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It has been about a month since the last earnings report for Tractor Supply (TSCO). Shares have added about 6.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Tractor Supply due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Tractor Supply Beats on Q4 Earnings & Sales, Gives View
Tractor Supply reported fourth-quarter 2020 results, wherein the top and the bottom lines improved year over year and surpassed the Zacks Consensus Estimate. The company also provided its view for 2021.
Tractor Supply’s earnings were $1.64 per share, which surpassed the Zacks Consensus Estimate of $1.52. Moreover, the bottom line improved 35.5% from the prior-year quarter’s figure.
Net sales increased 31.3% year over year to $ 2,878.3 million and beat the Zacks Consensus Estimate of $2,714 million. The improvement was driven by an increase in comparable store sales (comps) of 27.3%, led by growth of 13% in comparable average ticket and a 14.3% rise in comparable average transaction count.
Comps growth was backed by strength in demand for seasonal categories as well as everyday merchandise, including consumable, usable and edible products. Additionally, the company witnessed triple-digit sales growth in the e-commerce business.
Margins & Costs
Gross profit rose 34.2% year over year to $995.5 million, while gross margin expanded 75 basis points (bps) to 36.4%. Gross margin gained from lower depth and frequency of sales promotions, and lower clearance activity, offset by higher transportation costs as a percent of net sales.
Adjusted selling, general and administrative (SG&A) expenses — including depreciation and amortization — as a percentage of sales rose 46 bps to 25.6%. The increase was driven by incremental costs related to the pandemic, higher incentive compensation due to robust sales and profit performance, and investments in strategic initiatives. In dollar terms, adjusted SG&A expenses, including depreciation and amortization, rose 33.7% to $737 million.
Driven by higher sales and gross margin, offset by higher SG&A expenses, operating income rose 35.8% to $ 258.5 million in the fourth quarter. Operating margin expanded 29 bps to 8.98%.
Tractor Supply ended 2020 with cash and cash equivalents of $1,341.8 million, long-term debt of $984.3 million and total stockholders’ equity of $1,923.8 million. Further, it has no amounts drawn on its $500-million revolving credit facility as of Dec 26, 2020.
In 2020, the company incurred capital expenditure of $294 million and generated cash flow from operating activities of $1,394.5 million.
Moreover, the company returned $517.6 million to shareholders, including $343 million to repurchase 3.4 million shares and for quarterly cash dividends of $ 174.6 million.
Additionally, the company hiked its quarterly cash dividend by 30% to 52 cents per share. The raised dividend will be paid out on Mar 9, 2021, to shareholders of record as of Feb 22. The raised dividend as well as resumed share repurchases demonstrates the company’s strong earnings performance and robust cash flows in 2020.
For 2021, it expects to incur capital expenditure of $450-$550 million.
In the quarter under review, Tractor Supply opened 19 Tractor Supply stores and three Petsense stores. It also closed four Petsense stores in the fourth quarter of 2020. As of Dec 26, 2020, the company operated 1,923 Tractor Supply stores across 49 states and 182 Petsense stores in 25 states.
Going ahead, management remains on track with its store-opening initiatives. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021.
Tractor Supply continues to remain uncertain regarding the magnitude of the pandemic’s impact on the company’s performance in 2021. Nevertheless, it has provided guidance for 2021.
The company expects net sales of $10.7-11 billion for 2021, with comps between a decline of 2% and growth of 1%. Operating margin is anticipated to be 9.3-9.6%. Moreover, net income is likely to be $750-$800 million, while earnings per share are expected to be $6.50-$6.90.
The company’s guidance assumes effective tax rate of 22.5-22.8% in 2020. Moreover, it expects share repurchases in 2021 to reduce earnings per share by 1-2%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 10.98% due to these changes.
Currently, Tractor Supply has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tractor Supply has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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