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Tractor Supply (TSCO) Gains on Growth Strategies Amid Supply Woes
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Tractor Supply Company (TSCO - Free Report) has shown resilience in a tough market, which is plagued with industry-wide supply-chain challenges. The company has been benefiting from strength in the Life Out Here Strategy and healthy customer trends. Its e-commerce business and Neighbor's Club loyalty program have also been drivers. These have resulted in robust top and bottom-line trends for the company.
However, Tractor Supply has been witnessing supply-chain challenges, which have resulted in higher costs, including product cost inflation and escalated freight expenses. Uncertainties relating to the pandemic are also concerning.
Factors Supporting Growth
Tractor Supply’s business momentum can be attributed to sturdy demand for everyday merchandise, including consumable, usable and edible (C.U.E.) products, and robust summer seasonal categories. The company’s third-quarter 2021 top and bottom lines reflected gains from these trends, marking the seventh straight quarter of an earnings surprise and the sixth consecutive sales beat.
The company delivered the sixth straight quarter of more than 10% increase in comparable store sales (comps). Comps were driven by higher comparable average ticket and comparable average transaction count. It witnessed solid double-digit sales growth in the e-commerce business, delivering the 37th consecutive quarter of an increase.
Driven by the solid performance in the first three quarters of 2021, management raised the guidance for the year. Management expects net sales of $12.6 billion, indicating an improvement from the previously mentioned $12.1-$12.3 billion. Comps are likely to grow 16%, up from 11-13% mentioned earlier. The operating margin is anticipated to be 10.2-10.3%, higher than 9.7-9.9% stated earlier.
Net income is now expected to be $972-$985 million for 2021, up from the earlier mentioned $895-$930 million. Earnings per share are expected to be $8.40-$8.50, implying a rise from $7.70-$8.00 mentioned earlier.
Tractor Supply, which shares space with DICK’S Sporting (DKS - Free Report) , Five Below (FIVE - Free Report) and Bed Bath & Beyond , is on track to build up on the Out Here lifestyle assortment and convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars — customers, digitization, execution, team members, and total shareholder return. As part of the Life Out Here Strategy, the company 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%, while comps are expected to grow 4-5%. The operating margin is anticipated 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.
The company also remains on track with the ‘ONETractor’ strategy, which connects stores and online shopping. Omni-channel investments, including curbside pickup, same-day, next-day delivery, a relaunched website and a new mobile app, contributed to digital sales growth in the third quarter. The company witnessed continued momentum in e-commerce, with double-digit sales growth of more than 40%. Its mobile app has more than 2 million downloads and accounts for above 10% of e-commerce sales.
In addition, Tractor Supply’s Neighbor's Club loyalty program remains sturdy, with a year-over-year sales increase of 20%. The company exited the third quarter with more than 22 million Neighbor's Club members. The members are spending about three times the rate of non-members, with the Neighbor's Club members presently representing roughly 70% of sales. Also, the number of high-value per customers of this program rose about 30% in the quarter.
Hurdles to Overcome
Though the company’s long-term growth prospects are intact, its soft margins remain a hurdle. Higher product cost inflation, escalated freight expenses inclusive of the domestic and import costs, and a more normalized product mix shift in C.U.E. products are hurting the gross margin.
Tractor Supply has also been witnessing increased wage rates and investments in the Life Out Here strategic efforts, which has led to SG&A deleverage. It has been operating amid heightened uncertainty with respect to the pandemic. The factors might continue to hamper the company’s performance, going ahead.
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Tractor Supply (TSCO) Gains on Growth Strategies Amid Supply Woes
Tractor Supply Company (TSCO - Free Report) has shown resilience in a tough market, which is plagued with industry-wide supply-chain challenges. The company has been benefiting from strength in the Life Out Here Strategy and healthy customer trends. Its e-commerce business and Neighbor's Club loyalty program have also been drivers. These have resulted in robust top and bottom-line trends for the company.
However, Tractor Supply has been witnessing supply-chain challenges, which have resulted in higher costs, including product cost inflation and escalated freight expenses. Uncertainties relating to the pandemic are also concerning.
Factors Supporting Growth
Tractor Supply’s business momentum can be attributed to sturdy demand for everyday merchandise, including consumable, usable and edible (C.U.E.) products, and robust summer seasonal categories. The company’s third-quarter 2021 top and bottom lines reflected gains from these trends, marking the seventh straight quarter of an earnings surprise and the sixth consecutive sales beat.
The company delivered the sixth straight quarter of more than 10% increase in comparable store sales (comps). Comps were driven by higher comparable average ticket and comparable average transaction count. It witnessed solid double-digit sales growth in the e-commerce business, delivering the 37th consecutive quarter of an increase.
Driven by the solid performance in the first three quarters of 2021, management raised the guidance for the year. Management expects net sales of $12.6 billion, indicating an improvement from the previously mentioned $12.1-$12.3 billion. Comps are likely to grow 16%, up from 11-13% mentioned earlier. The operating margin is anticipated to be 10.2-10.3%, higher than 9.7-9.9% stated earlier.
Net income is now expected to be $972-$985 million for 2021, up from the earlier mentioned $895-$930 million. Earnings per share are expected to be $8.40-$8.50, implying a rise from $7.70-$8.00 mentioned earlier.
Tractor Supply, which shares space with DICK’S Sporting (DKS - Free Report) , Five Below (FIVE - Free Report) and Bed Bath & Beyond , is on track to build up on the Out Here lifestyle assortment and convenient shopping format to gain customers and market share. The strategy is essentially based on five key pillars — customers, digitization, execution, team members, and total shareholder return. As part of the Life Out Here Strategy, the company 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%, while comps are expected to grow 4-5%. The operating margin is anticipated 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.
The company also remains on track with the ‘ONETractor’ strategy, which connects stores and online shopping. Omni-channel investments, including curbside pickup, same-day, next-day delivery, a relaunched website and a new mobile app, contributed to digital sales growth in the third quarter. The company witnessed continued momentum in e-commerce, with double-digit sales growth of more than 40%. Its mobile app has more than 2 million downloads and accounts for above 10% of e-commerce sales.
In addition, Tractor Supply’s Neighbor's Club loyalty program remains sturdy, with a year-over-year sales increase of 20%. The company exited the third quarter with more than 22 million Neighbor's Club members. The members are spending about three times the rate of non-members, with the Neighbor's Club members presently representing roughly 70% of sales. Also, the number of high-value per customers of this program rose about 30% in the quarter.
Hurdles to Overcome
Though the company’s long-term growth prospects are intact, its soft margins remain a hurdle. Higher product cost inflation, escalated freight expenses inclusive of the domestic and import costs, and a more normalized product mix shift in C.U.E. products are hurting the gross margin.
Tractor Supply has also been witnessing increased wage rates and investments in the Life Out Here strategic efforts, which has led to SG&A deleverage. It has been operating amid heightened uncertainty with respect to the pandemic. The factors might continue to hamper the company’s performance, going ahead.