TSCO Tractor Supply Company

Tractor Supply Co. (TSCO), a leading retail firm and ranch store brand, recorded yet another quarter of good growth. Earnings per share in the first quarter of fiscal 2011 came in at 24 cents, breezing past the Zacks Consensus Estimate of 16 cents as well as the prior-year earnings of 14 cents per share.

Strong performance in consumable, usable and edible categories − for instance, pet food and animal feed − acted as a catalyst for a 10.7% increase in same-store sales compared with a mere 2.8% rise in the prior-year quarter. Tractor Supply has been witnessing increasing trends in same-store sales.

During the recession Tractor Supply had suffered setbacks as buyers avoided big-ticket purchases such as mowers, but recent quarters have positively seen an up tick in results. The company’s impressive merchandising improvement strategy and solid same-store sales trend resulted in double-digit top-line growth for the company. Net sales in the quarter surged 17.7% to $836.6 million from $710.9 million in the prior-year quarter. Total revenue beat the Zacks Consensus Estimate of $794.0 million.

Better direct product margin was partially offset by higher transportation costs. The resultant gross profit surged 18.5% to $273.6 million compared with $230.9 million in the prior-year quarter. Gross margin expanded 20 basis points to 32.7% in the quarter.

Strong same-store sales resulted in a 90 basis point improvement in selling and administration expenses, as a percentage of sales, which came in at 29.3% versus 30.2% in the prior-year quarter. Tractor Supply earned $18.3 million in the quarter, far exceeding the prior-year quarter net income of $10.6 million.

Financial Position

Tractor Supply’s balance sheet had cash and cash equivalents of $140.4 million at the end of the quarter, compared with $138.1 million at the completion of the prior-year period. Stockholders’ equity came in at $912.1 million compared with $792.4 million in the first quarter of fiscal 2010. The company generated $44.8 million in cash from operations in the quarter.

Store Update

In the quarter under review, Tractor Supply opened 26 new stores. The company currently runs as many as 1,027 stores in 44 states.

Guidance and Zacks Consensus

Tractor is well positioned to capitalize on positive long-term trends. The company now expects sales for fiscal 2011 to range between $4.04 billion and $4.11 billion backed by expectation of same-store sales increase of 3.5% to 5.0%. This is higher from the previous sales and same-store sales guidance of $4.00 to $4.07 billion and 2.5% and 4.5%, respectively.

On the back of perked-up results and brighter sales trends, Tractor Supply raised its earnings expectation for 2011 to range between $2.62 and $2.70 per share from $2.54 to $2.62 per share.

Competition

The company operates in a highly fragmented industry and faces competition from larger retailers like The Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW).

Tractor Supply’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Our long-term recommendation on the stock remains Outperform.

 
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