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Tractor Supply Co TSCO

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Economic Moat




Existing Trends Benefit Tractor Supply, but Expected Higher Spend Ahead to Court Consumers

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Narrow-moat Tractor Supply reported another blowout quarter amid the coronavirus pandemic, posting same-store sales of 27% (ahead of our 18% estimate) and earnings per share of $2.61 (marking 56% year-over-year growth and also above our $2.43 forecast). Expense items also were favorable, with the gross margin of 36.4% rising nearly 140 basis points year over year and 90 basis points ahead of our forecast, from lower promotional and transportation benefits. The SG&A ratio of 26.7% increased just 14 basis points, and was in line with our outlook, as $20 million in COVID-related costs weighed. Altogether, this led to a 9.7% operating margin, the highest third-quarter metric achieved over the past decade. While some costs related to COVID should temper as the virus gets under control, we also assume some volume benefit recedes, reverting operating margin metrics closer to normalized long-term levels of around 9.

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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 1,904 stores in 49 states, and 183 Petsense stores. Stores are typically located in towns outside of urban areas and in rural communities. Through the end of 2019, revenue consisted primarily of livestock and pet (47%), hardware, tools, and truck (21%), and seasonal gift and toy (20%).

5401 Virginia Way
Brentwood, TN, 37027
T +1 615 440-4000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 32,000