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Tractor Supply Gains 37% YTD: Here's What Makes the Stock Apt to Hold
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Tractor Supply Company (TSCO - Free Report) has been doing well for a while on the back of its sturdy business strategies. Given the changing consumer trends, it is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. The company’s omni-channel investments also bode well.
Tractor Supply is reaping the benefits from its Life Out Here Strategy and the Neighbor’s Club membership program. Its ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping, appears encouraging too. Buoyed by such drivers, shares of this leading rural retail farm and ranch store chain have gained 37.2% year to date, outperforming the industry’s 9% growth.
TSCO’s Growth Strategies in Detail
Tractor Supply’s omnichannel investments include curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app. Management aims at leveraging AI technologies to boost search, redesign checkout and add a new refreshed homepage on personalization.
Regarding TSCO’s store-growth initiatives, it is persistently focused on the expansion of its store base and the incorporation of technological advancements to boost traffic and drive the top line. In the third quarter of 2024, the company introduced 16 flagship stores, bringing the year-to-date count to 54. Management intends to continue its store-opening initiatives in 2024.
Project Fusion is the company’s state-of-the-art space productivity program built to enrich customer experience in the mature store base. It currently has 45% of the chain in its Project Fusion layout and more than 550 garden centers. Such store investments target achieving higher market share and boosting productivity across the existing and new stores. The addition of product categories, greater ease of shopping and modern services enable the company to serve its customers efficiently.
TSCO is significantly enhancing its Neighbor's Club offering. As the company continues to make investments in the program, it has been seeing strong growth in customer counts and customer retention. During the third quarter, the Neighbor's Club comp sales surpassed the company’s overall sales. Tractor Supply has reached an all-time high in its sales penetration, recording more than 37 million members.
The company is also focused on improving personalization capabilities, mainly its customer data platform. Its live goods performance also bodes well. Digital sales continued to outperform with double-digit growth in the reported quarter. The company has been making major improvements in search and checkout. It has been accelerating its digital capabilities, which has led to higher customer engagement and improved conversion rates.
Image Source: Zacks Investment Research
Bumps in TSCO’s Growth Path
Despite such growth catalysts, Tractor Supply is reeling under higher depreciation and amortization, along with the costs related to the opening of a distribution center. Also, cost inflation and a tepid retail sales environment are concerning.
In the third quarter, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 119 basis points (bps) year over year. In dollar terms, the metric rose 6.2%.
The higher SG&A expense rate resulted from growth investments, which comprised the onboarding of a new distribution center, lapping a one-time depreciation cost benefit in the last year and modest deleveraged fixed costs. The new distribution center was nearly a 25-bps headwind on SG&A for the quarter. Further, the operating income was down 4.8% year over year, with the operating margin declining 63 bps to 9.4% in the reported quarter.
Conclusion
TSCO has been taking cost-saving initiatives to tackle cost issues. Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for 2024 sales and earnings per share (EPS) is currently pegged at $14.91 billion and $10.24, respectively. These estimates indicate corresponding growth of 2.5% and 1.5% year over year. The consensus estimate for 2025 sales and EPS is presently $15.7 billion and $11, respectively, indicating a year-over-year increase of 5.1% and 7.4%. Tractor Supply currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 13.6% from the year-ago figure. DECK delivered an average earnings surprise of 41.1% in the trailing four quarters.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 13.4% from the year-ago figure.
Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank of 2. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.
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Tractor Supply Gains 37% YTD: Here's What Makes the Stock Apt to Hold
Tractor Supply Company (TSCO - Free Report) has been doing well for a while on the back of its sturdy business strategies. Given the changing consumer trends, it is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. The company’s omni-channel investments also bode well.
Tractor Supply is reaping the benefits from its Life Out Here Strategy and the Neighbor’s Club membership program. Its ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping, appears encouraging too. Buoyed by such drivers, shares of this leading rural retail farm and ranch store chain have gained 37.2% year to date, outperforming the industry’s 9% growth.
TSCO’s Growth Strategies in Detail
Tractor Supply’s omnichannel investments include curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app. Management aims at leveraging AI technologies to boost search, redesign checkout and add a new refreshed homepage on personalization.
Regarding TSCO’s store-growth initiatives, it is persistently focused on the expansion of its store base and the incorporation of technological advancements to boost traffic and drive the top line. In the third quarter of 2024, the company introduced 16 flagship stores, bringing the year-to-date count to 54. Management intends to continue its store-opening initiatives in 2024.
Project Fusion is the company’s state-of-the-art space productivity program built to enrich customer experience in the mature store base. It currently has 45% of the chain in its Project Fusion layout and more than 550 garden centers. Such store investments target achieving higher market share and boosting productivity across the existing and new stores. The addition of product categories, greater ease of shopping and modern services enable the company to serve its customers efficiently.
TSCO is significantly enhancing its Neighbor's Club offering. As the company continues to make investments in the program, it has been seeing strong growth in customer counts and customer retention. During the third quarter, the Neighbor's Club comp sales surpassed the company’s overall sales. Tractor Supply has reached an all-time high in its sales penetration, recording more than 37 million members.
The company is also focused on improving personalization capabilities, mainly its customer data platform. Its live goods performance also bodes well. Digital sales continued to outperform with double-digit growth in the reported quarter. The company has been making major improvements in search and checkout. It has been accelerating its digital capabilities, which has led to higher customer engagement and improved conversion rates.
Image Source: Zacks Investment Research
Bumps in TSCO’s Growth Path
Despite such growth catalysts, Tractor Supply is reeling under higher depreciation and amortization, along with the costs related to the opening of a distribution center. Also, cost inflation and a tepid retail sales environment are concerning.
In the third quarter, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 119 basis points (bps) year over year. In dollar terms, the metric rose 6.2%.
The higher SG&A expense rate resulted from growth investments, which comprised the onboarding of a new distribution center, lapping a one-time depreciation cost benefit in the last year and modest deleveraged fixed costs. The new distribution center was nearly a 25-bps headwind on SG&A for the quarter. Further, the operating income was down 4.8% year over year, with the operating margin declining 63 bps to 9.4% in the reported quarter.
Conclusion
TSCO has been taking cost-saving initiatives to tackle cost issues. Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for 2024 sales and earnings per share (EPS) is currently pegged at $14.91 billion and $10.24, respectively. These estimates indicate corresponding growth of 2.5% and 1.5% year over year. The consensus estimate for 2025 sales and EPS is presently $15.7 billion and $11, respectively, indicating a year-over-year increase of 5.1% and 7.4%. Tractor Supply currently carries a Zacks Rank #3 (Hold).
Key Picks
We have highlighted three better-ranked stocks, namely Deckers (DECK - Free Report) , Boot Barn (BOOT - Free Report) and Abercombie (ANF - Free Report) .
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 13.6% from the year-ago figure. DECK delivered an average earnings surprise of 41.1% in the trailing four quarters.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 13.4% from the year-ago figure.
Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank of 2. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.