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Will Tractor Supply's (TSCO) Growth Plans Aid Amid Inflation?
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Tractor Supply Company (TSCO - Free Report) has been long gaining from robust demand and strength in Life Out Here Strategy. Its e-commerce business and Neighbor's Club loyalty program are impressive.
These led to sturdy year-over-year performance in second-quarter 2023. The company’s earnings of $3.83 per share rose 8.5% year over year. Net sales advanced 7.2% year over year to $4,184.7 million, driven by contributions from the acquisition of Orscheln Farm and Home, store openings, and comparable store sales growth.
Comps improved 2.5% year over year but lagged our estimate of 5.3% growth. Comparable average transaction count improved 1.8%, while comparable average ticket grew 0.6%. Sturdy demand for core year-round merchandise including consumable, usable and edible products contributed to comps growth.
Consequently, shares of this Zacks Rank #3 (Hold) stock inched up 1% against the industry’s decline of 3.9%.
Image Source: Zacks Investment Research
Let’s dive deeper.
Growth Strategies
The company is on track to build up on Tractor Supply’s Out Here lifestyle assortment and convenient shopping format to gain new customers and market share. The strategy is essentially based on five key pillars, which include customers, digitization, execution, team members and total shareholder return.
As part of plans, it revised long-term financial growth targets for 2022-2026. Management still envisions achieving net sales growth of 6-7%, while comps are expected to climb 4-5%. The operating margin is now anticipated to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to jump 8-11%, up from the previously projected 8-10%.
Earlier, it launched Field Activity Support Team, and implemented various technology and service enhancements across the enterprise.
TSCO remains focused on its growth initiatives, which include expansion of store base and incorporation of technological advancements to induce traffic and drive the top line. It is well positioned to increase its domestic store to 2,500 in the long term. In the second quarter, it opened 17 Tractor Supply stores and three Petsense stores. Management intends to open 70 Tractor Supply stores and 10-15 Petsense stores in 2023.
The company announced an update to its long-term store plan and several new real estate programs to strengthen its balance sheet and real estate portfolio. As part of this, it set a target of 3,000 Tractor Supply stores in the United States, up 200 locations from its prior guidance. Also, it anticipates accelerating its annual new store growth to 80 stores in 2024 and 90 per year in 2025.
Another key component of the company’s space productivity initiatives is the transformation of its Side Lot. Project Fusion and Side Lot model transformations have been significant investments toward stores. These store investments target achieving higher market share and boosting productivity across existing and new stores. Notably, TSCO boasts more than 700 Project Fusion stores, accounting for 30% of its store base.
Its ONETractor strategy, aimed at connecting store and online shopping, bodes well. The company’s omni-channel investments include curbside pickup, same-day and next-day delivery, a re-launched website and new mobile app. Earlier, it 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 second quarter with 31 million Neighbor's Club members, driven by all-time high retention rates and re-launch of the point-based structure of its Neighbor's Club program. Rebranding of Petsense by Tractor Supply and expansion of its Neighbor's Club program to Petsense stores received positive customer feedback. These moves will enable it to gain new pet customers for both banners. Management earlier predicted to reach more than $2 billion in sales by 2026.
Headwinds to Overcome
Tractor Supply has been reeling under inflation woes and rising costs. In second-quarter 2023, SG&A expenses including depreciation and amortization, as a percentage of sales, expanded 77 bps year over year to 22.8%. In dollar terms, SG&A expenses including depreciation and amortization rose 10.9% year over year to $955.4 million and came ahead of our estimate of $867.9 million. Higher SG&A expenses resulted from increased depreciation and amortization, opening of a distribution center and impacts of raised medical claims.
As a result, management revised its guidance for 2023, which seems dull. It expects net sales of $14.8-$14.9 billion, down from earlier mentioned $15-$15.3 billion and in-sync with our estimate of $14.8 billion. Meanwhile, comps are likely to grow 1.3-2.5%, down from the prior stated 3.5-5.5% rise. We estimate the metric to inch up 1.6%.
Operating margin is anticipated to be 10.2-10.3% compared with 10.1-10.3% mentioned earlier. Earnings per share are estimated to be $10.20-$10.40, down from $10.30-$10.60 expected earlier but in-sync with our forecast of $10.24.
Wrapping Up
All said, online strength, solid demand and well chalked-out endeavors are likely to help the stock offset inflation led cost woes. Topping it, a long-term earnings growth rate of 7.8% and a VGM Score of A reflects its inherent strength.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for TSCO 2023 sales and EPS is pegged at $14.9 billion and $10.27, suggesting respective growth of 4.7% and 5.8% from the year-ago reported figures.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. It has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in retail and wholesale of general consumer products, currently flaunts a Zacks Rank #1. The expected EPS growth rate for three-to-five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three-to-five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales implies improvement of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Will Tractor Supply's (TSCO) Growth Plans Aid Amid Inflation?
