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Tractor Supply's (TSCO) Neighbor's Club Program Aids Growth

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Tractor Supply Company (TSCO - Free Report) is persistently focusing on its growth initiatives. The company's Neighbor's Club membership program and strong demand for its products bode well. It is also focusing on expanding its store base and distribution center by incorporating technological advancements to increase traffic and drive top-line growth.

Neighbor's Club Program: Key Factor

Tractor Supply relaunched its Neighbor's Club program in April 2021 to improve its operating capabilities. Since its relaunch, the company has added about 50% more high-value clients. These valuable clients spend more money and shop more frequently, which boost sales of the company.

TSCO announced its fiscal 2022 results, wherein net sales increased 11.6% to $14.2 billion. According to the company, the Neighbor's Club Program contributed 75% of sales in the fiscal year and the program’s membership exceeded 28 million members.

The company also announced the expansion of the Neighbor's Club program with Petsense, one of the brands under TSCO. This expansion will deepen the relationship with existing customers and help attract new pet customers. The company noted that the Neighbor's Club membership represented approximately 50% of sales at Petsense.

 

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What Else is Driving Growth?

Tractor Supply is on track to build a distribution center in Arkansas to support its expansion of the supply chain and higher volumes in its existing stores. Post completion of its new distribution center in late 2023, management expects to generate 500 full-time jobs and service about 300 stores at full capacity. On Jan 18, 2023, management also launched its largest and ninth distribution center in Navarre, OH.

Earlier, the company launched the field activity support team (FAST) and implemented various technology and service enhancements across the enterprise. FAST has made powerful contributions in the company’s in-stock performance and execution of its sales-driving initiatives.

Given the changing consumer trends, Tractor Supply is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience.

The company is on track with the ONETractor strategy to connect stores and online shopping. Its e-commerce business witnessed mid-single-digit growth from the prior year. As of the year-end, the Tractor Supply app has had more than 4.4 million downloads since its launch.

TSCO’s store expansion initiatives bode well. It is well-positioned to expand its store base. In the fourth quarter of fiscal 2022, the company opened 39 Tractor Supply stores and six Petsense stores. In the said quarter, the company acquired 81 stores from Orscheln Farm and Home that will be rebranded to Tractor Supply by the end of 2023. Management is on track with its store-opening initiatives. It plans to open 70 Tractor Supply stores and 10-15 Petsense stores in 2023.

Driven by these factors, management announced a compelling guidance for fiscal 2023. The view reflects the recent acquisition of Orscheln Farm and Home, and the cost for new distribution center. The company expects net sales of $15.0-$15.3 billion, up from the $14.20 billion reported in the prior period. Comps are likely to grow 3.5-5.5% on a year-over-year basis. The operating margin is anticipated to be 10.1%-10.3%. Earnings per share are likely to be $10.30-$10.60, up from the $9.71 reported in the previous period.

Wrapping up

Tractor Supply has been facing challenging macro environment factors for a while now. Additionally, the company has noticed cost pressures throughout the supply chain. Management anticipates transportation costs to continue to rise year over year in the first quarter of 2023, with a recovery in the second half of 2023.

Nonetheless, the advantages mentioned above will most likely assist Tractor Supply in overcoming such obstacles.

Shares of this Zacks Rank #3 (Hold) company have gained 7.7% in the past three months compared with the industry's 2.5% growth.

3 Key Picks

Some better-ranked stocks are Build-A-Bear Workshop, Inc. (BBW - Free Report) , Ulta Beauty (ULTA - Free Report) and DICK'S Sporting (DKS - Free Report) .

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The Zacks Consensus Estimate for Build-A-Bear Workshops’ current financial year sales and earnings suggests growth of 6.2% and 12.3%, respectively, from the year-ago reported numbers.

Ulta Beauty is a leading beauty retailer in the United States. It currently carries a Zacks Rank of 2 (Buy). ULTA has a trailing four-quarter earnings surprise of 26.2%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales and earnings suggests growth of 8.5% and 5%, respectively, from the prior-year reported numbers.

DICK'S Sporting, operates as a major omni-channel sporting goods retailer, currently carries a Zacks Rank of 2. DKS has a trailing four-quarter earnings surprise of 10%, on average.

The Zacks Consensus Estimate for DKS’ current financial year sales and earnings suggests growth of 3% and 11%, respectively, from the year-ago reported figures.

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