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Tractor Supply (TSCO) Q3 Earnings & Sales Beat, 2021 View Up

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Tractor Supply Company (TSCO - Free Report) has reported sturdy third-quarter 2021 results wherein both the top and the bottom line improved year over year and surpassed the Zacks Consensus Estimate.

Results gained from strength in the Life Out Here Strategy and healthy customer trends. The company delivered the sixth straight quarter of more than 10% increase in comparable store sales (comps). Encouragingly, management raised its view for 2021.

Tractor Supply’s earnings of $1.95 per share surpassed the Zacks Consensus Estimate of $1.65. Moreover, the bottom line improved 20.4% from the prior-year quarter’s level.
Net sales jumped 15.8% year over year to $3,017.9 million and beat the Zacks Consensus Estimate of $2,871 million. This improvement was driven by an increase of 13.1% in comps, led by growth of 9.5% in comparable average ticket and a 3.6% rise in comparable average transaction count.

Tractor Supply Company Price, Consensus and EPS Surprise

Tractor Supply Company Price, Consensus and EPS Surprise

Tractor Supply Company price-consensus-eps-surprise-chart | Tractor Supply Company Quote

Also, sturdy demand for everyday merchandise including consumable, usable and edible (C.U.E.) products as well as robust summer seasonal categories contributed to comps growth. The company witnessed comps growth in all the geographic regions and key merchandising categories. Tractor Supply witnessed solid double-digit sales growth in the e-commerce business, delivering the 37th consecutive quarter of increase.

Shares of this presently Zacks Rank #2 (Buy) company have gained 7.8% in the past three months against the industry’s 0.2% dip.

Margins & Costs

Gross profit rose 14.5% year over year to $1,085.3 million while gross margin contracted 41 basis points (bps) to 36%.

Selling, general and administrative (SG&A) expenses including depreciation and amortization as a percentage of sales improved 58 bps to 26.1%. Leveraged occupancy and other fixed expenses, lower COVID-19 pandemic response costs and reduced incentive compensation aided the metric. This was somewhat offset by increased wage rates, additional store labor hours, investments in strategic efforts and other discrete expenses. In dollar terms, adjusted SG&A expenses including depreciation and amortization rose 13.3% to $788.3 million.

Operating income advanced 17.9% to $297.2 million in the third quarter. Operating margin expanded 20 bps to 9.9%.

Financial Position

Tractor Supply ended the third quarter with cash and cash equivalents of $1,111.7 million, long-term debt of $985.9 million and total stockholders’ equity of $2,020.8 million. Further, it has no amount drawn from its $500-million revolving credit facility as of Sep 25, 2021.

In the nine months of 2021, the company incurred a capital expenditure of $382.4 million and generated cash flow from operating activities of $871.8 million.

Tractor Supply returned $200.6 million to its shareholders in the third quarter including $141.3 million to repurchase 0.7 million shares and $59.4 million for quarterly cash dividends.

For 2021, it expects to incur a capital expenditure of $550-$600 million compared with the earlier guided range of $500-$600 million. It anticipates share repurchases worth $750-$800 million for 2021 versus $700-$800 predicted earlier.

Store Update

In the quarter under review, the company opened 12 Tractor Supply stores and three Petsense stores. As of Sep 25, 2021, it operated 1,967 Tractor Supply stores across 49 states and 177 Petsense stores in 23 states.

Management remains on track with its store-opening initiatives. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021.

2021 Outlook

Driven by the solid performance so far in 2021, management raised its 2021 guidance. The company now expects net sales of $12.6 billion, indicating an improvement from the previous view of $12.1-$12.3 billion. Comps are likely to grow 16%, up from 11-13% mentioned earlier. Operating margin is now anticipated to be 10.2-10.3%, higher than 9.7-9.9% envisioned earlier.

Moreover, net income is now expected to be $972-$985 million, up from the earlier projection of $895-$930 million for 2021. Earnings per share are now expected to be $8.40-$8.50, implying a rise from $7.70-$8.00 estimated earlier.

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