Tractor Supply Earnings: Steady Demand for Consumables Retains Consumers Despite Cautious Spending

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.