Tractor Supply Company (TSCO) is set to report second-quarter 2013 results on Jul 24. Last quarter, its earnings surged over 12% on a year-over-year basis but was in line with the Zacks Consensus Estimate. Let us see how things are shaping up for this announcement.
Growth Factors in the Past Quarter
The company’s impressive merchandise improvement strategy resulted in mid single-digit top-line growth in the last quarter. Robust performances in core consumable, usable and edible products − mainly for pet food and animal feed − acted as catalysts for increase in the company’s same-store sales. Moreover, better cost containment measures related to store personnel and lower incentive compensation expenses boosted its operating margin. Further, as new construction activities are showing signs of improvement, we believe that Tractor Supply is well poised to capitalize on opportunities.
Furthermore, the company has been revamping itself by concentrating on square footage growth and the maximization of productivity from its existing store base. In addition, Tractor Supply implemented significant changes in its store operations to make them simpler and more customer-friendly. We expect such initiatives to induce more traffic to its stores and boost the top line.
Our proven model does not conclusively project Tractor Supply to beat earnings this quarter. A stock needs to have both positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, this is not the case here due to the following factors:
Zacks ESP: ESP for Tractor Supply is 0.00% since the Most Accurate Estimate stands at $1.71, which is in line with the Zacks Consensus Estimate.
Zacks #2 Rank (Hold): Tractor Supply’s Zacks Rank #2 increases the forecasting power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.
Other Stocks to Consider
Tractor Supply is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat this quarter:
The Gap, Inc. (GPS) has an Earnings ESP of +1.70% and a Zacks Rank #2 (Buy).
Five Below, Inc. (FIVE) has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy).
Deckers Outdoor Corp. (DECK) has an Earnings ESP of +6.60% and a Zacks Rank #3 (Hold).
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