Tractor Supply (TSCO) Banks on Neighbor's Club Program for Growth
Tractor Supply Company TSCO relaunched its Neighbor's Club program in April 2021 to improve its operating capabilities. Since its relaunch, the company's high-value customers have increased by approximately 50%. These high -value customers shop more frequently and spend more money, thereby increasing sales of the company.
TSCO announced its fiscal 2022 results wherein net sales increased 11.6% to $14.2 billion. The company stated that 75% of the sales during fiscal 2022 was contributed by Neighbor's Club Program and the program’s membership exceeded 28 million members.
Tractor Supply announced expansion of the Neighbor's Club program with Petsense, one of the brands under TSCO. This expansion will deepen the relationship with existing customers and help attract new pet customers. The company noted that Neighbor's Club membership represented approximately 50% of sales at Petsense.
Shares of this Zacks Rank #3 (Hold) company have gained 20.8% in the past six months compared with the industry's 16.7% growth.
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What Else is Driving Growth?
Tractor Supply is on track to build a new distribution center in Arkansas to support its expansion of supply chain and higher volumes in its existing stores. Post completion of its new distribution center in late 2023, management expects to generate 450 new full-time jobs and service about 250 stores at full capacity. On Jan 18, 2023, management also launched its largest and ninth distribution center located in Navarre, OH.
Earlier, the company launched the field activity support team (FAST) and implemented various technology and service enhancements across the enterprise. FAST has made powerful contributions to the company’s in-stock performance and execution of its sales-driving initiatives.
Given the changing consumer trends, Tractor Supply is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience.
The company is on track with the ONETractor strategy to connect stores and online shopping. Its e-commerce business witnessed mid-single-digit growth from the prior year. As of year-end, the Tractor Supply app has had over 4.4 million downloads since its launch.
TSCO’s store expansion initiatives bode well. It is well-positioned to expand its store base. In the fourth quarter of fiscal 2022, the company opened 39 Tractor Supply stores and six Petsense stores. During the said quarter, the company acquired 81 stores from Orscheln Farm and Home that will be rebranded to Tractor Supply by the end of 2023. Management is on track with its store-opening initiatives. It plans to open approximately 70 Tractor Supply stores and 10-15 Petsense stores in 2023.
Driven by these factors, management announced compelling guidance for fiscal 2023. The view reflects the recent acquisition of Orscheln Farm and Home and the cost for new distribution center.
For fiscal 2023, the company expects net sales in the range of $15.0-$15.3 billion, up from $14.20 billion reported in the prior period. Comps are likely to grow 3.5-5.5% on a year-over-year basis. The operating margin is anticipated to be 10.1-10.3%. Earnings per share is likely to be $10.30-$10.60, up from $9.71 reported in the previous period.
Wrapping up
Tractor Supply has been facing challenging macro environment factors for a while now. The company has also been witnessing cost pressure across the supply chain. Management expects transportation costs to continue to be higher year over year in the first quarter of 2023 with recovery in the second half of 2023.
Nonetheless, the upsides mentioned above will likely to help Tractor Supply to battle such hurdles.
3 Solid Picks
Some top-ranked stocks are Inter Parfums IPAR, The Kroger Co. KR and Deckers Outdoor Corporation DECK.
IPAR has an expected long-term earnings growth rate of 15% and a trailing four-quarter earnings surprise of 36.2%, on average. Inter Parfums currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales suggests growth of 10.8% from the year-ago reported numbers.
The Kroger Co. operates in the thin-margin grocery industry, currently carries a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year sales and earnings suggests growth of 2.5% and 6.2%, respectively, from the prior-year reported numbers.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear, currently carries a Zacks Rank of 2. DECK has a trailing four-quarter earnings surprise of 31%, on average.
The Zacks Consensus Estimate for Deckers’ current financial year sales and earnings suggests growth of 12.2% and 13.6%, respectively, from the corresponding year-ago reported figures.
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