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Tractor Supply (TSCO) Continues to Rally, What Lies Ahead?
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Tractor Supply Company (TSCO - Free Report) has been on the gaining side through the pandemic-led disruptions, given the strength in the demand for seasonal categories as well as everyday merchandise, including consumable, usable and edible products.
Additionally, the company has been witnessing robust sales growth in its e-commerce business. Apart from this, its focus on its growth initiatives, which include the expansion of store base and incorporation of technological advancements to induce traffic and drive the top line, bodes well.
Gains from these factors were well-reflected in the company’s strong fourth-quarter 2020 results, with top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year. This marked the fourth straight quarter of earnings beat and third consecutive sales beat.
Not to mention, the stock of this farm and ranch store retail chain has been benefiting from the momentum in its business. Notably, the Brentwood, TN-based company’s shares have rallied 15.8% in the past three months, outperforming the industry’s 12.3% growth.
The Zacks Consensus Estimate for 2021 sales presently stands at $10.86 billion, suggesting growth of 2.3% from the year-ago reported figure. Its VGM Score of A and long-term earnings growth rate of 9% further support the positive view for the Zacks Rank #3 (Hold) stock.
What Else You Should Know?
As part of its long-term initiatives, Tractor Supply is on track to build up on its Out Here lifestyle assortment and convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars, which include customers, digitization, execution, team members and total shareholder return.
Some of the key initiatives undertaken to support the strategy are boosting space productivity, enhancing omni-channel initiatives, the evolution of Neighbor’s Club loyalty program and augmenting in-store merchandising execution. As part of the Life Out Here Strategy, the company also provided long-term financial growth targets for three to five years after the normalizing of macro conditions from the impacts of the COVID-19 pandemic.
Management envisions achieving net sales growth of 6-7%, whereas comps are expected to grow 4-5% over the three-year period. Further, the operating margin is expected to be 9-9.5% and earnings per share are expected to grow 8-10%. Additionally, the company launched the Field Activity Support Team (“FAST”) and is implementing various technology and service enhancements across the enterprise.
It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life, and advancing efforts to remain nationally strong and locally relevant.
Additionally, it is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. Its ‘ONETractor’ strategy, aimed at connecting store and online shopping, is progressing well. Backed by this initiative, the company continues to drive growth, build customer-centric engagement, offer suitable products and services, and reinforce core infrastructure capabilities.
Moreover, Tractor Supply is benefiting from the rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores as well as enhancing the Tractor Supply credit card offering and investments in its supply chain.
The company’s omni-channel investments, including curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app contributed to triple-digit digital sales growth in the fourth quarter. Also, higher conversions aided digital sales to a large extent. In 2020, about 75% of its omni-channel sales were picked up at a Tractor Supply store, reinforcing the importance of its stores to customers. Apart from these, its newly launched mobile app as well as the Neighbor's Club loyalty program bode well.
Although Tractor Supply remains uncertain about the magnitude of the pandemic’s impact on its performance, it provided guidance for 2021. The company expects net sales of $10.7-11 billion for 2021, with comps between a decline of 2% and growth of 1%. The operating margin is anticipated to be 9.3-9.6%, marking a significant increase when compared to the baseline 2019 performance. Moreover, net income is likely to be $750-$800 million, whereas earnings per share are expected to be $6.50-$6.90.
Cost Headwinds to Continue
Despite strong results, Tractor Supply has been witnessing higher SG&A expenses, driven by incremental costs related to the pandemic, elevated incentive compensation due to robust sales and profit performance, and investments in strategic initiatives. Further, the unexpected resurgence of COVID-19 cases late in 2020 has led to incremental COVID-19 related costs, which is likely to continue.
For the first quarter of 2021, the company anticipates costs related to the pandemic to continue to remain at elevated levels. For 2021, it expects SG&A expenses to increase slightly as a percentage of sales compared to 2020 on an adjusted basis. Notably, the leverage from reduced COVID-19 costs and more normalized incentive compensation is expected to be offset by ongoing wage pressures, investments in supply chain and digital space, and higher depreciation and amortization expenses. Also, the FAST program costs are reported in SG&A expenses.
Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 21%.
DICK’S Sporting Goods, Inc. (DKS - Free Report) presently has a long-term earnings growth rate of 5.6% and a Zacks Rank #2.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Tractor Supply (TSCO) Continues to Rally, What Lies Ahead?
