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Tractor Supply (TSCO) Q3 Earnings and Sales Beat, View Up

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Tractor Supply Company (TSCO - Free Report) delivered impressive results in third-quarter 2018, wherein both earnings and sales surpassed estimates and improved year over year. Further, management raised its sales and earnings guidance for 2018.

In the past six months, this Zacks Rank #2 (Buy) stock has surged 27.2%, outperforming the industry’s 13.2% rally.



Q3 Highlights

Tractor Supply reported quarterly earnings of 95 cents per share, which outpaced the Zacks Consensus Estimate of 86 cents. The bottom line also increased 31.9% year over year, backed by its solid growth initiatives, including ONETractor plan.

The company’s revenues increased 9.3% to $1,881.6 million and came above the Zacks Consensus Estimate of $1,824 million. This year-over-year improvement can be attributed to rise in comparable-store sales (comps), which improved 5.1% compared with 6.6% in the year-ago period. While store transaction count grew 1.4%, comparable average ticket edged up 3.6%. 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 solid growth across spring and summer seasonal categories, and all merchandise groups.

Tractor Supply Company Price, Consensus and EPS Surprise

Tractor Supply Company Price, Consensus and EPS Surprise | Tractor Supply Company Quote

Margins & Costs

In the quarter under review, gross profit rose 8.8% year over year to $653.1 million, while gross margin contracted 16 basis points (bps) to 34.7%. The decline in margin was mainly due to higher freight costs on account of rise in carrier rates and diesel fuel prices, somewhat offset by gains from price management program.

Further, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, grew 31 bps to 26.6%. This upside was mainly driven by higher incentive compensation, and anticipated investments in infrastructure, labor wages and technology, partly offset by lower occupancy and other costs.

Financial Position

Tractor Supply ended the quarter with cash and cash equivalents of $71.3 million, long-term debt of $547.5 million and total stockholders’ equity of $1,495.3 million.

In the nine months of 2018, the company repurchased shares for $289.2 million and paid dividends of $109.2 million. Additionally, it incurred capital expenditures of $193.7 million and generated cash flow from operating activities of about $353.4 million at the end of the reported quarter.

Store Update

In the third quarter, Tractor Supply opened 23 namesake stores and seven Petsense stores. In the nine months of 2018, it introduced 63 namesake and 14 Petsense stores besides closing one Petsense store.

As of Sep 29, 2018, the company operated 1,748 Tractor Supply stores in 49 states and 181 Petsense stores.

Guidance

Management remains impressed with its quarterly results that witnessed higher profits, comps growth and greater sales. Further, Tractor Supply 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.

As a result, management raised its outlook for 2018. The company now projects net sales in the band of $7.84-$7.87 billion compared with $7.77-$7.80 billion guided earlier. Comps growth is anticipated in the range of 4-4.5%, up from the previous guidance of 3-3.5%. Further, Tractor Supply envisions earnings per share in the band of $4.23-$4.27, up from $4.10-$4.20 anticipated previously. The Zacks Consensus Estimate for 2018 is pegged at $4.20, which is likely to witness upward revisions in the coming days.

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