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Tractor Supply (TSCO) Q4 Earnings and Sales Beat Estimates

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Tractor Supply Company (TSCO - Free Report) has posted fourth-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. The company’s results have reflected gains from continued market share growth and progress on its strategic initiatives. Moreover, the company benefited from its Life Out Here Strategy, Neighbor’s Club membership program and healthy demand for its products. Management has provided an encouraging view for 2023.

Tractor Supply’s earnings of $2.43 per share improved 25.9% year over year, surpassing the Zacks Consensus Estimate of $2.34. The 53rd week contributed about 16 cents to earnings per share in the fourth quarter.

Net sales advanced 20.7% year over year to $4,006.4 million and beat the Zacks Consensus Estimate of $3,883 million. Sales in the fourth quarter included incremental sales from the 53rd week, which added 6.8 percentage points to sales growth. Also, the Orscheln Farm and Home acquisition concluded in October 2022 contributed $80 million to net sales in the fourth quarter.

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

The improvement was driven by an increase of 8.6% in comps, led by growth in both ticket and transaction. The company’s comparable average ticket improved 7%, while the comparable average transaction count rose 2.3%. Sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as year-round products, also contributed to comps growth.

Shares of the Zacks Rank #3 (Hold) company have gained 7.3% in the past year compared with the industry’s 7% growth.

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Cost and Margins

The gross profit rose 21.7% year over year to $1,363.6 million, while the gross margin expanded 28 basis points (bps) to 34%. Pricing efforts and other initiatives to drive margins partly offset cost inflation, higher transportation costs and the unfavorable product mix.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 14 bps to 25.1%. In dollar terms, SG&A expenses, including depreciation and amortization, rose 21.4% year over year to $909.6 million.

Higher SG&A expenses resulted from the impact of elevated transaction expenses, and early integration costs related to the Orscheln Farm and Home acquisition. Investments in strategic efforts, and team member compensation and benefits also contributed to higher SG&A expenses, partly offset by reduced COVID-19 response costs, and leverage in occupancy and other costs.

The operating income advanced 22.6% year over year to $359.2 million in the fourth quarter. Meanwhile, the operating margin expanded 14 bps to 8.97%. The impacts of the Orscheln Farm and Home acquisition were relatively neutral to operating income in the fourth quarter, which reduced the operating margin rate by 20 bps.

Financial Position

Tractor Supply ended 2022 with cash and cash equivalents of $202.5 million, long-term debt of $1,164.1 million, and total stockholders’ equity of $2,042.4 million.

In 2022, the company incurred a capital expenditure of $773.4 million and generated a cash flow from operating activities of $1,357 million. Capital expenditure is expected to be $700-$775 million for 2023.

In the fourth quarter, Tractor Supply returned $193.7 million to its shareholders, including $92 million to repurchase 0.4 million shares and $101.7 million as quarterly cash dividends. The company expects to repurchase shares worth $575-$675 million in 2023.

Store Update

In the quarter under review, the company opened 39 Tractor Supply stores and six Petsense by Tractor Supply stores. On Oct 12, TSCO acquired 81 stores from Orscheln Farm and Home, which will be rebranded as Tractor Supply by the end of 2023. The company opened its ninth distribution center on Jan 18, 2023.

As of Dec 31, 2022, it operated 2,066 Tractor Supply stores across 49 states and 186 Petsense stores in 23 states.

Management expects to continue its store-opening initiatives in 2023. It plans to open 70 Tractor Supply stores and 10-15 Petsense stores in 2023. Additionally, it expects to complete the planned conversion of 81 Orscheln Farm and Home to Tractor Supply stores by the end of 2023. The company will continue the Project Fusion remodels and garden center transformations.

Tractor Supply plans to complete the build-out of its 10th distribution center in 2023. It expects the operations of this distribution center to start in spring 2024.

2023 Outlook

Tractor Supply has outlined its guidance for 2023. The company expects net sales of $15-$15.3 billion, with comp growth of 3.5-5.5%. The operating margin is anticipated to be 10.1-10.3%. Net income is expected to be $1.13-$1.17 billion. Earnings per share are likely to be $10.30-$10.60.

Stocks to Consider

Here are three better-ranked stocks to consider — Build-A-Bear Workshop (BBW - Free Report) , Five Below (FIVE - Free Report) and Ulta Beauty (ULTA - Free Report) .

Build-A-Bear Workshop, the leading and only national company, providing a make-your-own stuffed animal interactive retail-entertainment experience, currently sports a Zacks Rank #1 (Strong Buy). BBW has a trailing four-quarter earnings surprise of 14.7%, on average.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Build-A-Bear’s current financial-year sales and earnings suggests growth of 11.9% and 21.5%, respectively, from the year-ago reported number.

Five Below, a specialty value chain retailer that provides a wide range of premium quality and trendy merchandise for $5 or below, currently carries a Zacks Rank #2 (Buy). FIVE has an expected EPS growth rate of 19% for three to five years.

The Zacks Consensus Estimate for Five Below’s current financial-year revenues suggests growth of 7.4% from the year-ago reported figures. FIVE has a trailing four-quarter earnings surprise of 26.3%, on average.

Ulta Beauty, a leading beauty retailer in the United States, carries a Zacks Rank #2 at present. The company has a trailing four-quarter earnings surprise of 26.2%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial year’s revenues suggests growth of 15.7% from the year-ago reported figure. ULTA has an expected EPS growth rate of 13.8% for three to five years.

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