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Growth Endeavors Aid Tractor Supply (TSCO) Amid Cost Woes
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Tractor Supply Company (TSCO - Free Report) has been gaining from continued market share growth and progress on its strategic initiatives. Moreover, TSCO benefited from its Life Out Here Strategy, Neighbor’s Club membership program and healthy product demand.
This led to year-over-year sales growth of 9.1% to $3,299.2 million in first-quarter 2023. The top line also benefited from contributions from the Orscheln Farm and Home acquisition concluded in October 2022, store openings and increased comparable store sales (comps).
Comps improved 2.1% year over year led by growth in comparable average tickets, offset by a decline in comparable average transactions. The company’s comparable average ticket improved 2.8%, while the comparable average transaction count was down 0.7%. Sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as year-round products, contributed to comp growth.
Tractor Supply has been on track to build up its Out Here lifestyle assortment and the convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars — customers, digitization, execution, team members and total shareholder return.
As part of the plans, it revised the long-term financial growth targets for 2022-2026. Management envisions achieving net sales growth of 6-7%, while comps are expected to grow 4-5%. The operating margin is expected to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to grow 8-11%, up from the previously disclosed 8-10%.
Earlier, the company launched the Field Activity Support Team (“FAST”), and implemented various technology and service enhancements across the enterprise. It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life and advancing efforts to remain nationally strong and locally relevant.
TSCO’s focus on integrating its physical and digital operations to offer consumers a seamless shopping experience bodes well. The company has been on track with the ‘ONETractor’ strategy aimed at connecting stores and online shopping. Its omni-channel investments include curbside pickup, same-day and next-day delivery, a re-launched website, and a new mobile app.
In the first quarter, Tractor Supply’s e-commerce business performed well, with its mobile app representing more than 20% of its digital sales. Earlier, the company launched Tractor Supply Visa Credit Card, which allows customers to earn points on their everyday purchases, both in-store and anywhere Visa is accepted.
Tractor Supply exited the first quarter with more than 30 million Neighbor's Club members. The company’s rebranding of Petsense by Tractor Supply and expansion of its Neighbor's Club program to Petsense stores received positive customer feedback. The move will enable it to gain pet customers for both banners.
TSCO has also been expanding its store base, and implementing technological advancements to induce traffic and drive the top line. The company is well-positioned to expand its store base, remaining on track to increase its domestic store to 2,500 in the long term.
In the first quarter, the company opened 17 Tractor Supply stores and three Petsense by Tractor Supply stores. It expects to complete the planned conversion of 81 Orscheln Farm and Home to Tractor Supply stores by the end of 2023. 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.
Driven by these factors, management expects fiscal 2023 net sales of $15-$15.3 billion, in line with our estimate of $15.2 billion. Comp growth is likely to be 3.5-5.5%. The company is likely to witness comp sales toward the top half of its guidance in the second quarter.
TSCO also anticipates strength in CUE products and DIY categories like repairs and maintenance. Its second and third quarters are anticipated to have the strongest comp sales growth potential, while the fourth quarter is expected to be at the low end of the guidance range.
Image Source: Zacks Investment Research
Consequently, shares of TSCO have lost 2.7% in the past three months but came ahead of the industry’s decline of 4.7%.
Hurdles on the Way
Tractor Supply has been reeling under inflation woes and rising costs. In first-quarter 2023, SG&A expenses, including depreciation and amortization, as a percentage of sales, expanded 119 bps year over year to 28.1%. Higher SG&A expenses resulted from the deleverage due to moderate comps, and higher depreciation and amortization; the opening of a distribution center; and the impacts of the Orscheln Farm and Home acquisition.
Bottom Line
Despite inflation and cost woes, Tractor Supply looks well-poised on the back of online strength, solid demand and other growth efforts. Also, a Value Score of B and long-term earnings growth of 9.6% raise optimism in this Zacks Rank #3 (Hold) stock.
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.1% and 23.8%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year’s earnings per share suggests growth of 6.6% from the year-ago reported figure. KR has an expected earnings per share growth rate of 6% for three to five years.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2 at present. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5%, respectively, from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
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Growth Endeavors Aid Tractor Supply (TSCO) Amid Cost Woes
Tractor Supply Company (TSCO - Free Report) has been gaining from continued market share growth and progress on its strategic initiatives. Moreover, TSCO benefited from its Life Out Here Strategy, Neighbor’s Club membership program and healthy product demand.
