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Tractor Supply (TSCO) Up 11.3% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Tractor Supply Company (TSCO - Free Report) . Shares have added about 11.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is TSCO due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Tractor Supply Misses on Q1 Earnings, Keeps '18 View
    
Tractor Supply delivered lower-than-expected results in first-quarter 2018. However, both earnings and sales increased year over year. Also, management reiterated its guidance for 2018.

Q1 Highlights

Tractor Supply reported quarterly earnings of 57 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line increased 23.9% year over year backed by its growth initiatives.

Also, the company’s revenues increased 7.6% to $1,682.9 million but fell short of the Zacks Consensus Estimate of $1,690 million. This year-over-year growth can be attributed to rise in comparable-store sales (comps), which improved 3.7% against a decline of 2.2% in the year-ago period. While comparable store transaction count grew 3.2%, average ticket inched up 0.5%. Furthermore, traffic and sales growth were aided by the company’s ongoing efforts to build customer loyalty and enhance digital capabilities. Additionally, comps gained from improvement across all geographic regions as well as major product categories.

Tractor Supply also witnessed strength in everyday basic products across the consumable, usable and edible categories as well as winter seasonal products. Improvement in comps was somewhat compensated with soft sales across spring and summer seasonal products.

Margins & Costs

Gross profit rose 8.8% year over year to $563.6 million in the quarter, with gross margin expanding 36 basis points (bps) to 33.5%. The upside was driven by robust sell-through of winter seasonal products, somewhat offset by higher transportation costs due to a rise in carrier rates and diesel fuel expenses.

Additionally, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, grew 89 bps to 27.9%. This increase can be primarily attributed to investments in team member wages, increased store expenses and investments in infrastructure and technology to support the strategic long-term growth initiatives.

Financial Position

Tractor Supply ended first quarter with cash and cash equivalents of $132.4 million, long-term debt of $679.6 million and total stockholders’ equity of $1,313.2 million.

In the quarter under review, the company repurchased shares for $157.5 million. Additionally, it incurred capital expenditures of $45.1 million and generated cash flow from operating activities of about $21.9 million.

Store Update

In the first quarter, Tractor Supply opened 15 namesake stores and four Petsense stores.

As of Mar 31, 2018, the company operated 1,700 Tractor Supply stores in 49 states and 172 Petsense stores.

Guidance

Management remains impressed with the company’s first-quarter results that witness margin expansions, comps growth and greater sales. Tractor Supply remains optimistic about the spring selling season going ahead. Furthermore, it expects to balance investments between new store growth and ONETractor strategic initiative, alongside investing in everyday businesses to provide a seamless experience to its customers.

However, Tractor Supply reiterated its guidance for 2018. The company continues to project net sales in the band of $7.69-$7.77 billion, reflecting 6-7% growth year over year. Comps growth is anticipated in the range of 2-3% for the year. Further, earnings per share are envisioned in the band of $3.95-$4.15.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower.

VGM Scores

At this time, TSCO has a subpar Growth Score of D. Its Momentum is doing a bit better with a C. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, TSCO has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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