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Here's Why Tractor Supply is Marching Ahead of the Industry

Tractor Supply Company TSCO has been gaining from strength in demand for summer seasonal categories and everyday merchandise, including consumable, usable and edible products. This led to impressive third-quarter 2020 results, wherein both top and bottom lines improved year over year. Also, all of the company’s geographic regions performed well.

Management estimates the solid sales momentum to continue in the fourth quarter. Moreover, it has provided upbeat guidance for the fourth quarter. The company expects net sales of $2.6-$2.7 billion for the fourth quarter, with comps growth of 15-20%. Net income is likely to be $163-$175 million, while earnings per share are expected in the bracket of $1.37-$1.47. Also, gross margin is likely to be in the range of flat to a marginal increase in the fourth quarter.

Notably, shares of this Zacks Rank #3 (Hold) company have surged 45.6% year to date against the industry’s decline of 6%. Moreover, it compares favorably with the Retail-Wholesale sector’s growth of 30%.



That said, let’s delve deeper

Factors Narrating Tractor Supply’s Growth Story

Tractor Supply remains on track with the ‘ONETractor’ strategy that is aimed at connecting store and online shopping. It is benefiting from the roll out of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores, as well as enhancement of the Tractor Supply credit card offering and investments in its supply chain.

The company’s omni-channel investments, including curbside pickup, same-day delivery, next-day delivery, a re-launched website and new mobile app contributed to digital sales growth in the third quarter to the tune of triple-digits. Notably, Buy Online Pickup in Store and Ship to Store facilities acted as key growth drivers, representing more than 80% of online orders. Also, its newly launched mobile app and the Neighbor's Club loyalty program bode well. Such efforts are boosting traffic, which in turn is leading to new customer acquisitions. Going ahead, management expects to offer one-day delivery to 9% of its customers in the near term.

Apart from these, it is progressing well with the Life Out Here strategy, which is aimed at offering a convenient shopping experience to customers andgaining market share. The company also provided long-term financial growth targets for the upcoming three to five years. It envisions achieving net sales growth of 6-7%, while comps are expected to grow between 4-5%. Further, operating margin is expected in the range of 9-9.5% and earnings per share are likely to grow 8-10%.

Hurdles on the Way

However, Tractor Supply remains concerned about the uncertainties regarding the magnitude of the pandemic’s impacts. It expects costs related to the coronavirus outbreak to hurt its business by $17-$20 million in the fourth quarter. Additionally, costs related to the aforementioned Life Out Here Strategy is likely to be in the range of $12-$15 million during the fourth quarter. The company also expects to incur wage and benefit change-related costs of nearly $13 million. Apart from these, increased capital investments to support the company’s strategic growth initiatives remain a woe.

Wrapping Up

All said, we believe that such well-chalked plans are likely to help the stock stay afloat amid the coronavirus pandemic. In fact, the stock’s VGM Score of B and long-term earnings growth rate of 13% reflect its inherent strength.

3 Retail Stocks to Watch

Dollar General Corporation DG, which flaunts a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 11.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Target Corporation TGT has an expected long-term earnings growth rate of 7.2% and a Zacks Rank #2.  

Lowe's Companies, Inc. LOW, with a Zacks Rank #2, has a trailing four-quarter average earnings surprise of 16.2%.

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