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Tractor Supply (TSCO) Stock Rises on Q4 Earnings & Sales Beat

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Shares of Tractor Supply Company TSCO have jumped more than 5% before the trading session on Jan 27, following the impressive fourth-quarter 2021 results. Both top and bottom lines improved year over year and surpassed the Zacks Consensus Estimate. Results gained from strength in the Life Out Here Strategy and healthy customer trends. The company delivered the seventh straight quarter of more than 10% increase in comparable store sales (comps). Encouragingly, management issued an upbeat view for 2022.

Tractor Supply’s earnings of $1.93 per share improved 17.7% year over year, surpassing the Zacks Consensus Estimate of $1.84.

Net sales jumped 15.3% year over year to $3,319 million and beat the Zacks Consensus Estimate of $3,241 million. The improvement was driven by an increase of 12.7% in comps, led by growth of 10.3% in comparable average ticket and a 2.4% rise in comparable average transaction count.

Also, sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as robust summer seasonal categories, contributed to comps growth. The company witnessed comps growth in all geographic regions and key merchandising categories. Tractor Supply witnessed solid double-digit sales growth in the e-commerce business, delivering the 38th consecutive quarter of an increase.

Shares of the Zacks Rank #3 (Hold) company have rallied 40% in the past year against the industry’s 24.4% decline.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Margins & Costs

The gross profit rose 12.6% year over year to $1,120.6 million, while the gross margin contracted 83 basis points (bps) to 33.8%. Pricing efforts and other initiatives to drive margins partly offset cost inflation, higher transportation costs and unfavorable product mix.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, improved 325 bps to 24.9%. In dollar terms, adjusted SG&A expenses, including depreciation and amortization, rose 12.3% year over year. Leveraged occupancy and other fixed expenses, lower COVID-19 pandemic response costs, and reduced incentive compensation aided the metric. This was somewhat offset by increased wage rates, additional store labor hours and investments in strategic efforts.

Adjusted operating income advanced 13.4% year over year, while operating income jumped 58.9% to $293.1 million in the fourth quarter. The operating margin expanded 242 bps to 8.8%.

Financial Position

Tractor Supply ended the fourth quarter with cash and cash equivalents of $878 million, long-term debt of $986.4 million, and total stockholders’ equity of $2,002.7 million. It also has no amount drawn from its $500-million revolving credit facility as of Dec 25, 2021.

In 2021, the company incurred a capital expenditure of $628.4 million and generated cash flow from operating activities of $1,138.7 million.

Tractor Supply returned $260.1 million to its shareholders in the fourth quarter, including $200.9 million to repurchase 0.9 million shares and $59.2 million for quarterly cash dividends. Notably, the company hiked its quarterly dividend by 77% to 92 cents, marking the 13th successive quarter of a dividend hike. The dividend will be paid out on Mar 22, 2022, of shareholders’ record as of Feb 21.

Going ahead, management anticipates $700-$800 million of share repurchases in 2022. The company also extended its existing share repurchase program by $2 billion, bringing the total share repurchase authorization to date to $6.5 billion.

For 2022, Tractor Supply expects to incur a capital expenditure of $625-$675 million.

Store Update

In the quarter under review, the company opened 36 Tractor Supply stores and one Petsense store. As of Dec 25, 2021, it operated 2,003 Tractor Supply stores across 49 states and 178 Petsense stores in 23 states.

Management remains on track with its store-opening initiatives. It plans to open 75-80 Tractor Supply stores and 10 Petsense stores in 2022. TSCO also intends to remodel 150 stores and transform side lots in 100 locations. The company revealed plans to open its ninth distribution center this fall.

2022 Outlook

Driven by the solid quarterly results, management provided upbeat guidance for 2022. The company now expects net sales of $13.6-$13.8 billion. Comps are likely to grow 3-4.5%. The operating margin is anticipated to be 10.1-10.3%. Net income is expected to be $1.04-$1.08 billion. Earnings per share are likely to be $9.20-$9.50. The view does not include the impacts of the Orscheln Farm acquisition as it is currently subjected to customary closing conditions.

Tractor Supply Company Price, Consensus and EPS Surprise

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

Business Developments

The company has been progressing well with its Life Out Here Strategy and other initiatives — including store productivity growth via Project Fusion and the Side Lot transformation program, enhanced in-store experience, better customer engagement and improved supply-chain operations. As part of these plans, it revised the long-term financial growth targets for 2022-2026.

Management still envisions achieving net sales growth of 6-7%, while comps are expected to grow 4-5%. The operating margin is now expected to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to grow 8-11%, up from the previously communicated 8-10%.

Stocks to Consider

We have highlighted three better-ranked companies in the Retail - Wholesale sector, namely Ulta Beauty ULTA, Capri Holdings CPRI and Costco Wholesale Corporation COST.

Ulta Beauty, the leading beauty retailer, presently flaunts a Zacks Rank of 1 (Strong Buy). ULTA has a trailing four-quarter earnings surprise of 76%, on average. Shares of ULTA have rallied 21.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ulta Beauty’s fiscal 2022 sales and earnings per share (EPS) suggests growth of 6.9% and 5%, respectively, from the year-ago levels. ULTA has an expected EPS growth rate of 16.5% for three-five years.

Capri Holdings, which operates membership warehouses, presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 28.4% in the past year.

The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 33.2% and 181.1% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 35.5% for three to five years.

Costco Wholesale presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average. Shares of COST have rallied 36.4% in the past year.

The Zacks Consensus Estimate for Costco Wholesale’s sales and EPS for the current financial year suggests respective growth of 10.8% and 13.9% from the year-ago period’s reported figures. COST has an expected EPS growth rate of 8.8% for three to five years.


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Tractor Supply Company (TSCO) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report

Capri Holdings Limited (CPRI) : Free Stock Analysis Report

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