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Tractor Supply Co TSCO

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Narrow-Moat Tractor Supply Delivers Solid Second-Quarter Results, but Shares Aren’t a Bargain

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Narrow-moat Tractor Supply’s stellar performance continued into its second quarter, with total sales up 13.4% to $3.6 billion (ahead of our expected $3.4 billion) and comps up 10.5% thanks to 4.5% transaction and 6% average ticket growth. Strength in the business was broad-based, across every region and consistent throughout the quarter, despite lapping a 30.5% comp in the year-ago quarter. Gross margin contracted 67 basis points to 35.7%, hindered by higher freight costs and Neighbors Club loyalty program relaunch costs. Regardless, EPS increased 10% to $3.19, well ahead of our $2.75 estimate. Building on this momentum, management raised full-year guidance, now projecting full-year sales of $12.1 billion-$12.3 billion (from $11.4 billion-$11.7 billion and compared with our $11.9 billion estimate), operating margins of 9.7%-9.9% (9.4%-9.7% and 9.3%-9.6%), and EPS of $7.70-$8 ($7.05-$7.40 and $7.28). We expect to raise our $130 fair value estimate by a high-single-digit rate but still view shares as overvalued, despite a 7% dip at print.

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Company Profile

Business Description

Tractor Supply is the largest operator of retail farm and ranch stores in the United States. The company targets recreational farmers and ranchers and has little exposure to commercial and industrial farm operations. Currently, the company operates 1,955 stores in 49 states and 174 Petsense stores. Stores are typically located in towns outside of urban areas and in rural communities. In fiscal 2020, revenue consisted primarily of livestock and pet (47%), hardware, tools, and truck (21%), and seasonal gift and toy (21%).

5401 Virginia Way
Brentwood, TN, 37027
T +1 615 440-4000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 41,000


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