Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Tractor Supply (TSCO) Posts In-Line Q1 Earnings, Down Y/Y

Tractor Supply Company TSCO posted in-line earnings in first-quarter 2017 after beating the same in the preceding two quarters. Meanwhile, the company’s revenues marginally came ahead of the estimate and grew year over year.

Following the results, shares of this farm and ranch store retailer rose 1.8% in after-hours trading yesterday. Moreover, Tractor Supply’s stock price has gained 5.5% in the last six months which is in line with the Zacks categorized Retail–Miscellaneous/Diversified industry’s growth.

The company’s earnings of 46 cents per share came in line with the Zacks Consensus Estimate but decreased 8% year over year.

The top line grew 6.6% year over year to $1,564.1 million, and marginally came ahead of the the Zacks Consensus Estimate of $1,556 million. However, comps fell 2.2%, compared with a 4.9% rise witnessed in the year-ago period. The unfavorable comparison with first-quarter 2016 reflects the advantage of an additional 53rd week in the prior year. Consequently, each quarter in 2017 started a week later than the prior-year. On adjusting for this weekly shift, comps decreased 2.6%.

The fall in comps is attributable to a 1.4% and 0.9% dip in comparable transaction count and average ticket, respectively. Further, comps were primarily hurt by soft seasonal merchandise sales, along with deflationary pressure. This was somewhat compensated by favorable comps across the company’s Livestock and Pet categories. Region wise, unfavorable weather had maximum impact on the Northern areas, where sales were most strained.

Margins & Costs

The company’s gross profit rose 4.8% year over year to $518.2 million, while gross margin declined 60 basis points (bps) to 33.1%. Gross margins were hampered by increased markdowns on cold weather merchandise, higher promotional activities as well as due to rise in freight expense for consumable, usable and edible (C.U.E.) products.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, increased 70 bps to 27%. This increase was primarily due to deleveraging of store personnel as well as occupancy expenditures owing to fall in comparable store sales. In dollar terms, SG&A expenses (including depreciation and amortization) escalated 9.2% to $421.8 million.

Operating income margin contracted 120 bps to 6.2% in first-quarter 2017. However, operating income, in dollar terms, declined 10.9% to nearly $96.4 million.

Financial Position

Tractor Supply ended the quarter with cash and cash equivalents of $72.7 million, long-term debt of $598.9 million, and total stockholders’ equity of $1,379.5 million.

Further, the company incurred capital expenditure of $34.9 million in the reported quarter, while it used cash flow from operating activities of about $141.7 million.

Store Update

During the first quarter, Tractor Supply opened 24 stores and transformed two Hometown Pet stores to Petsense stores, compared with the addition of 36 stores and three store closures – all of which were Del’s stores, in first-quarter 2016. Further, the company opened nine Petsense LLC stores during the reported quarter. This brings the total Petsense store count to 152 at the end of the first quarter.

As of Apr 1, 2017, the company operated 1,617 Tractor Supply stores in 49 states.

Guidance

Management believes that given the seasonal nature of its business, the company should rather be measured by its half-yearly than the quarterly performance. While the first quarter remained challenging, management is quite hopeful about spring season prospects, thus anticipating seasonal merchandise sales to show some improvement in the spring selling season.

Tractor Supply’s solid spring season prospects are also reflected by management’s enthusiasm about upcoming merchandise strategies and constant implementation of cross-network consumer-centric growth plans. Further, this was also reconfirmed with the company’s expansion of Neighbor's Club and Buy Online Pick Up In Store programs. Meanwhile, it had earlier announced the conclusion of the national rollout of Neighbor’s Club loyalty program, which commenced in Oct 2015.

The Zacks Rank #3 (Hold) company expects to continue returning value to shareholders in the form of share buybacks. In 2017, the company anticipates its debt position at year-end to range within $400–$450 million.

Stocks to Consider

Better-ranked stocks worth considering include Big 5 Sporting Goods Corporation BGFV, The Children's Place, Inc. PLCE and MICHAELS COMPANIES, INC. MIK. Big 5 Sporting Goods and The Children's Place sport a Zacks Rank #1 (Strong Buy) while MICHAELS COMPANIES carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting Goods has long-term earnings growth rate of 12%.

Children's Place has reported earnings beat in the trailing four quarters, with an average of 39% and also the company has long-term earnings growth rate of 8%.

MICHAELS COMPANIES an impressive long-term earnings growth rate of 16%.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Tractor Supply Company (TSCO): Free Stock Analysis Report
 
Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report
 
The Michaels Companies, Inc. (MIK): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research