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3 Reasons Why You Should Invest in Tractor Supply (TSCO) Now
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Tractor Supply Company (TSCO - Free Report) seems an appropriate investment option at the moment as it remains well-positioned to grow on the back of favorable demand for seasonal categories and everyday merchandise, including consumable, usable and edible products. Some other notable efforts include Life Out Here Strategy, solid online show and store expansion initiatives.
Driven by these factors, the company delivered impressive second-quarter 2021 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. This marked the sixth straight quarter of earnings surprise and the fifth consecutive sales beat. The improvement was driven by year-over-year comparable store sales (comps) growth of 10.5% across all regions and key categories. Comps also rose 45% from second-quarter 2019.
Shares of this Zacks Rank #2 (Buy) stock gained 4.4% in the past three months against the industry’s decline of 12.7%.
Image Source: Zacks Investment Research
That said, let’s delve into the factors that make the stock a promising bet.
Omni-Channel Capability, A Major Growth Driver
Tractor Supply has been gaining from its diverse omni-channel capabilities like curbside pickup, same-day and next-day delivery, a re-launched website and new mobile app, stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores, and enhanced credit card offering. Investments in its supply chain also bode well. This led to digital sales growth in the second quarter, with the largest ever quarterly sales.
In the said quarter, its newly launched mobile app as well as the Neighbor's Club loyalty program remained key growth drivers. Its mobile app recorded more than 1.6 million downloads and now accounts for more than 10% of its digital sales. The Neighbor's Club added 5 million members year over year, representing nearly 65% of sales. The expansion of its Buy Online Pickup in Store facility to include drive-through pickup service is also likely to aid growth in the near term. The company also remains on track with the ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping.
Store Initiatives
The company is also focused on the expansion of its store base and the incorporation of technological advancements to induce traffic and drive the top line. The addition of stores has been aiding sales and comps growth every quarter. Management remains on track with its store-opening initiatives. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021. It forecasts 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. Tractor Supply currently boasts 160 Project Fusion stores, which have been performing well, with positive customer feedback. The company has completed 60 side lot transformations, with more than 150 to be completed by the end of 2021.
Strong Projections
Management raised its view for 2021. The company now expects net sales of $12.1-$12.3 billion, which reflects an improvement from the previously mentioned $11.4-$11.7 billion. Comps are likely to increase 11-13%, up from 5-8% mentioned earlier. Operating margin is anticipated to be 9.7-9.9% versus 9.4-9.7% stated earlier. Net income is expected to be $895-$930 million for 2021, up from the earlier mentioned $820-$860 million. Earnings per share are expected to be $7.70-$8.00, reflecting a rise from $7.05-$7.40 mentioned earlier.
Wrapping Up
Despite the upsides, the company continues to grapple with higher wages, increased investments in strategic initiatives, including the relaunch of the Neighbor’s Club loyalty program and product mix shift. Management highlighted that elevated imports, freight, wages, and commodity costs remain concerning. It forecast a gross margin decline for the second half of 2021 due to higher transportation costs and strength in consumable, usable and edible products.
Nevertheless, we believe that Tractor Supply’s strategic initiatives, solid online show and high demand are likely to keep its stellar show on. The Zacks Consensus Estimate for 2021 earnings is pegged at $7.79 per share, indicating an increase of 6% in the past 30 days. Topping it, a VGM Score of B and a long-term earnings growth rate of 9.7% reflect its inherent strength.
Image: Bigstock
3 Reasons Why You Should Invest in Tractor Supply (TSCO) Now
Tractor Supply Company (TSCO - Free Report) seems an appropriate investment option at the moment as it remains well-positioned to grow on the back of favorable demand for seasonal categories and everyday merchandise, including consumable, usable and edible products. Some other notable efforts include Life Out Here Strategy, solid online show and store expansion initiatives.
Driven by these factors, the company delivered impressive second-quarter 2021 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. This marked the sixth straight quarter of earnings surprise and the fifth consecutive sales beat. The improvement was driven by year-over-year comparable store sales (comps) growth of 10.5% across all regions and key categories. Comps also rose 45% from second-quarter 2019.
Shares of this Zacks Rank #2 (Buy) stock gained 4.4% in the past three months against the industry’s decline of 12.7%.
Image Source: Zacks Investment Research
That said, let’s delve into the factors that make the stock a promising bet.
Omni-Channel Capability, A Major Growth Driver
Tractor Supply has been gaining from its diverse omni-channel capabilities like curbside pickup, same-day and next-day delivery, a re-launched website and new mobile app, stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores, and enhanced credit card offering. Investments in its supply chain also bode well. This led to digital sales growth in the second quarter, with the largest ever quarterly sales.
In the said quarter, its newly launched mobile app as well as the Neighbor's Club loyalty program remained key growth drivers. Its mobile app recorded more than 1.6 million downloads and now accounts for more than 10% of its digital sales. The Neighbor's Club added 5 million members year over year, representing nearly 65% of sales. The expansion of its Buy Online Pickup in Store facility to include drive-through pickup service is also likely to aid growth in the near term. The company also remains on track with the ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping.
Store Initiatives
The company is also focused on the expansion of its store base and the incorporation of technological advancements to induce traffic and drive the top line. The addition of stores has been aiding sales and comps growth every quarter. Management remains on track with its store-opening initiatives. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021. It forecasts 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. Tractor Supply currently boasts 160 Project Fusion stores, which have been performing well, with positive customer feedback. The company has completed 60 side lot transformations, with more than 150 to be completed by the end of 2021.
Strong Projections
Management raised its view for 2021. The company now expects net sales of $12.1-$12.3 billion, which reflects an improvement from the previously mentioned $11.4-$11.7 billion. Comps are likely to increase 11-13%, up from 5-8% mentioned earlier. Operating margin is anticipated to be 9.7-9.9% versus 9.4-9.7% stated earlier. Net income is expected to be $895-$930 million for 2021, up from the earlier mentioned $820-$860 million. Earnings per share are expected to be $7.70-$8.00, reflecting a rise from $7.05-$7.40 mentioned earlier.
Wrapping Up
Despite the upsides, the company continues to grapple with higher wages, increased investments in strategic initiatives, including the relaunch of the Neighbor’s Club loyalty program and product mix shift. Management highlighted that elevated imports, freight, wages, and commodity costs remain concerning. It forecast a gross margin decline for the second half of 2021 due to higher transportation costs and strength in consumable, usable and edible products.
Nevertheless, we believe that Tractor Supply’s strategic initiatives, solid online show and high demand are likely to keep its stellar show on. The Zacks Consensus Estimate for 2021 earnings is pegged at $7.79 per share, indicating an increase of 6% in the past 30 days. Topping it, a VGM Score of B and a long-term earnings growth rate of 9.7% reflect its inherent strength.
Other Stocks in the Retail Space
DICK’S Sporting Goods (DKS - Free Report) presently has a Zacks Rank #2 and an expected long-term earnings growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ulta Beauty (ULTA - Free Report) currently has a long-term expected earnings growth rate of 16.5% and a Zacks Rank #2.
Dollar General Corporation (DG - Free Report) , a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11.3%.