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Tractor Supply (TSCO) Down on Q2 Earnings Miss, Updates View

Zacks Equity Research

Tractor Supply Company TSCO reported mixed second-quarter 2019 financial numbers, wherein earnings fell short of the Zacks Consensus Estimate but revenues surpassed the same. Notably, the company reported a bottom-line miss after four consecutive beats, while sales retained the beat trend for five straight quarters. Both the metrics improved on a year-over-year basis. Furthermore, management updated its outlook for 2019.

However, shares of this leading rural lifestyle retailer have lost 6.6% in pre-market trading. This might be attributed to earnings miss along with deceleration of comparable-store sales (comps) growth from the year-ago quarter. Comps improved 3.2%, down from 5.6% in the year-ago period.

Furthermore, the company’s earnings per share guided range of $4.65-$4.75 for 2019 is lower than the Zacks Consensus Estimate of $4.77. However, the projected range depicts growth from $4.31 earned in 2018. Earlier, management estimated earnings per share of $4.60-$4.75.

Nevertheless, management is smoothly progressing with its ONETractor strategy, which targets integrating the company’s physical and digital operations. In the past three months, this Zacks Rank #2 (Buy) stock has gained 7%, outperforming the industry’s 12.2% fall.



Q2 Highlights

Tractor Supply’s earnings came in at $1.80 per share, which grew 6.5% but fell short of the Zacks Consensus Estimate by a penny.

Net sales grew 6.3% to $2,353.8 million and outshined the Zacks Consensus Estimate of $2,347 million. This year-over-year improvement was driven by rise in comps, led by a respective growth of 1% and 2.2% in comparable store transaction count and average ticket.

Furthermore, traffic and sales growth were aided by the company’s ongoing efforts to build customer loyalty and enhance digital capabilities. Also, comps gained from improvement across all geographic regions as well as strength in everyday merchandise, which includes consumable, usable and edible products. Higher demand for spring and summer seasonal products too drove comps.

Tractor Supply Company Price, Consensus and EPS Surprise

Tractor Supply Company Price, Consensus and EPS Surprise

Tractor Supply Company price-consensus-eps-surprise-chart | Tractor Supply Company Quote

Margins & Costs

Gross profit rose 6.7% year over year to $820.7 million, with gross margin expansion of 11 basis points (bps) to 34.9%. This uptick was backed by favorable product mix and strength in the company’s price management program. Moreover, freight costs were minimal in the quarter.

Selling, general and administrative (SG&A) expenses including depreciation and amortization, as a percentage of sales, grew 24 bps to 22.7%. Higher costs related to a new distribution facility in Frankfort, N.Y. along with a slight impact from investment in store team member wages led to the upside. These expenses were somewhat offset by lower occupancy and other costs.

Financial Position

Tractor Supply ended the quarter with cash and cash equivalents of $104 million, long-term debt of $466.3 million, and total stockholders’ equity of $1,544.9 million.

Year to date through the second quarter, the company returned a total of $414 million via share repurchases worth $334.2 million and dividends of $79.7 million. Additionally, it incurred capital expenditure of $83.5 million and generated cash flow from operating activities of about $348.9 million.

For 2019, the company continues to expect capital expenditure of $225-$250 million.

Store Update

In the first six months of 2019, Tractor Supply opened 25 namesake stores and two Petsense stores. As of Jun 29, 2019, the company operated 1,790 Tractor Supply stores across 49 states and 177 Petsense stores.

For 2019, management continues to expect opening of 80 namesake stores and 10-15 Petsense stores.  

Outlook

Depending on the company’s year-to-date performance, management updated its guidance for 2019. Tractor Supply now projects net sales of $8.40-$8.46 billion, with comps growth of 3-4%. Earlier, it anticipated net sales of $8.31-$8.46 billion, with comps growth of 2-4%. Operating margin is still estimated to be 8.9-9%.

Further, the company envisions net income of $562-$575 million for 2019 compared with $555-$575 million projected earlier.

3 Other Key Picks in the Same Space

Hibbett Sports, Inc. HIBB has delivered a positive earnings surprise of 24.8% in the last reported quarter and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK'S Sporting Goods, Inc. DKS delivered average positive earnings surprise of 16.2% in the trailing four quarters. It currently carries a Zacks Rank #2.

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

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