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Tractor Supply (TSCO) Retains Momentum on Growth Initiatives

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Tractor Supply Company (TSCO - Free Report) remains focused on its growth initiatives, which include the expansion of the store base and the incorporation of technological advancements to induce traffic and drive the top line. The buyout of Orscheln Farm and Home and store openings have been aiding the performance. The company is well-positioned to expand its store base, remaining on track to increase its domestic store count to 2,500 in the long term.

The ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping, appears encouraging. The company is also benefiting from its Life Out Here Strategy and the Neighbor’s Club membership program.

Shares of this retail farm and ranch store chain have gained 27.7% in the year-to-date period compared with the industry’s 2.3% growth. The current Zacks Rank #2 (Buy) company has also outpaced the sector and S&P 500’s improvements of 9.8% each.

The Zacks Consensus Estimate for TSCO’s current financial-year sales and earnings suggests growth of 3% and 2.4%, respectively, from the year-ago reported numbers.

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What’s Driving the Stock?

Tractor Supply has been gaining from consistent market share expansion and positive customer trends. In addition, the company has been gaining from the execution of the everyday low-price strategy and reduced transportation, which aided margins in first-quarter 2023. The gross margin expanded 50 basis points (bps) to 36%. The gross margin increase was mainly attributable to the ongoing lower transportation costs, better product cost management and the execution of an everyday low-price strategy. Also, the operating margin expanded 16 bps to 9.13%.

The operating margin is likely to be 9.7-10.1% for 2024. The company envisions earnings per share (EPS) of $9.85-$10.50, with share repurchases worth $575-$625 million for 2024. For the second quarter, TSCO expects gross margin expansion in line with the first quarter, gaining from supply-chain efficiencies and disciplined cost management, partly offset by the mixed impact of growth in big-ticket. The second-quarter operating margin is likely to decline slightly year over year. Management anticipates tailwinds of lower transportation costs.

Tractor Supply is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. Incidentally, the company remains on track with the ‘ONETractor’ strategy that is aimed at connecting stores and online shopping. Its omnichannel investments include curbside pickup, same-day and next-day delivery, a re-launched website and a new mobile app.

Earlier, it launched the Tractor Supply Visa Credit Card, which allows customers to earn points on their everyday purchases, both in-store and anywhere Visa is accepted. Also, the buyout of Orscheln Farm and Home and store openings bode well.

Moving ahead, management looks forward to mirroring the in-store legendary service and the digital experience via personalized and conversational commerce. It aims to leverage AI technologies to boost search, redesign checkout and add a refreshed homepage on personalization.

Under its capital allocation plans, TSCO expects to continue the Project Fusion remodels and garden center transformations, along with the completion of its 10th distribution center. In 2024, it will continue its planned strategic sale-leaseback program to sell a few existing owned stores.

Project Fusion is the company’s state-of-the-art space productivity program built to enrich customer experience in the mature store base. Another key component of the company’s space productivity initiatives is the transformation of its Side Lot. Its Project Fusion and Side Lot model transformations have been significant investments toward stores.

These store investments target higher market share and increased productivity across the existing and new stores. Notably, TSCO boasts more than 700 Project Fusion stores, accounting for 30% of its store base. It continues to experience a positive halo impact of the garden center to the present store and vice versa. The addition of product categories, greater ease of shopping and modern services enable the company to serve its customers efficiently.

Other Stocks to Consider

Some other top-ranked stocks are The ODP Corporation (ODP - Free Report) , Abercrombie & Fitch (ANF - Free Report) and Levi Strauss & Co. (LEVI - Free Report) .

ODP Corporation, a provider of business services, products and digital workplace technology solutions to small, medium and enterprise businesses, 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 ODP’s 2024 EPS indicates 7.7% growth from the year-ago period’s reported level. It has a trailing four-quarter earnings surprise of 8.6%, on average.

Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for Abercrombie’s fiscal 2024 sales and earnings indicates growth of 5.9% and 20.1%, respectively, from the year-ago reported numbers. ANF has a trailing four-quarter earnings surprise of 715.6%, on average.

Levi Strauss, which designs and markets jeans, casual wear and related accessories for men, women and children, currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for Levi Strauss’ current financial-year sales and earnings suggests growth of 2.9% and 15.5%, respectively, from the year-ago period’s actuals. LEVI has a trailing four-quarter earnings surprise of 16.4%, on average.

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