Here's What Keeps Tractor Supply (TSCO) Stock on Growth Track
Tractor Supply Company TSCO has been benefitting from its Life Out Here Strategy, ‘ONETractor’ Strategy, Neighbor’s Club membership program and healthy product demand. Also, the recent acquisition of Orscheln Farm and Home, store-growth initiatives, and comparable store sales growth bode well. Continued market share growth and progress on its strategic initiatives drive optimism.
Sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as year-round products, have been contributing to comparable store sales (comps) growth. Further, its store growth plans have been aiding the comps performance over the years.
The company’s focus on its strategic initiatives has been well-reflected in its forward estimates, which suggest notable growth. The Zacks Consensus Estimate for TSCO’s 2023 sales and earnings suggests growth of 2.6% and 3.4%, respectively, from the year-ago period’s reported numbers.
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What Keeps TSCO in Good Stride?
Tractor Supply is expected to retain its growth trajectory on continued progress on its Life 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 plan, the company has set its long-term financial growth targets for 2022-2026. Management envisions achieving net sales growth of 6-7%, whereas comps are expected to grow 4-5%. The operating margin is expected to be 10.1-10.6% during the 2022-2026 period, with 8-11% growth in earnings per share. The company is also poised to benefit from the launch of Field Activity Support Team, and the implementation of various technology and service enhancements across the enterprise.
Additionally, Tractor Supply is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience through its ‘ONETractor’ strategy. The company’s omni-channel investments include curbside pickup, same-day and next-day delivery, a re-launched website, and a new mobile app.
Tractor Supply exited the third quarter with high-single-digit e-commerce revenue growth, driven by a strong conversion performance and strength in the buy online, deliver from store program. Its Neighbor's Club program accounted for more than 77% of digital sales in the quarter under review, driven by continued favorable trends and higher retentions. Management earlier predicted to reach more than $2 billion in sales by 2026, out of which it has already attained $1 billion.
Tractor Supply is persistently focusing on store growth initiatives, which include the expansion of its store base and the incorporation of technological advancements to induce traffic and drive the top line. As part of its long-term store plan, Tractor Supply targets to reach 3,000 stores in the United States. To achieve this, it anticipates accelerating its annual new store growth to 90 per year in 2025 and 80 stores in 2024. Management intends to open 70 Tractor Supply stores and 10-15 Petsense stores in 2023.
The company announced an update to its long-term store plan and several new real estate programs to strengthen its balance sheet and real estate portfolio. As part of this, TSCO set a target of 3,000 Tractor Supply stores in the United States, up 200 locations from its prior guidance.
Hurdles on the Way
Tractor Supply has been feeling the pinch of inflation woes and rising costs. The company expects muted consumer spending and an unfavorable seasonal category performance throughout the remainder of the year. This led to management lowering its guidance for 2023. Also, higher depreciation and amortization, the opening of a distribution center, the impacts of higher medical claims, and fixed cost deleverage continue to act as deterrents.
TSCO expects net sales of $14.5-$14.6 billion for 2023, with comps remaining flat year over year. The operating margin is anticipated to be 10.1-10.2%. Earnings per share are expected to be $10.00-$10.10.
Driven by the soft view, shares of the Zacks Rank #3 (Hold) company have lost 1.2% in the past six months compared with the industry’s decline of 0.4%. Additionally, the stock has underperformed the sector and S&P 500’s growth of 7.7% and 5.2%, respectively, in the same period.
Key Picks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Deckers Outdoor DECK.
Abercrombie currently sports a Zacks Rank #1 (Strong Buy). ANF has a trailing four-quarter earnings surprise of 713%, on average. Shares of ANF have rallied 134.6% in the past six months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial year’s sales suggests growth of 13.3% from the year-ago period’s reported figure. Meanwhile, the consensus mark for earnings per share indicates significant growth of 2,196% from the prior-year period’s actual.
American Eagle has a trailing four-quarter earnings surprise of 23.02%, on average. It carries a Zacks Rank #2 (Buy) at present. Shares of AEO have risen 75.9% in the past six months.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings suggests growth of 4% and 39.2%, respectively, from the year-ago period's reported figures.
Deckers Outdoor has a trailing four-quarter earnings surprise of 26.3%, on average. It currently has a Zacks Rank #2. Shares of DECK have rallied 39.2% in the past six months.
The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 11.4% and 20.9%, respectively, from the year-ago period's reported figures.
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Tractor Supply Company (TSCO) : Free Stock Analysis Report
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