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Factors Likely to Shape Tractor Supply's (TSCO) Q1 Earnings

Zacks Equity Research

Tractor Supply Company TSCO is slated to release first-quarter 2019 results on Apr 25, before the opening bell.

Notably, the company came up with a positive earnings surprise in three of the last four quarters. Also, it delivered a trailing four-quarter average beat of 3.9%.

The Zacks Consensus Estimate for first-quarter earnings is pegged at 56 cents, which reflects a 1.8% dip year over year. Estimates have been stable over the past 30 days. For quarterly revenues, the consensus mark stands at $1.81 billion, indicating a 7.3% rise year over year.

Tractor Supply Company Price and EPS Surprise

Tractor Supply Company Price and EPS Surprise | Tractor Supply Company Quote

How Things Are Shaping Prior to 1Q19

Tractor Supply is gaining from its solid growth initiatives including robust store-growth and omni-channel efforts. Also, management remains focused on integrating the physical and digital operations to offer consumers a seamless shopping experience through its "ONETractor" initiative. Apparently, the company is reaping significant benefits from its Buy Online Pick Up in Store program. This is quite evident from robust double-digit e-commerce sales growth for 26 straight quarters, in fourth-quarter 2018.

Moreover, the company continues to strengthen its Neighbor’s Club loyalty program, surpassing its target of membership growth in 2018. Impressively, Tractor Supply is witnessing solid comparable store sales (comps) growth, driven by higher traffic. Improvement across all geographic regions and major product categories coupled with strength in everyday merchandise groups are also aiding comps growth. Analysts surveyed by Zacks expect comps growth of 3.9% for the to-be-reported quarter.

In a bid to fortify its presence in the flourishing pet specialty space, Tractor Supply acquired Petsense LLC  — a leading specialty retailer of pet supplies and services. Notably, the company has completed system and process integration during 2018 by applying the best practices from Tractor Supply to Petsense. It remains focused on expanding the Petsense format in certain geographic markets. Additionally, the Petsense stores consistently focuses on building long-term customer loyalty by using digital marketing methods to engage customers, revamping the website and enhancing customer rewards program.

All these initiatives are likely to bolster the company’s top line, thereby driving profitability in the to-be-reported quarter.

However, higher investments toward infrastructure and technology along with escalated freight costs and negative mix are denting the company’s margins. Further, increased clearance of the Petsense inventory from store closures and inventory rationalization weighed on the gross margin in the last reported quarter. The company expects modest operating margin decline in first-quarter 2019 due to the Frankfort distribution center-related pre-opening costs and continued pressure from higher transportation costs. This, in turn, might affect the company’s overall profitability.

Zacks Model

Our proven model clearly shows that Tractor Supply is likely to beat estimates in first-quarter 2019 because it has the right combination of the two key ingredients. A stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Tractor Supply has an Earnings ESP of +1.09% and a Zacks Rank #3, making us confident of earnings beat.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to beat estimates:

Best Buy Co., Inc. BBY has an Earnings ESP of +2.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sally Beauty Holdings, Inc. SBH has an Earnings ESP of +1.23% and a Zacks Rank #2.

Dollar Tree, Inc. DLTR has an Earnings ESP of +0.83% and a Zacks Rank #3.

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