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Tractor Supply (TSCO) Tanks Despite Q4 Earnings & Sales Beat

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Tractor Supply Company (TSCO - Free Report) has delivered impressive results in fourth-quarter 2018, wherein both earnings and sales surpassed estimates and improved year over year. Further, management provided sales and earnings outlook for 2019.

Despite top and bottom-line beats in the fourth quarter, shares of the company declined 3.5% in the pre-market trading session. However, this Zacks Rank #3 (Hold) stock has surged 25.3% in the past year, outperforming the industry’s 10.3% rally.

 



Q4 Highlights

Tractor Supply reported earnings of $1.11 per share, surpassing the Zacks Consensus Estimate of $1.09. However, the bottom line increased nearly 22% year over year, backed by solid growth initiatives, including ONETractor plan.

Tractor Supply Company Price, Consensus and EPS Surprise

 

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

The company’s revenues increased 9.2% to $2,133.3 million and beat the Zacks Consensus Estimate of $2,099 million. This year-over-year improvement can be attributed to rise in comparable-store sales (comps), which improved 5.7% from 4% in the year-ago period. While store transaction count grew 2.6%, comparable average ticket improved 3%.

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 and all major product categories, as well as solid sales growth of winter and other seasonal products, and strength in everyday merchandise groups.

Margins & Costs

Gross profit rose 7.1% year over year to $716.3 million while gross margin contracted 66 basis points (bps) to 33.6%. The decline in margin was mainly due to higher freight costs on account of rise in carrier rates and diesel fuel prices as well as negative mix of products sold. Further, increased clearance of the Petsense inventory from store closures and inventory rationalization slightly hurt the gross margin. However, the company’s pricing program partly negated the decline in gross margin.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, grew 30 bps to 25.1%. 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. Higher SG&A expenses also incorporated costs for the opening and ramping up of operations of its new distribution center in Frankfort, NY.

Financial Position

Tractor Supply ended 2018 with cash and cash equivalents of $86.3 million, long-term debt of $381.1 million, and total stockholders’ equity of $1,561.8 million.

In 2018, the company returned $496.9 million of capital to shareholders through share repurchases worth $349.8 million and dividends of $147.1 million. Additionally, it incurred capital expenditure of $278.5 million and generated cash flow from operating activities of about $694.4 million.

In 2019, the company expects capital expenditure of $225-$250 million.

Store Update

In the fourth quarter, Tractor Supply opened 17 namesake stores and four Petsense stores while closing 10 Petsense stores. Throughout 2018, it introduced 80 namesake and 18 Petsense stores beside closing 11 Petsense stores.

As of Dec 29, 2018, the company operated 1,765 Tractor Supply stores in 49 states and 175 Petsense stores.

Guidance

Management remains impressed with quarterly results that witnessed higher profits, comps growth and greater sales. Further, Tractor Supply expects to balance investments between new store growth and ONETractor initiative, alongside investing in everyday businesses, to provide a seamless experience to customers. Tractor Supply outlined its view for 2019.

For 2019, the company projects net sales of $8.31-$8.46 billion, with comps growth of 2-4%. Operating margin is estimated to be 8.9-9%. It envisions net income of $555-$575 million in 2019, with earnings per share of $4.60-$4.75. The Zacks Consensus Estimate for 2019 is pegged at $4.29, which is likely to witness upward revisions in the coming days.

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