It has been about a month since the last earnings report for Tractor Supply (TSCO). Shares have lost about 5.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Tractor Supply due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Tractor Supply Earnings & Sales Miss Q4 Estimates
Tractor Supply has delivered lower-than-expected results in fourth-quarter 2019. Results were hurt by soft comparable store sales performance in the reported quarter, owing to unfavorable weather that affected sales of seasonal products. Also, sluggishness in certain holiday discretionary categories impacted the company’s performance.
Q4 Highlights
Tractor Supply’s adjusted earnings were $1.21 per share, which lagged the Zacks Consensus Estimate of $1.23. However, the bottom line improved 9% from the prior-year quarter. Including the after-tax impact of the executive transition agreement, the company reported earnings of $1.02 per share.
Net sales grew 2.7% to $2,191.8 million but missed the Zacks Consensus Estimate of $2,243 million. The year-over-year improvement was driven by comps increase of 0.1%, led by growth of 1.8% in average ticket. Meanwhile, comparable store transaction count declined 1.7%.
Keeping in these lines, comparable store sales performance was backed by strength in the consumable, usable and edible categories. However, adverse weather and softness in certain holiday discretionary categories acted as deterrents.
Margins & Costs
Gross profit rose 3.6% year over year to $741.8 million, with gross margin expansion of 26 basis points (bps) to 33.8%. The uptick was driven by lower freight costs as a percent of sales and better management of direct product margins.
Selling, general and administrative (SG&A) expenses — including depreciation and amortization — as a percentage of sales grew 3 bps to 25.2%. Higher costs related to a new distribution facility in Frankfort, NY, along with rise in other costs related to occupancy and store personnel led to the upside. These expenses were somewhat offset by decreased incentive compensation and improved cost management.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $84.2 million, long-term debt of $366.5 million, and total stockholders’ equity of $1,567.1 million.
The company returned $696 million via share repurchases worth $533.3 million and dividends of $162.7 million in 2019. Additionally, it incurred capital expenditure of $217.5 million, while generated cash flow from operating activities of $811.7 million.
For 2020, management expects share buybacks of $450-$550 million compared with $525-$550 million mentioned earlier. Moreover, the company continues to expect capital expenditure of $225-$275 million.
Store Update
In the quarter under review, Tractor Supply opened 30 namesake and one Petsense stores, while shuttered one Petsense outlet. As of Dec 28, 2019, the company operated 1,844 Tractor Supply stores across 49 states and 180 Petsense stores in 26 states.
For 2020, management expects to open 80 namesake stores and 10-15 Petsense stores.
Outlook
Additionally, management issued guidance for 2020. Tractor Supply now projects net sales of $8.75-$8.9 billion for the year, with comps growth of 1.5-3%. Operating margin is estimated to be 8.9%.
Moreover, the company envisions net income of $575-$595 million for 2020. Also, it expects earnings per share of $4.9-$5.1 for 2020, whereas it reported $4.68 in 2019.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -9.1% due to these changes.
VGM Scores
At this time, Tractor Supply has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Tractor Supply has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Tractor Supply Company (NASDAQ:TSCO
Original post