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Tractor Supply (TSCO) Stock Down on Q1 Update & Soft Outlook

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Shares of Tractor Supply Company (TSCO - Free Report) declined 3.5% in the after-market trading session yesterday, after the company provided an update on first-quarter 2017, wherein comparable store sales (comps) remained soft leading to a weak earnings outlook for the first quarter. Adverse weather conditions continued to be one of the factors behind the drab results.

This is not new for the company as its business is highly seasonal, with sales and profits usually soaring in the spring and winter selling seasons on the back of demand for its merchandise offering. Thus, unseasonable weather, heavy precipitation, drought conditions and untimely frosts is likely to have a material impact on the company’s performance. Such factors have long been a hindrance for Tractor Supply, which has plunged 20.5% in the last one year, underperforming the Retail – Miscellaneous/Diversified industry’s dip of 2.8% in the same time frame.



Coming back to business update for the quarter ended Apr 1, 2017, net sales advanced 6.6% to $1.56 billion. However, comps fell 2.2%, as against a 4.9% rise witnessed in the year-ago period. The unfavorable comparison from first-quarter 2016 reflects the advantage of an additional 53rd week in 2016. Consequently, each quarter in 2017 started a week later than the prior-year. On adjusting for this weekly shift, comps decreased 2.6%.

Additionally, the fall in comps is attributable to a 1.4% and 0.9% dip in comparable transaction count and average ticket, respectively. Further, comps were hurt by soft seasonal merchandise sales, along with deflationary pressure. This was somewhat compensated by favorable comps across the company’s Livestock and Pet categories. Region wise, unfavorable weather had maximum impact on the Northern areas, where sales were most strained.

Given these factors, management projects first-quarter 2017 earnings per share to range from 45–46 cents, which falls short of the current Zacks Consensus Estimate of 53 cents. This hints at downward estimate revisions for this Zacks Rank #4 (Sell) company ahead of the first-quarter 2017 results scheduled to release on Apr 26.

Nonetheless, management believes that given the seasonal nature of its business, the company should rather be measured by its half-yearly than the quarterly performance. While the first quarter remained challenging, management is quite hopeful about its spring season prospects, thus anticipating seasonal merchandise sales to show some improvement in the spring selling season.

Tractor Supply’s solid spring season prospects are also reflected by management’s enthusiasm about its upcoming merchandise strategies and constant implementation of its cross-network consumer-centric growth plans. This was also reconfirmed with the company’s expansion of its Neighbor's Club and Buy Online Pick Up In Store programs. Evidently, the company announced the conclusion of the national rollout of its Neighbor’s Club loyalty program, which commenced in Oct 2015. Per the latest press release, the company has expanded this program to all its stores, which exceed the count of 1600.

Stocks to Consider

Better-ranked retail stocks include Big 5 Sporting Goods Corporation (BGFV - Free Report) , The Children’s Place, Inc. (PLCE - Free Report) and The Michaels Companies, Inc. . While Big 5 Sporting and Children’s Place sport a Zacks Rank #1 (Strong Buy) each, Michaels Companies currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting, with long-term earnings per share growth rate of 12%, has delivered positive earnings surprise in the last three quarters.

Children's Place has an average positive earnings surprise of 39% in the trailing four quarters. The stock has a long-term growth rate of 8%.

Michaels Companies has a long-term growth rate of 16%. Also, the company flaunts a VGM Score of ‘A’.

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