Tractor Supply Company (TSCO - Free Report) has been on the gaining side through the pandemic-led disruptions, given the strength in the demand for seasonal categories as well as everyday merchandise, including consumable, usable and edible products.
Additionally, the company has been witnessing robust sales growth in its e-commerce business. Apart from this, its focus on its growth initiatives, which include the expansion of store base and incorporation of technological advancements to induce traffic and drive the top line, bodes well.
Gains from these factors were well-reflected in the company’s strong fourth-quarter 2020 results, with top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year. This marked the fourth straight quarter of earnings beat and third consecutive sales beat.
Not to mention, the stock of this farm and ranch store retail chain has been benefiting from the momentum in its business. Notably, the Brentwood, TN-based company’s shares have rallied 15.8% in the past three months, outperforming the industry’s 12.3% growth.
The Zacks Consensus Estimate for 2021 sales presently stands at $10.86 billion, suggesting growth of 2.3% from the year-ago reported figure. Its VGM Score of A and long-term earnings growth rate of 9% further support the positive view for the Zacks Rank #3 (Hold) stock.
What Else You Should Know?
As part of its long-term initiatives, Tractor Supply is on track to build up on its Out Here lifestyle assortment and convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars, which include customers, digitization, execution, team members and total shareholder return.
Some of the key initiatives undertaken to support the strategy are boosting space productivity, enhancing omni-channel initiatives, the evolution of Neighbor’s Club loyalty program and augmenting in-store merchandising execution. As part of the Life Out Here Strategy, the company also provided long-term financial growth targets for three to five years after the normalizing of macro conditions from the impacts of the COVID-19 pandemic.
Management envisions achieving net sales growth of 6-7%, whereas comps are expected to grow 4-5% over the three-year period. Further, the operating margin is expected to be 9-9.5% and earnings per share are expected to grow 8-10%. Additionally, the company launched the Field Activity Support Team (“FAST”) and is implementing various technology and service enhancements across the enterprise.
It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life, and advancing efforts to remain nationally strong and locally relevant.
Additionally, it is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. Its ‘ONETractor’ strategy, aimed at connecting store and online shopping, is progressing well. Backed by this initiative, the company continues to drive growth, build customer-centric engagement, offer suitable products and services, and reinforce core infrastructure capabilities.
Moreover, Tractor Supply is benefiting from the rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores as well as enhancing the Tractor Supply credit card offering and investments in its supply chain.
The company’s omni-channel investments, including curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app contributed to triple-digit digital sales growth in the fourth quarter. Also, higher conversions aided digital sales to a large extent. In 2020, about 75% of its omni-channel sales were picked up at a Tractor Supply store, reinforcing the importance of its stores to customers. Apart from these, its newly launched mobile app as well as the Neighbor's Club loyalty program bode well.
Although Tractor Supply remains uncertain about the magnitude of the pandemic’s impact on its performance, it provided guidance for 2021. The company expects net sales of $10.7-11 billion for 2021, with comps between a decline of 2% and growth of 1%. The operating margin is anticipated to be 9.3-9.6%, marking a significant increase when compared to the baseline 2019 performance. Moreover, net income is likely to be $750-$800 million, whereas earnings per share are expected to be $6.50-$6.90.
Cost Headwinds to Continue
Despite strong results, Tractor Supply has been witnessing higher SG&A expenses, driven by incremental costs related to the pandemic, elevated incentive compensation due to robust sales and profit performance, and investments in strategic initiatives. Further, the unexpected resurgence of COVID-19 cases late in 2020 has led to incremental COVID-19 related costs, which is likely to continue.
For the first quarter of 2021, the company anticipates costs related to the pandemic to continue to remain at elevated levels. For 2021, it expects SG&A expenses to increase slightly as a percentage of sales compared to 2020 on an adjusted basis. Notably, the leverage from reduced COVID-19 costs and more normalized incentive compensation is expected to be offset by ongoing wage pressures, investments in supply chain and digital space, and higher depreciation and amortization expenses. Also, the FAST program costs are reported in SG&A expenses.
3 Retail Stocks to Watch
Hibbett Sports, Inc. (HIBB - Free Report) has a long-term earnings growth rate of 17.2% and currently it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 21%.
DICK’S Sporting Goods, Inc. (DKS - Free Report) presently has a long-term earnings growth rate of 5.6% and a Zacks Rank #2.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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