Tractor Supply Earnings: Sour Start to Spring Weather Delays Seasonal Spending, Clouds Profitability

Wide-moat Tractor Supply tussled with an unusually wet and cool start to the spring selling season, crimping its first-quarter earnings. The company estimates weather lowered comparable sales growth by 200 basis points to 2.1% (shy of our 3% estimate), led by a slowdown in the larger-ticket, discretionary seasonal category. Even so, its gross margin ticked up 52 basis points to 35.5% thanks to moderating freight costs, pricing, and margin-driving initiatives. However, deleverage from softer sales and strategic stepped-up initiative spending lowered Tractor Supply's operating margin by 70 basis points to 7.4%, below our 7.9% assumption. Aside from weather, we suspect macroeconomic uncertainty also continues to weigh on consumers' discretionary (15% of sales) purchasing decisions. Fortunately, as a testament to the essential nature of Tractor Supply's pet and animal feed portfolio, its needs-based consumable, usable, and edible, or C.U.E., category continued to display strength and drive customer trips, helping to lift comparable average ticket growth by 2.8% even as transactions slid a modest 0.7% because of the weather.