Citi cuts Tractor Supply, Floor & Decor to neutral on traffic weakness while O'Reilly Automotive gets an upgrade

By Steve Gelsi

Analyst cites tougher operating environment for Tractor Supply as home-related spending slows.

Citi analyst Steven Zaccone on Thursday cut Tractor Supply Co. and Floor & Decor Holdings to neutral from buy after the bank's store-traffic monitor signaled lower-than-expected business at the retailers.

Despite the pair of downgrades, Zaccone found reason to cheer O'Reilly Automotive Inc. (ORLY), which drew an upgrade to buy from neutral because "we think the recent pullback in share presents an attractive buying opportunity for this stable, defensive retailer."

Six of the 13 retailers that Citi covers may miss their same-store sales estimates as store traffic fell an average of 7% in September, Zaccaro said.

Those names include Tractor Supply (TSCO), Floor & Decor (FND), Home Depot Inc. (HD), Lowe's Cos. (LOW), Advance Auto Parts Inc. (AAP) and Williams-Sonoma Inc. (WSM).

Tractor Supply stock fell 1.4% on Thursday. Floor & Decor dipped 3.7%. O'Reilly Automotive stock fell about 0.1%

Zaccone said Tractor Supply faces a tougher operating environment as big-ticket weakness continues, and disinflation weighs on same-store sales, while consumer spending on homes cools off.

Meanwhile, Floor & Decor faces the threat of higher interest rates dampening existing home sales and causing lower activity in home-improvement spending.

"We see a risk 2H23 misses Street expectations and 2024 will come in well below the Street," Zaccone said of Floor & Decor.

Zaccone cut the target price for Floor & Decor to $90 from $122 and trimmed Tractor Supply's price target to $207 from $250.

September store traffic in home improvement and furnishing fell an average of 12.3%, auto partners store traffic dropped 2.6%.

Valvoline Inc. (VVV) was the only retailer covered by Citi with increased store traffic in September but it faces a tougher October comparison.

-Steve Gelsi

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10-05-23 1049ET

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