HOTT Hot Topic, Inc. (MM)

Tractor Supply Co. (TSCO) reported strong first-quarter 2013 results with earnings surging nearly 12.7% to 62 cents per share, in line with the Zacks Consensus Estimate. Results benefited mainly from strong top-line performance and improved margins.

Detailed Analysis

Net sales in the quarter improved 6.4% to $1,085.8 million from $1,020.4 million in the prior-year quarter. However, total revenue missed the Zacks Consensus Estimate of $1,098 million.

Tractor Supply reported same-store sales increase of 0.5% compared to a solid 11.5% growth achieved in the prior-year quarter. The increase was driven by robust performance in core consumable, usable and edible (C.U.E) products − mainly for pet food and animal feed. Further, the company benefited from strong sales of winter assortments due to an unexpected cold weather. However, these were largely impacted by lower sales of spring assortments compared to the prior year.

Gross profit during the quarter increased 5.8% to $352.1 million compared with $332.8 million in the prior-year quarter. Gross margin contracted 20 basis points to 32.4% from 32.6% in the year-ago quarter, impacted by the mix shift to low-margin C.U.E products and higher transportations costs, offset in part by the company’s key margin-driving initiatives.

Better cost containment related to store personnel and lower incentive compensation expenses resulted in a 20 basis points (bps) contraction in selling, general and administrative expenses, as a percentage of sales, which came in at 24.0% versus 24.2% in the prior-year quarter.

Consequently, operating margin during the quarter remained flat at 6.3%, with operating income rising 5.5% to $67.9 million in absolute terms.

Financial Position

Tractor Supply ended the year with cash and cash equivalents (including restricted cash) of $65.4 million compared with $148.6 million at the end of the year-ago quarter. As of Mar 31, 2013, stockholders’ equity was $1,030.2 million compared with $1,055.2 million as of Mar 31, 2012.

Store Update

In the first quarter, Tractor Supply opened 22 new stores compared with 33 stores in the year-ago quarter. As of Mar 30, 2013, the company operated as many as 1,197 stores in 45 states.

Management Guidance

Tractor Supply reiterated its 2013 net sales guidance, projecting sales in the range of $5.07 billion – $5.17 billion, with comps expected to improve 3%−5%. The company anticipates 2013 earnings in the range of $4.32 − $4.40 per share, including estimated costs of 6 cents to 7 cents per share related to relocation of its distribution center in the Southeast and its corporate data center.

Moreover, Tractor Supply expects capital expenditure in the range of $240 – $250 million in 2013, comprising $100 – $105 million slated to be spent toward opening of 100 to 105 new stores and the construction of the Southeast distribution center and new Store Support Center, which are expected to open in 2013 and 2014, respectively.

Other Stocks to Consider

Tractor Supply currently has a Zacks Rank #2 (Buy). Other companies performing well in the retail space are Big 5 Sporting Goods Corporation (BGFV), Cabela’s Inc. (CAB) and Hot Topic Inc. (HOTT). Of these, Big 5 and Cabela’s carry a Zacks Rank #1 (Strong Buy) and Hot Topic carries a Zacks Rank #2 (Buy).

 
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TRACTOR SUPPLY (TSCO): Free Stock Analysis Report
 
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