Tractor Supply (TSCO) Misses On Q1 Earnings, Keeps '18 View

Tractor Supply Company (NASDAQ:TSCO) delivered lower-than-expected results in first-quarter 2018. However, both earnings and sales increased year over year. Also, management reiterated its guidance for 2018.

Following the soft quarterly results, shares of this leading rural lifestyle retail store chain were down 1.8% in pre-market trading. In the past three months, this Zacks Rank #3 (Hold) stock has lost 21.4% wider than the industry’s decline of 11%.

Q1 Highlights

Tractor Supply reported quarterly earnings of 57 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line increased 23.9% year over year backed by its growth initiatives.

Also, the company’s revenues increased 7.6% to $1,682.9 million but fell short of the Zacks Consensus Estimate of $1,690 million. This year-over-year growth can be attributed to rise in comparable-store sales (comps), which improved 3.7% against a decline of 2.2% in the year-ago period. While comparable store transaction count grew 3.2%, average ticket inched up 0.5%. 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 major product categories.

Tractor Supply also witnessed strength in everyday basic products across the consumable, usable and edible categories as well as winter seasonal products. Improvement in comps was somewhat compensated with soft sales across spring and summer seasonal products.

Margins & Costs

Gross profit rose 8.8% year over year to $563.6 million in the quarter, with gross margin expanding 36 basis points (bps) to 33.5%. The upside was driven by robust sell-through of winter seasonal products, somewhat offset by higher transportation costs due to a rise in carrier rates and diesel fuel expenses.

Additionally, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, grew 89 bps to 27.9%. This increase can be primarily attributed to investments in team member wages, increased store expenses and investments in infrastructure and technology to support the strategic long-term growth initiatives.

Financial Position

Tractor Supply ended first quarter with cash and cash equivalents of $132.4 million, long-term debt of $679.6 million and total stockholders’ equity of $1,313.2 million.

In the quarter under review, the company repurchased shares for $157.5 million. Additionally, it incurred capital expenditures of $45.1 million and generated cash flow from operating activities of about $21.9 million.

Store Update

In the first quarter, Tractor Supply opened 15 namesake stores and four Petsense stores.

As of Mar 31, 2018, the company operated 1,700 Tractor Supply stores in 49 states and 172 Petsense stores.

Guidance

Management remains impressed with its first-quarter results that witness margin expansions, comps growth and greater sales. Going ahead, it remains optimistic about the spring selling season. 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.

However, Tractor Supply reiterated its guidance for 2018. The company continues to project net sales in the band of $7.69-$7.77 billion reflecting 6-7% growth year over year. Comps growth is anticipated in the range of 2-3% for the year. Further, earnings per share are envisioned in the band of $3.95-$4.15. The Zacks Consensus Estimate for 2018 is pegged at $4.09.

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