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Tractor Supply (TSCO) Q1 Earnings Beat Estimates, Sales Match

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Tractor Supply Company (TSCO - Free Report) has come out with first-quarter 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while sales came in line. The company also noted that the second quarter has started on a solid note. 

This is likely to have boosted investors’ sentiments. Notably, shares of this Zacks Rank #3 (Hold) company have gained 2% in the past three months against the industry’s 26.5% decline.

Despite such upsides, management withdrew its 2020 guidance on account of uncertain COVID-19 impacts. The company further anticipates incurring operating costs of $30-$50 million during the second quarter. 

Q1 Highlights

Tractor Supply’s adjusted earnings were 71 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. Moreover, the bottom line improved 12.7% from the prior-year quarter. However, the company has incurred additional costs of roughly $7 million related to COVID-19, including bonus payments to frontline team members, medical and sick leave coverage, and sanitation and safety supplies.  

Net sales grew 7.5% to $1,959.2 million and came in line with the Zacks Consensus Estimate of $1,960 million. The year-over-year improvement was driven by comparable store sales increase of 4.3%, led by growth of 5.4% in average ticket. Meanwhile, comparable store transaction count declined 1.1%.

Keeping in these lines, the comparable store sales performance was backed by strength in the consumable, usable and edible categories. Also, healthy demand in spring seasonal products also contributed to comparable store sales growth. However, adverse weather and softness in certain seasonal merchandise and discretionary categories acted as deterrents.

Tractor Supply Company Price, Consensus and EPS Surprise

Margins & Costs

Gross profit rose 7.5% year over year to $661.2 million, with gross margin expansion remaining flat at 33.8%. Thiswas mainly due to lower transportation costs as a percent of sales, which was somewhat offset by sturdy sales in consumable merchandise and higher markdowns of winter merchandise.

Selling, general and administrative (SG&A) expenses — including depreciation and amortization — as a percentage of sales grew 7 bps to 28%. Higher occupancy and other costs stemming from comparable store sales growth along with gains from a legal settlement led to the upside. 

Financial Position

Tractor Supply ended the quarter with cash and cash equivalents of $461.5 million, long-term debt of $989.1 million and total stockholders’ equity of $1,353.7 million.

The company repurchased roughly 2.9 million shares for $263.2 million and paid out dividends of $40.9 million in the reported quarter. Additionally, it incurred capital expenditure of $29.6 million and generated cash flow from operating activities of $83.9 million. However, management suspended its share repurchase program from Mar 12. Moreover, the company continues to expect capital expenditure of $225-$275 million for 2020.

Further, the company withdrew $200 million from the revolving credit facility to strengthen its financial position. However, it does not intend to suspend or lower its cash dividend.

Store Update

In the quarter under review, Tractor Supply opened 20 namesake stores and shuttered one Del’s outlet. As of Mar 28, the company operated 1,863 Tractor Supply stores across 49 states and 180 Petsense stores in 26 states.

Moving on, management remains on track with its store opening initiatives. However, some store openings might be delayed owing to government restrictions stemming from the COVID-19 crisis. 

3 Retail Stocks to Watch Out

Costco Wholesale Corp. (COST - Free Report) has an impressive long-term earnings growth rate of 8.6%. Currently, it holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corp. (DG - Free Report) has an impressive long-term earnings growth rate of 12.2% and a Zacks Rank #2.

Kroger (KR - Free Report) has an expected long-term earnings growth rate of 4.9% and a Zacks Rank #2, at present.

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