintaining its sales and earnings beat streak in all the last four quarters, with the average earnings surprise being 23.1%. The company has been gaining from strength in demand for seasonal categories as well as everyday merchandise, including consumable, usable and edible products. This, in turn, underlines its operational excellence.

In the past 30 days, the company’s estimates for 2021 and 2022 earnings per share have moved up 0.7% and 0.5%, respectively. For 2021, its earnings estimates are pegged at $7.35 per share, suggesting a rise of 7% from the year-ago quarter’s reported figure.

In the past three months, this Zacks Rank #2 (Buy) stock has gained 1.95% against the industry’s decline of 1.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Other retail players gaining from the continued online trend are Bed Bath & Beyond (BBBY - Free Report) , Sally Beauty Holdings (SBH - Free Report) and DICK'S Sporting Goods (DKS - Free Report) . Bed Bath & Beyond’s digital sales rose roughly 86% in fourth-quarter fiscal 2020. Further, e-commerce sales for Sally Beauty surged 56% year over year during the second quarter of fiscal 2021. Also, e-commerce sales for DICK'S Sporting grew 14% in first-quarter fiscal 2021, representing nearly 20% of net sales.

What Else Should You Know?

Tractor Supply remains on track with the ‘ONETractor’ strategy that is aimed at connecting store and online shopping. Backed by this initiative, the company continues to drive growth, build customer-centric engagements, offer suitable products and services, and reinforce core infrastructure capabilities. Moreover, it is benefiting from the rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores, as well as enhancement of the Tractor Supply credit card offering and investments in its supply chain.

Speaking of stores, Tractor Supply is persistently focused on the expansion of its store base and the incorporation of technological advancements to induce traffic and drive the top line. The company’s sales and comps have been considerably gaining from the addition of new stores every quarter. Moreover, it expects to drive comps by improving marketing and merchandising initiatives as well as supply-chain efficiencies. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021. Also, it expects 150-200 Side Lot transformations and 150-200 Project Fusion store remodels of existing Tractor Supply stores, as part of its Life Out Here Strategy.

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 a 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.

Hurdles on the Way

Despite such upsides, incremental costs related to the pandemic and higher incentive compensation continued to act as headwinds for Tractor Supply. 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.

Although cost woes are concerning, we believe that Tractor Supply’s strategic initiatives, solid online show and high demand are likely to keep its stellar show on.

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