It has been about a month since the last earnings report for Tractor Supply (TSCO). Shares have lost about 3.7% in that time frame, underperforming 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 catalysts.
Tractor Supply’s Earnings & Sales Beat Estimates in Q1
Tractor Supply reported impressive first-quarter 2019 financial numbers. Both earnings and sales surpassed the Zacks Consensus Estimate and improved year over year. Furthermore, management reaffirmed its outlook for 2019.
Q1 Highlights
Tractor Supply’s earnings came in at 63 cents per share, which surpassed the Zacks Consensus Estimate of 56 cents. The bottom line also increased nearly 10.5% year over year. This uptick can be attributed to the company’s robust growth initiatives that include the ONETractor plan. Broad-based sales growth across the company’s unique model too aided the quarterly results.
Net sales grew 8.3% to $1,822.2 million and outshined the Zacks Consensus Estimate of $1,807 million. This year-over-year improvement was driven by rise in comparable-store sales (comps). The metric improved 5% from 3.7% in the year-ago period. While comparable store transaction count grew 1.8%, average ticket improved 3.2%.
Furthermore, traffic and sales growth were aided by the company’s ongoing efforts to build customer loyalty and enhance digital capabilities. Also, comps gained from improvement across all geographic regions and major product groups as well as strength in everyday merchandise groups and higher demand for winter seasonal products.
Margins & Costs
Gross profit rose 9.1% year over year to $615 million, with gross margin expansion of 26 basis points (bps) to 33.8%. This uptick was backed by robust sell-through of winter seasonal products along with gains from its price management program, somewhat offset by higher transportation costs.
Selling, general and administrative (SG&A) expenses including depreciation and amortization, as a percentage of sales, grew 21 bps to 28.1%. Higher costs related to a new distribution facility in Frankfort, N.Y. as well as escalated store and field team members’ incentive compensation owing to sturdy year-over-year performance led to the upside. Also, investment in store team member wages remained deterrents. These expenses were somewhat offset by lower occupancy and other costs.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $102.2 million, long-term debt of $605.7 million, and total stockholders’ equity of $1,485.6 million.
In the reported quarter, the company returned $192.9 million via share repurchases worth $155.3 million and dividends of $37.6 million. Additionally, it incurred capital expenditure of $28.8 million and used cash flow from operating activities of about $13 million.
For 2019, the company continues to expect capital expenditure of $225-$250 million.
Store Update
In the first quarter, Tractor Supply opened 10 namesake stores and one Petsense store. As of Mar 30, 2019, the company operated 1,775 Tractor Supply stores across 49 states and 176 Petsense stores.
Guidance
Management remains impressed with the company’s 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 for providing a seamless experience to customers. Going into the second quarter, management remains confident about benefiting from spring selling season.
Tractor Supply continues to project net sales of $8.31-$8.46 billion, with comps growth of 2-4%. Operating margin is still estimated to be 8.9-9%. It envisions net income of $555-$575 million for 2019, with earnings per share of $4.60-$4.75.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Tractor Supply has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Tractor Supply has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Tractor Supply Company (NASDAQ:TSCO
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