Inflation Fails to Slow Appetite for Outdoor Lifestyle Demand at Tractor Supply; Brand Asset Intact

We plan a mid-single-digit increase to our $171 fair value estimate (attributable to time value of money and modestly higher near-term EPS) after digesting narrow-moat Tractor Supply’s second-quarter 2022 results, but still view the stock as overvalued, even after accounting for the mid-single-digit slip in shares post print. Revenue rose 8.4% and comparable sales improved 5.5%, exceeding our expectations of 6.2% and 4.2%, respectively. Additionally, a 19-basis-point lower SG&A metric allowed Tractor Supply to achieve a 13.5% operating margin (flat year over year despite 50 basis points of gross margin pressure from inflation and logistics). Our preprint forecast for 10.3% operating margin in 2022 remains in line with the firm’s updated outlook for 10.2%, despite wage and mix pressures (as consumable, usable, and edible products resonate with buyers).