Tractor Supply Company Is Thriving

Summary

• Tractor Supply offered Q2 update that is expecting "record-breaking sales and earnings"
• Fresh off a stellar Q1, the second quarter is supposed to easily trump that with same-store sales expected in the 20% to 25% range.
• The company also maintains a strong balance sheet with positive cash flows and ample cash during these uncertain times.

Shares of Tractor Supply Company (TSCO) have been on a tear the last month since they issued their Q1 earnings. Since releasing Q1 results, TSCO shares have increased 16.5%, while shares of the S&P 500 have increased 6.9%. Tractor Supply, like that of peers Home Depot (HD) and Lowe’s (LOW) have been not been as affected by the pandemic as many other businesses across the nation.

As shares are now trading at all-time highs, TSCO does not offer as much value as they did a few weeks ago, but still worth a position in your portfolio.

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Tractor Supply Is Thriving

Tractor Supply Company is the largest rural lifestyle retailer in the United States. The company’s core customer base is farmers, ranchers, and consumers in rural America. The company operates 2,043 stores within 49 states.

As I mentioned, TSCO reported stellar Q1 earnings a little over a month ago. As CEO Hal Lawton put it, “the year-to-date results underscore the importance of Tractor Supply as an essential, needs-based retailer.” That is exactly what makes TSCO so great is the fact that they are a needs based retailer, and can separate themselves from the likes of HD and LOW in a way.

Revenues during the first quarter increased 7.5% to $1.96 billion and same-store sales increased 4.3%. The increase in same-store sales was largely driven by an increase in average ticket of 5.4%, offset by a decrease in the number of transactions by 1.1%. Every geographical region of the company saw positive same-store sales growth during the quarter.

Net income for the quarter was up 9.0%, which equated to EPS of $0.71, a 12.7% increase from prior year. The company repurchased 2.9 million shares, but suspended that program effective March 12, 2020.

Store count growth continues to move forward as the company opened 20 new Tractor Supply stores in Q1 compared to 10 new stores in Q1 2019. Expansion plans may be delayed due to the current pandemic, but the company’s store growth plans are still moving forward as expected.

The company maintains a strong balance sheet that is supported by strong cash flows. In the company’s Q1 press release, management stated that their capital expenditure plans are unchanged, expecting $225 million to $275 million for the year. To preserve cash during these uncertain times, the company borrowed $200 million from their existing credit facility and entered into an extension to borrow an additional $350 million. As of Q1, the company had $461.5 million of cash on hand.

Rural America Giving Tractor Supply A Boost

As you know, TSCO focuses on rural America with the majority of their stores located in towns outlying major metropolitan markets and rural communities. The company maintains a very loyal customer base, which many are part of their Neighbor’s Club loyalty program.

As I mentioned in my “Lowe’s Closing The Gap” article, Lowe’s (LOW) saw less disruption in their stores located in rural community. In fact, “rural stores outperformed the company comp in Q1 by over 250 basis points,” for Lowe’s. Lowe’s has only 10% of their portfolio in rural communities

This is even more positive for TSCO, one being that most of their stores are in rural communities, and two is the fact that LOW reported just this past week, about a month after TSCO. In the Lowe’s earnings call they mentioned the uptick in business they are seeing each month with May looking the strongest after April. That is very encouraging for TSCO Q2 results.

Q2 Update From Management

Just today, the company released a Q2 update that is calling for “record-breaking sales and earnings” during the quarter. These are continued tailwinds that we are seeing in the rural community and on the backs of the Lowe’s update I mentioned above.

The company continues to gain market share and is quickly adapting to the changing environment. The company continues to invest in technology and even announced their launch of their first mobile app. E-commerce continues to be a big area of focus and growth for the business as is Buy Online and Pickup At Store options.

The company is forecasting net sales growth of 24% to 29% and comparable store sales growth of 20% to 25%. This is staggering considering the Q1 performance.

Investor Takeaway

The company reported a stellar first quarter and based on the comments from Lowe’s, the TSCO quarter could be even better as the spring selling season hits. The company saw higher average tickets during the quarter on less transactions as more customers looked to make less trips to the store during the ongoing pandemic, which is expected to be the same in Q2.

In a time of uncertainty when we have seen many dividend payers suspend or reduce their dividend, TSCO does not expect any changes to their dividend. This speaks to their positive cash flow and strong balance sheet.

As we saw in the company’s Q2 update, management is expecting record breaking sales and earnings with same-store sales coming in at 20% to 25%. Those are incredible growth numbers for a company firing on all cylinders. If we continue to see the momentum push forward in the financial markets, TSCO may be a name to consider even at current levels.

Note: I hope you all enjoyed the article and found it informative. As always, I look forward to reading and responding to your comments below and feel free to leave any feedback. Happy Investing!

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Author’s Disclaimer: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.