This led to year-over-year sales growth of 9.1% to $3,299.2 million in first-quarter 2023. The top line also benefited from contributions from the Orscheln Farm and Home acquisition concluded in October 2022, store openings and increased comparable store sales (comps).
Comps improved 2.1% year over year led by growth in comparable average tickets, offset by a decline in comparable average transactions. The company’s comparable average ticket improved 2.8%, while the comparable average transaction count was down 0.7%. Sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as year-round products, contributed to comp growth.
Tractor Supply has been on track to build up its Out Here lifestyle assortment and the convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars — customers, digitization, execution, team members and total shareholder return.
As part of the plans, it revised the long-term financial growth targets for 2022-2026. Management envisions achieving net sales growth of 6-7%, while comps are expected to grow 4-5%. The operating margin is expected to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to grow 8-11%, up from the previously disclosed 8-10%.
Earlier, the company launched the Field Activity Support Team (“FAST”), and implemented various technology and service enhancements across the enterprise. It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life and advancing efforts to remain nationally strong and locally relevant.
TSCO’s focus on integrating its physical and digital operations to offer consumers a seamless shopping experience bodes well. The company has been on track with the ‘ONETractor’ strategy aimed at connecting stores and online shopping. Its omni-channel investments include curbside pickup, same-day and next-day delivery, a re-launched website, and a new mobile app.
In the first quarter, Tractor Supply’s e-commerce business performed well, with its mobile app representing more than 20% of its digital sales. Earlier, the company launched Tractor Supply Visa Credit Card, which allows customers to earn points on their everyday purchases, both in-store and anywhere Visa is accepted.
Tractor Supply exited the first quarter with more than 30 million Neighbor's Club members. The company’s rebranding of Petsense by Tractor Supply and expansion of its Neighbor's Club program to Petsense stores received positive customer feedback. The move will enable it to gain pet customers for both banners.
TSCO has also been expanding its store base, and implementing technological advancements to induce traffic and drive the top line. The company is well-positioned to expand its store base, remaining on track to increase its domestic store to 2,500 in the long term.
In the first quarter, the company opened 17 Tractor Supply stores and three Petsense by Tractor Supply stores. It expects to complete the planned conversion of 81 Orscheln Farm and Home to Tractor Supply stores by the end of 2023. 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.
Driven by these factors, management expects fiscal 2023 net sales of $15-$15.3 billion, in line with our estimate of $15.2 billion. Comp growth is likely to be 3.5-5.5%. The company is likely to witness comp sales toward the top half of its guidance in the second quarter.
TSCO also anticipates strength in CUE products and DIY categories like repairs and maintenance. Its second and third quarters are anticipated to have the strongest comp sales growth potential, while the fourth quarter is expected to be at the low end of the guidance range.
Image Source: Zacks Investment Research
Consequently, shares of TSCO have lost 2.7% in the past three months but came ahead of the industry’s decline of 4.7%.
Hurdles on the Way
Tractor Supply has been reeling under inflation woes and rising costs. In first-quarter 2023, SG&A expenses, including depreciation and amortization, as a percentage of sales, expanded 119 bps year over year to 28.1%. Higher SG&A expenses resulted from the deleverage due to moderate comps, and higher depreciation and amortization; the opening of a distribution center; and the impacts of the Orscheln Farm and Home acquisition.
Bottom Line
Despite inflation and cost woes, Tractor Supply looks well-poised on the back of online strength, solid demand and other growth efforts. Also, a Value Score of B and long-term earnings growth of 9.6% raise optimism in this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Some better-ranked stocks that investors may consider are Tecnoglass (TGLS - Free Report) , Kroger (KR - Free Report) and TJX Companies (TJX - Free Report) .
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.1% and 23.8%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year’s earnings per share suggests growth of 6.6% from the year-ago reported figure. KR has an expected earnings per share growth rate of 6% for three to five years.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2 at present. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5%, respectively, from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.