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.