A month has gone by since the last earnings report for Tractor Supply (TSCO Quick QuoteTSCO - Free Report) . Shares have added about 4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tractor Supply due for a pullback? 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 Q2 Earnings & Sales Top Estimates, View Up

Tractor Supply Company has reported second-quarter 2021 results, wherein the top and bottom lines improved year over year and surpassed the Zacks Consensus Estimate. Results gained from strength in the Life Out Here Strategy, stringent cost-cutting actions and new customer acquisitions. Encouragingly, the company raised its view for 2021.

Tractor Supply’s earnings were $3.19 per share, which surpassed the Zacks Consensus Estimate of $2.94. Moreover, the bottom line improved 10% from the prior-year quarter.

Net sales increased 13.4% year over year to $3,601.6 million and beat the Zacks Consensus Estimate of $3,489 million. The improvement was driven by an increase in comparable store sales (comps) of 10.5%, led by growth of 6% in comparable average ticket and a 4.5% rise in comparable average transaction count.

Management witnessed comps growth across all regions and key categories. Also, strength in demand for seasonal categories and everyday merchandise, including consumable, usable and edible products, contributed to quarterly growth. Tractor Supply witnessed record sales growth in the e-commerce business.

Margins & Costs

Gross profit rose 11.3% year over year to $1,287.5 million, while gross margin contracted 67 basis points (bps) to 35.8%. Rise in transportation costs along with adverse impacts related to the relaunch of the Neighbor’s Club loyalty program and product mix shift marred margins. On the flip side, the company’s cost-saving initiative provided some cushion.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, improved 6 bps to 22.3%. Higher wages, an increase in store hours and investments in strategic initiatives were partly offset gains from leverage in occupancy and other costs on a rise in comps, reduced costs related to the pandemic and lower incentive compensation. In dollar terms, adjusted SG&A expenses, including depreciation and amortization, rose 13.1% to $801.6 million.

Operating income advanced 8.5% to $485.9 million in the second quarter. Operating margin contracted 60 bps to 13.5%.

Financial Position

Tractor Supply ended the second quarter with cash and cash equivalents of $1,412 million, long-term debt of $985.4 million and total stockholders’ equity of $1,980.1 million. Further, it has no amount drawn from its $500-million revolving credit facility as of Jun 26, 2021.

In second-quarter 2021, the company incurred a capital expenditure of $115.3 million, while it generated cash flow from operating activities of $808.9 million in the six months ending Jun 26.

Moreover, Tractor Supply returned $263.2 million to shareholders in the second quarter, including $203.3 million to repurchase 1.1 million shares and $59.9 million for the payment of quarterly cash dividends.

For 2021, it expects to incur a capital expenditure of $500-$600 million, up from the earlier guided view of $450-$550 million. It anticipates share repurchases of $700-$800 million for 2021.

Store Update

In the quarter under review, Tractor Supply opened 11 Tractor Supply stores and one Petsense store. However, it closed four Petsense stores in the second quarter of 2021. As of Jun 26, 2021, the company operated 1,955 Tractor Supply stores across 49 states and 174 Petsense stores in 23 states.

Management remains on track with its store-opening initiatives. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021.

2021 Outlook

Driven by the solid performance in the first half of 2021, management raised its 2021 guidance. The company now expects net sales of $12.1-$12.3 billion, which reflects an improvement from the previous view of $11.4-$11.7 billion. Comps are likely to increase 11-13%, up from 5-8% mentioned earlier. Operating margin is now anticipated to be 9.7-9.9% versus 9.4-9.7% stated earlier.

Moreover, net income is now expected to be $895-$930 million, up from the earlier guided view of $820-$860 million for 2021. Earnings per share are now expected to be $7.70-$8.00, indicating a rise from $7.05-$7.40 mentioned earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.94% due to these changes.

VGM Scores

Currently, Tractor Supply has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tractor Supply has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.