Another Record-Setting Quarter For Tractor Supply Co.
Tractor Supply Company’s (NASDAQ: TSCO) Q3 results are proof that the re-ruralization of America continues to gain traction. As America’s urbanites flee the city for comfortable surroundings they are driving sales in areas underserved by Walmart, Target, Home Depot and Lowe’s and those are the areas where Tractor Supply Company operates. Life Out Here, as the company refers to it, is good.
Tractor Supply Company Plows The Consensus, Again
Tractor Supply Company had a truly astounding quarter not so much because it was a strong quarter, or because the company is displaying strength in a challenging market but because it has sustained this strength for so long and keeps outperforming the expectations in spite of the challenging market conditions. The company reported $3.02 in consolidated revenue for the third quarter which is up 15.7% from last year, the 6th consecutive quarter of above-10% growth, and beat the consensus by 560 basis points. The sales were driven by a 13.1% increase in comp sales that was bolstered by 12 new Tractor Supply Company’s and 3 new Petsense.
Comp sales are, notably, driven by a 9.5% increase in ticket count and a 3.6% increase in check averages. This tells us that price increases may have an impact on sales but sales gains are driven more by traffic than not which is great news. Also of note, sales are driven by strength in all categories with an emphasis on everyday items, news that tells us it’s not just farmers shopping at the stores. Last year, comps were up 26.8%.
Moving down to the earnings, the company reported a slight decrease in gross margin due to the company’s efforts to control costs. Gross margin shrank by 40 basis points to 36% while SG&A expense shrank as a percentage of sales. SG&A shrank by 58 basis points to 26.1% to help produce fruitful results on the bottom line. On the bottom line, the company’s $1.95 in GAAP earnings is up 20% from last year and beat the consensus by $0.28.
Looking forward, the guidance is just as impressive. The company is guiding full-year revenue to $12.6 billion versus the previous high-end of $12.3 billion and for comp sales, operating margin, and earnings to all come in better than forecast. The EPS should top $8.40 compared to the previous $8.00 and we see upside risk in the numbers.
The Analysts Are On The Fence With Tractor Supply Company
The analysts appear to be on the fence when it comes to Tractor Supply Company because it is a highly ownable stock and one with a great outlook. Regardless, the Pricetargets.com consensus rating is a weak buy with some mixed activity in the days leading up to the earnings release. There have been no analyst’s notes in the wake of the report but the two that occurred prior to its release include one downgrade to Neutral and one price target increase to $220. Between them, the two analysts are expecting the stock to trade near $217-$220 compared to the consensus of $202 and the current price action near $211.
The Technical Outlook: Tractor Supply Company Challenges All-Time High
Shares of Tractor Supply Company are up more than 4.5% following the Q3 release and trading just below the previous all-time intraday high. It is our opinion this stock will soon be trading at a new all-time high and trigger the next leg of uptrend for this uptrending market. A break to new highs would be bullish and could add as much as $40 to price over the next quarter or two. And there is the safe and growing 1.0% dividend yield as well.
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