Tractor Supply Beats Earnings Ests

Zacks

Tractor Supply Company (TSCO) reported second-quarter 2013 earnings of $1.75 per share, which came ahead of the year-over-year earnings of $1.45 by 20.7%. Moreover, it beat the Zacks Consensus Estimate of $1.71 by 2.3%. Results benefited mainly from an improvement in the top line as well as margins.

Detailed Analysis

Net sales in the quarter improved 12.7% to $1,455.8 million from $1,291.9 million in the prior-year quarter. Further, total revenue beat the Zacks Consensus Estimate of $1,444.0 million.

Tractor Supply reported same-store sales increase of 7.2% compared with 3.2% in the prior-year quarter. The rise was driven by robust performances in core consumable, usable and edible (C.U.E) products and seasonal merchandise.  

Gross profit rose 12.1% to $506.1 million, compared with $451.5 million in the prior-year quarter. Gross margin contracted 10 basis points (bps) to 34.8% from 34.9% in the year-ago quarter, impacted by the mix shift to low-margin C.U.E products and higher transportations costs, partly offset by the company’s key margin-driving initiatives.

Robust growth of same-store sales, better cost containment related to store operating expenditure, and lower incentive compensation expenses resulted in a 60 bps improvement in selling, general and administrative expenses (SG&A), including depreciation and amortization, as a percentage of sales, to 21.2%.

Consequently, operating margin during the quarter rose 50 bps to 13.6%, against 13.1% in the prior-year period. Operating income jumped 16.6% to nearly $198.0 million from $169.8 million recorded in the prior-year quarter.

Financial Position

Tractor Supply ended the year with cash and cash equivalents of $55.7 million, compared with $179.1 million at the end of the year-ago quarter. As of Jun 29, 2013, stockholders’ equity was $1,143.7 million, compared with $1,067.1 million as of Jun 30, 2012.

Store Update

In the quarter, Tractor Supply opened 26 new stores, compared with 18 stores in the prior-year quarter. As of Jun 29, 2013, the company operated a total of 1,223 stores in 46 states.

Management Guidance

Tractor Supply raised its 2013 net sales guidance, projecting sales in the range of $5.10–$5.17 billion, with comps expected to improve 4%−5%. The company anticipates 2013 earnings in the range of $4.36−$4.44 per share. The Zacks Consensus Estimate remains in line with the higher end of the company’s guidance range. The projected earnings includes estimated costs of 6-7 cents per share pertaining to relocation of its distribution center in the Southeast and its corporate data center.

Other Stocks to Consider

Tractor Supply currently carries a Zacks Rank #2 (Buy). Other companies performing well in the retail space include Big 5 Sporting Goods Corporation (BGFV), Build-A-Bear Workshop Inc. (BBW) and Five Below, Inc. (FIVE). Big 5 Sporting carries a Zacks Rank #1(Strong Buy), while Build-A-Bear and Five Below carry a Zacks Rank #2.
 

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