Company Reports

Wide-moat Tractor Supply drove sturdy first-quarter results in line with our expectations, bucking softer spending by lower-income consumers and benefiting from steadier weather conditions. Comparable sales increased 1.1%, aligning with our estimate, driven by positive traffic (up 1.3%) that was partially offset by a 0.2% decline in average basket size despite modest product cost deflation. Sales were buoyed by higher spending on big-ticket and seasonal categories amid stable weather. Aiding traffic, Tractor Supply tapped its arsenal of 34 million loyalty members (constituting 75% of sales) by accelerating reward redemptions and providing more personalized offers, showcasing its ability to engage consumers through its strong brand. Despite tactical marketing and investment in key initiatives, operating margin improved 40 basis points to 7.8%, near our 7.6% outlook, thanks to solid productivity and cost management. With management maintaining its fiscal 2024 outlook for a 1% decline to 1.5% rise in comparable sales and a 9.7%-10.1% operating margin, we see no reason to materially alter our $214 fair value estimate. We view the shares as rich.

Tractor Supply is the largest consumer farm specialty retailer in the United States, surpassing $14.5 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2023, the store base had grown about 24% over the prior five-year period, to more than 2,400 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 11% and 14%, respectively. We forecast that the firm will grow to over 3,200 stores by 2033 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 300 units.

Despite industrywide challenges from subdued consumer discretionary spending and atypical weather patterns, wide-moat Tractor Supply posted solid results, falling just ahead of our estimates. In the fourth quarter, comparable sales fell by 4.2%, edging our expectation for a 7% decline. Impressively, this comes after an 8.6% increase in the same period last year, which was boosted by an additional selling week and a 200-basis-point benefit from favorable weather conditions. Anchoring sales resilience, Tractor Supply’s needs-based consumable, usable, and edible category continued to achieve positive comparable metrics, drawing in shoppers as interest in cold weather, discretionary, and big-ticket items waned, thereby limiting transaction declines to just 2.7%. Despite a shift to lower-margin products, gross margin increased by 129 basis points to 35.3%, ahead of our 34.5% projection, buoyed by lower transportation rates (which should not continue) and enhanced distribution efficiencies stemming from its new distribution center. Moreover, even with elevated investment, the firm’s operating margin remained consistent with our 9% estimate.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve nearly $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,100 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

Wide-moat Tractor Supply delivered resilient third-quarter results, which fell largely within our expectations. Despite declines in big ticket (down a mid-single-digit percentage) and seasonal purchases due to waning discretionary spending and unseasonably warm weather, comparable sales were essentially flat, just shy of our 1% forecast. We believe Tractor Supply's higher-income consumer base, promotional capabilities, and needs-based consumable, usable, and edible fare make the firm less susceptible than some peers to broader macroeconomic woes and weather volatility. As evidence, even with the mix shift away from higher-margin big ticket items, its gross margin improved by 110 basis points to 36.7% (near our 36.2% estimate) from 35.6% thanks to expanded distribution capabilities and lower transportation costs. Further, a 10% operating margin fell in line with our assumption, as the firm prudently managed costs during a period of heightened investment and cost deleverage.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve nearly $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,100 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

Weakening discretionary spending and unseasonal weather pinched wide-moat Tractor Supply’s second-quarter results, which were a touch behind our expectations. Comparable store sales rose 2.5%, shy of our 5% estimate, but sales growth of 7.2% to $4.2 billion was near our $4.3 billion estimate. Declines in big ticket and impulse purchases fueled lighter performance, as wallet-stretched consumers continue to combat diminishing savings and persistent inflation. That said, Tractor Supply’s needs-based consumable, usable, and edible (C.U.E.) category outpaced the firm’s average and contributed to a 1.8% bump in comparable store transactions. Even with the mix shift away from higher-margin big-ticket items, gross margin rose 69 basis points to 36.2%, near our 35.9% assumption, thanks to lower transportation costs. Despite heightened integration costs around Orscheln, a 13.4% operating margin was in line with our 13.3% estimate.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,000 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

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.

