TSCO Tractor Supply Company

Tractor Supply Company (TSCO), a leading retail firm and ranch store brand, is scheduled to report its second-quarter 2011 financial results after the market closes on July 20, 2011. The current Zacks Consensus Estimate for the quarter is $1.19 per share. For the quarter under review, revenue is expected at $1,191.0 million, according to the Zacks Consensus Estimate.

First-Quarter 2011, Summary

Tractor Supply's first-quarter 2011 earnings 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 an increase of 10.7% in same-store sales compared with a mere rise of 2.8% 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 the recent quarters have positively seen an uptick 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 beats the Zacks Consensus Estimate of $794.0 million.

Guidance for Fiscal 2011

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 than 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.

Second-Quarter 2011 Zacks Consensus

The Zacks Consensus Estimate for the second-quarter is currently $1.19 a share, faring better than earnings of $1.02 delivered in the prior-year quarter. Current analyst estimates range from $1.12 to $1.23 a share.

Zacks Agreement & Magnitude

The current Zacks Consensus Estimate has remained constant despite of 4 out of 19 analysts revised their estimates upward over the last 30 days. Over the last 7 days only one analyst raised its estimate keeping the Zacks Consensus Estimate unchanged.

Positive Earnings Surprise History

With respect to earnings surprises, Tractor Supply has topped the Zacks Consensus Estimate over the last four quarters in the range of approximately 1.0% to 50.0%. The average remained at 18.8%. This suggests that Tractor Supply has beaten the Zacks Consensus Estimate by an average of 18.8% in the trailing four quarters.

Our View

Tractor Supply is the largest operator of farm and ranch stores in the U.S., a unique market niche that serves the lifestyle needs of recreational farmers and ranchers. The company's stores are strategically located in small towns, close to its target customers, which provide it with a competitive edge over its rivals. Moreover, in an effort to boost margins, Tractor Supply is expanding its portfolio of private label brands and is also focusing on direct sourcing. The company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing. This provides a strong upside potential to the company.

However, the company operates in a highly fragmented industry and faces competition from larger retailers, such as The Home Depot Inc. (HD) and Lowe’s Companies Inc. (LOW) as well as from independently-owned retail farm and ranch stores, privately-held regional farm store chains and cooperatives. Being in such a high competitive industry, Tractor Supply may find it difficult to execute and implement new business strategies, which in turn, may impact its operations adversely.

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 'Neutral'.

 
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