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Tractor Supply Displays Solid Run, Outruns Industry & S&P 500

Zacks Equity Research

Tractor Supply Company TSCO has been a sturdy performer, evident from its robust earnings and sales surprise history, and stock momentum. Impressively, the company has delivered top- and bottom-line beat in six of the trailing seven quarters. In fact, this leading rural lifestyle retailer has been consistently performing well, courtesy of its robust store-growth and omni-channel efforts.

Buoyed by such positives, shares of this Zacks Rank #2 (Buy) company have surged 38.7% in a year, outperforming the industry’s 16% rally and the S&P 500’s 7.8% gain. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



Factors Aiding the Bullish Run

Tractor Supply remains quite resilient in a dynamic retail landscape. In this regard, it is imperative to mention that the company targets integration of physical and digital operations to offer consumers a seamless shopping experience through the ‘ONETractor’ initiative. Meanwhile, the company is reaping significant benefits from its Buy Online Pick Up in Store program. Also, it continues to expand the Neighbor’s Club loyalty program, outpacing its targeted membership growth goals in 2018. Apparently, the company delivered robust double-digit e-commerce sales growth for 27 straight quarters in first-quarter 2019.

Apart from technological advancements, Tractor Supply is committed toward expansion of store base to drive traffic and the top line. The company has also been improving marketing and merchandising initiatives as well as its supply chain efficiencies to boost profitability. In 2019, the company plans to open about 80 namesake and 10-15 Petsense stores. These endeavors make us confident about the company’s accomplishment of domestic store-growth target of 2,500 in the long term.

Furthermore, the acquisition of Petsense — a leading specialty retailer of pet supplies and services — has reinforced Tractor Supply’s foothold in the flourishing pet specialty space. Currently, Petsense is focusing on digital marketing methods to better engage with customers, revamp the website and enhance customer rewards program.

These factors have been driving Tractor Supply’s comparable store sales (comps) since the last few quarters. Comps are fueled by broad-based sales growth across its unique model as well as improvement in all geographic regions and major product categories. Strength in everyday merchandise such as consumable, usable and edible products also aided comps growth. The metric improved 5% in the first quarter of 2019, following a respective rise of 5.7%, 5.1%, 5.6% and 3.7% in the fourth, third, second and first quarters of 2018. Management remains confident about benefiting from the spring selling season in the second quarter.

While the aforementioned traits remain robust, higher cost of investments toward infrastructure and technology concern us a little. Escalated transportation and SG&A expenses coupled with unfavorable product mix is an added headwind. In 2019, management anticipates a slight rise in SG&A, attributable to the ramp up of its latest distribution center, ongoing wage pressures and increased depreciation expenses.

Wrapping Up

Given Tractor Supply’s well-chalked strategies and consistent performance, we expect the company to maintain the momentum going ahead.

3 Other Key Retail Picks

DICK'S Sporting Goods, Inc. DKS delivered an average positive earnings surprise of 16.2% in the last four quarters. The company has a Zacks Rank #2.

Stitch Fix, Inc. SFIX, which presently carries a Zacks Rank #2, has an impressive long-term earnings growth rate of 22.5%.

Build-A-Bear Workshop, Inc. BBW, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 9%.

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