We are raising our economic moat rating for Tractor Supply to wide from narrow thanks to investments that enhance its differentiated one-stop-shop model, giving us greater confidence in the strength of its brand intangible asset.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,000 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and narrow economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,000 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

We plan to raise our $186 per share fair value estimate on narrow-moat Tractor Supply by a mid-single-digit percentage after digesting fourth-quarter results that exceeded expectations, however, we continue to view shares as overvalued. Fourth-quarter comparable sales popped 8.6% (aided by a 2% boost from more favorable weather), above our 6% preprint estimate, composed of solid comparable ticket and transaction growth of 6.3% and 2.3%, respectively. On the profit front, higher operating costs (22.7% of sales) from the Orscheln integration and investment in growth initiatives offset better-than-expected gross margin performance (34%) thanks to price management efforts. All in, Tractor Supply delivered a 9% operating margin in the quarter, in line with our estimate.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve $14 billion in sales in 2022. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and narrow economic moat. At the end of 2021, the store base had grown about 26% over the prior five-year period, to more than 2,000 locations (around 2,200 including Petsense), driving sales and EPS compound annual growth rates over the past three years of 17% and 26%, respectively. We forecast that the firm will grow to around 3,000 stores by 2031 (including Petsense and 81 acquired locations from Orscheln Farm & Home) as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 280 units.

We plan to lift our $176 fair value estimate by a low-single-digit percent for narrow-moat Tractor Supply after incorporating third-quarter results into our model. Despite unfavorable weather, net and comparable store sales ticked up by 8.4% and 5.7%, respectively (near our 9.3% and 5.5% respective forecasts), driven by comparable average ticket growth of 7%, which more than offset a 1.3% transaction volume decline. We believe the firm’s ability to deliver significant comparable growth without discounting amid unfavorable weather has improved over time via inventory optimization, reducing the risk of gross margin pressure. Indeed, the firm delivered a 35.6% gross margin (down 40 basis points), despite higher costs from freight, labor, and a higher proportion of lower margin consumable, usable, and edible sales (C.U.E.). Still, with C.U.E. comparable sales that were 3 times the overall sales growth rate, we think the differentiated category offerings are a key factor driving in-store trips and adjacent purchases.

Narrow-moat Tractor Supply is set to complete its purchase of Orscheln Farm & Home on Oct. 12. Initially, Tractor Supply was set to acquire the entirety of Orscheln's store base (166 locations) for $320 million, a price we view as reasonable at around 1 times sales. Tractor Supply had $531 million in cash as of its June 25 balance sheet date and should have no issues financing this transaction. Given limited direct peers in the farm and home supply category, the Federal Trade Commission mandated the sale of 85 Orscheln locations to Bomgaars and Buchheit to ensure operators across the industry keep quality, selection, and service levels healthy (leaving Tractor Supply with 81 rebranded locations). As a result, the sale of 85 stores, Orscheln headquarters, and Orscheln's distribution center will reduce the transaction price by $82 million for Tractor Supply, capping its outlay at $238 million.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve nearly $14 billion in sales in 2022. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and narrow economic moat. At the end of 2021, the store base had grown about 26% over the prior five-year period, to more than 2,000 locations (around 2,200 including Petsense), driving sales and EPS compound annual growth rates over the past three years of 17% and 26%, respectively. We forecast that the firm will grow to around 2,900 stores by 2031 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 280 units.

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).

In advance of a corporate presentation, narrow-moat Tractor Supply offered an early read on its second-quarter (June ending) performance. For now, the firm expects to grow sales 8% and generate EPS of more than $3.48 in the period, which are ahead of our 6.2% top-line and $3.31 EPS forecasts. Admittedly, we have little insight into the composition of the earnings outperformance or the amount of share repurchases, which could prove to be a swing factor depending on the level of activity. We surmise the majority of the sales upside stemmed from the normalization of weather, which facilitated further outdoor category demand. Tractor Supply has already launched 200 garden locations within its existing footprint, an effort we believe will support incremental sales growth ahead.

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve more than $13 billion in annual sales in 2022. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and a narrow economic moat. At the end of 2021, the store base had grown about 26% over the prior five-year period, to more than 2,000 locations (around 2,200 including Petsense), driving sales and EPS compound annual growth rates over the past three years of 17% and 26%, respectively. We forecast that the firm will grow to around 2,900 stores by 2031 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 280 units.