Tractor Supply Company (TSCO - Free Report) has been long gaining from robust demand and strength in Life Out Here Strategy. Its e-commerce business and Neighbor's Club loyalty program are impressive.
These led to sturdy year-over-year performance in second-quarter 2023. The company’s earnings of $3.83 per share rose 8.5% year over year. Net sales advanced 7.2% year over year to $4,184.7 million, driven by contributions from the acquisition of Orscheln Farm and Home, store openings, and comparable store sales growth.
Comps improved 2.5% year over year but lagged our estimate of 5.3% growth. Comparable average transaction count improved 1.8%, while comparable average ticket grew 0.6%. Sturdy demand for core year-round merchandise including consumable, usable and edible products contributed to comps growth.
Consequently, shares of this Zacks Rank #3 (Hold) stock inched up 1% against the industry’s decline of 3.9%.
Image Source: Zacks Investment Research
Let’s dive deeper.
Growth Strategies
The company is on track to build up on Tractor Supply’s Out Here lifestyle assortment and convenient shopping format to gain new customers and market share. The strategy is essentially based on five key pillars, which include customers, digitization, execution, team members and total shareholder return.
As part of plans, it revised long-term financial growth targets for 2022-2026. Management still envisions achieving net sales growth of 6-7%, while comps are expected to climb 4-5%. The operating margin is now anticipated to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to jump 8-11%, up from the previously projected 8-10%.
Earlier, it launched Field Activity Support Team, and implemented various technology and service enhancements across the enterprise.
TSCO remains focused on its growth initiatives, which include expansion of store base and incorporation of technological advancements to induce traffic and drive the top line. It is well positioned to increase its domestic store to 2,500 in the long term. In the second quarter, it opened 17 Tractor Supply stores and three Petsense stores. Management intends to open 70 Tractor Supply stores and 10-15 Petsense stores in 2023.
The company announced an update to its long-term store plan and several new real estate programs to strengthen its balance sheet and real estate portfolio. As part of this, it set a target of 3,000 Tractor Supply stores in the United States, up 200 locations from its prior guidance. Also, it anticipates accelerating its annual new store growth to 80 stores in 2024 and 90 per year in 2025.
Another key component of the company’s space productivity initiatives is the transformation of its Side Lot. Project Fusion and Side Lot model transformations have been significant investments toward stores. These store investments target achieving higher market share and boosting productivity across existing and new stores. Notably, TSCO boasts more than 700 Project Fusion stores, accounting for 30% of its store base.
Its ONETractor strategy, aimed at connecting store and online shopping, bodes well. The company’s omni-channel investments include curbside pickup, same-day and next-day delivery, a re-launched website and new mobile app. Earlier, it 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 second quarter with 31 million Neighbor's Club members, driven by all-time high retention rates and re-launch of the point-based structure of its Neighbor's Club program. Rebranding of Petsense by Tractor Supply and expansion of its Neighbor's Club program to Petsense stores received positive customer feedback. These moves will enable it to gain new pet customers for both banners. Management earlier predicted to reach more than $2 billion in sales by 2026.
Headwinds to Overcome
Tractor Supply has been reeling under inflation woes and rising costs. In second-quarter 2023, SG&A expenses including depreciation and amortization, as a percentage of sales, expanded 77 bps year over year to 22.8%. In dollar terms, SG&A expenses including depreciation and amortization rose 10.9% year over year to $955.4 million and came ahead of our estimate of $867.9 million. Higher SG&A expenses resulted from increased depreciation and amortization, opening of a distribution center and impacts of raised medical claims.
As a result, management revised its guidance for 2023, which seems dull. It expects net sales of $14.8-$14.9 billion, down from earlier mentioned $15-$15.3 billion and in-sync with our estimate of $14.8 billion. Meanwhile, comps are likely to grow 1.3-2.5%, down from the prior stated 3.5-5.5% rise. We estimate the metric to inch up 1.6%.
Operating margin is anticipated to be 10.2-10.3% compared with 10.1-10.3% mentioned earlier. Earnings per share are estimated to be $10.20-$10.40, down from $10.30-$10.60 expected earlier but in-sync with our forecast of $10.24.
Wrapping Up
All said, online strength, solid demand and well chalked-out endeavors are likely to help the stock offset inflation led cost woes. Topping it, a long-term earnings growth rate of 7.8% and a VGM Score of A reflects its inherent strength.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for TSCO 2023 sales and EPS is pegged at $14.9 billion and $10.27, suggesting respective growth of 4.7% and 5.8% from the year-ago reported figures.
Stocks to Consider
Some better-ranked companies are BJ's Restaurants (BJRI - Free Report) , Urban Outfitters (URBN - Free Report) and Walmart (WMT - Free Report) .
BJ's Restaurants, which operates a chain of high-end casual dining restaurants in the United States, 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 BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. It has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in retail and wholesale of general consumer products, currently flaunts a Zacks Rank #1. The expected EPS growth rate for three-to-five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three-to-five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales implies improvement of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.