Tractor Supply Company (TSCO, Financial), the largest operator of rural lifestyle retail stores in the U.S., enjoyed a strong third quarter.
The company operates over 1,438 retail stores in 49 states, employs more than 21,000 team members and is headquartered in Brentwood, Tennessee. Today Tractor Supply is a leading retailer with annual revenues of approximately $5.7 billion. It has a large network of stores in convenient locations.
The company offers the following comprehensive selection of merchandise: (1) equine, livestock, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware, truck, towing and tool products; (3) seasonal products, including heating, lawn and garden items, power equipment, gifts and toys; (4) work/recreational clothing and footwear, and (5) maintenance products for agricultural and rural use.
The company posted appealing third-quarter results. Sales increased significantly and were well-balanced across all major merchandise categories and geographic regions, driven by increases in both traffic and ticket. The company adopts a balanced approach to driving sales, growing gross margin, managing working capital and improving efficiencies. Its key sales and gross margin initiatives, along with ongoing system enhancements such as demand planning, inventory allocation and price optimization should continue to benefit sales and margins over the foreseeable future.
Strong third quarter
Net sales increased by 8.5% and were $1.48 billion (which was $1.36 billion in the prior year's third quarter). Comparable store average transaction counts increased for the 30th consecutive quarter. Comparable store sales increased 2.9% from the prior year's third quarter driven by a strong performance in consumable, usable and edible (C.U.E.) products, principally in the pet and animal categories, and increased sales in certain spring and summer categories such as trailers and fencing. The strong sales results in these categories were partially offset by softness in the fall seasonal sales cycle later in the quarter due to warmer weather in the North.
Gross profit increased by 10.4% and was $512.2 million (which was $464.1 million in the prior year quarter). As a percentage of sales, gross margin increased 60 basis points to 34.7%. The increase in gross margin resulted from strong price and markdown management, as well as lower fuel costs, which more than offset the stem mile increase from the company's Western store expansion.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased by 9.1% and were $373.0. As a percentage of sales, SG&A expenses increased 10 bps to 25.3%. This increase was mainly related to deleverage in rent and other occupancy costs at the stores and incremental costs associated with two new mixing centers and a new distribution facility in Casa Grande, Arizona.
Net income increased by 14.0% and was $87.3 million (which was $76.6 million in the prior year quarter).
Diluted earnings per share increased by 16.4% and were 64 cents (55 cents in the prior year quarter).
The company opened 30 new stores and closed three stores, two of which were Del's stores, in the third quarter of 2015 compared to 30 new store openings and no store closures in the prior year's third quarter.
(Source: Company's website)
Strong attributes of the quarter
- Positive sales trends during the quarter.
- Strong margins.
- Growth in both traffic and ticket.
- Continued execution of price and inventory management strategies.
- Healthy marketing and merchandising initiatives.
Future projections
It plans to expand its Purina feed offering and its position as the first national authorized Purina feed retailer in the U.S. It is growing in partnership with this brand. It plans to further solidify its ability to cater to a large base of customers and become the most dependable supplier of products for the "Out Here" lifestyle.
Current focus
- Price management.
- Cost curtailment.
- Focused on shareholder value creation.
- Capital allocation strategy.
- Improving gross margin.
On a concluding note
Tractor Supply is continuing to grow with new stores and improved product offerings. With its current momentum, the company is poised to grow in the near future. It is focusing on opening more stores and curtailing costs.
If the company continues current momentum, it is expected to create shareholder satisfaction. That would make TSCO a buy. Investors should consider adding this company to their portfolios.
Disclosure: I do not hold any position in the company.
