Tractor Supply Should Recoup Lost Seasonal Sales; Meanwhile, Needs-Based C.U.E. Demand Persists

Senior Equity Analyst

Jaime M. Katz

Associate Equity Analyst

Ari Felhandler

Revenue is the money generated from normal business operations. Gross Profit is revenue minus cost of goods sold. Operating Income is revenue minus cost of goods sold and other operating expenses.

Revenue

Gross Profit

Operating Income

Revenue & Operating Income

Net Income, also called net earnings, is calculated as revenue minus cost of goods sold, operating expenses, depreciation, interest, taxes, and other expenses.

Net Income

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Selling, general and administrative expenses

Depreciation and amortization

Impairment of goodwill and other intangible assets

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Tractor Supply is the largest consumer farm specialty retailer in the United States, set to achieve $15 billion in sales in fiscal 2023. The firm has differentiated itself through its products and customer demographics, which provide underlying support to its brand intangible assets and wide economic moat. At the end of 2022, the store base had grown about 27% over the prior five-year period, to more than 2,300 locations, including 81 acquired locations from Orscheln and Petsense, driving sales and EPS compound annual growth rates over the past three years of 19% and 28%, respectively. We forecast that the firm will grow to over 3,000 stores by 2032 as it populates big-box centers in the western half of the U.S., with Petsense accounting for about 290 units.

The firm competes with big-box retailers like PetSmart and Lowe's, which also have solid pricing power because of scale and distribution advantages across numerous categories. It also has smaller regional peers that tend to lack Tractor Supply's scale and expansive product mix. We believe Tractor Supply derives its success from its evolving customer-led store layout, which makes it a destination store for many of its customers. In addition, since the firm focuses on an active do-it-yourself rural consumer, many of its products are higher-end than those found in retailers that focus on a casual consumer.

We think that Tractor Supply has reached critical mass in its consumer segment, and better efficiency gains ahead from category expansions like side lot and fusion format store updates should help elevate the sales and profit growth. Better customer attribution data, improved bargaining power with vendors, and more sophisticated logistics should also improve inventory levels and cash conversion. Additionally, stable gross margins thanks to strong private-label penetration and operating cost leverage from scale should help operating margins remain over 10% throughout our forecast. Despite the strides made, investments to improve the customer experience could limit near-term operating margin upside; capital expenditures will likely remain elevated over the medium term as the firm invests to support growth.

Business Strategy & Outlook

We have assigned a wide economic moat rating to Tractor Supply, which stems from its brand intangible asset, thanks to investments that enhance its differentiated one-stop-shop model. First, the firm’s expansion of its unique product mix deepens entrenchment with its underserved consumers and allows Tractor Supply to capture a greater share of its consumers’ wallets through higher average transaction sizes. Likewise, higher-margin private-label continues to grow as a percentage of sales, leaving consumers tied to brands exclusively sold at Tractor Supply at attractive price points. Second, the firm’s brand has strengthened through investments in its omnichannel capabilities, loyalty program, footprint expansion, and customer service, deepening the divide between Tractor Supply and its regional competitors. All in, we contend these factors help solidify Tractor Supply’s position, a first mover in the national outdoor retail space, limiting the appeal for competitors to enter the market. As such, Tractor Supply has delivered consistent results, while the competitive environment has not moved against the firm. Successful merchandising has allowed Tractor Supply to deliver average adjusted ROIC of 14% over the past five years, or about 500 basis points above our assumed WACC. We forecast comparable levels to ensue over the next decade.

We believe Tractor Supply’s expanded product assortment and positioning in less densely populated regions provides the firm with structural advantages over fragmented, regional competitors. At its core, Tractor Supply rigorously adheres to its consumer base’s “Out Here” lifestyle in product assortment, which allows the brand to deeply resonate with underserved recreational farmers, ranchers, and rural customers (bolstered by unique grassroots experiences like Chick Days), in our opinion. Through Tractor Supply’s perpetual evolution aimed at adding greater value to the outdoor hobbyist consumer, the brand has bolstered its awareness. Over the past five years, efforts including 600 in-store pet washing centers, PetVet clinics, pet insurance, and TSC Rx (pet and livestock prescriptions) have helped further engage customers, resulting in nearly 35% higher transaction values. Additionally, Tractor Supply has secured exclusive selling rights to several products from industry-leading manufacturers, some of which include Bosch, DeWalt, Porter-Cable, and Makita. Further value creation stems from transforming the company’s side lots to create outdoor garden centers. Currently, over 350 stores have garden centers, and 70% of locations should be operating with the offering by 2026. For reference, outdoor garden represented $10.1 billion in sales at Home Depot in 2022. In our view, greater product selection should facilitate larger ticket growth and appeal to a broader customer base. 

Additionally, we believe Tractor Supply’s consistently demanded strong suite of private-label offerings add to its intangible assets, elevating its brand. Private label provides customers with exclusive, in-demand products at attractive price points by utilizing dynamic pricing. Coupled with a good, better, and best strategy across categories, Tractor Supply can engage consumers at different price points. These products helped deliver 200 basis points of incremental gross margin between 2010-22, but products can boast profitability more than 300 basis points above national brands. And the firm has successfully grown its private-label penetration to 30% of sales in 2022 from 21% in 2010. While Tractor Supply offers over 20 private-label brands across all product segments, private-label penetration in consumable, usable, and edible (C.U.E.) products strikes us as one of the most significant factors driving consumer stickiness. We believe regularly used products—pet food, livestock feed, and pest control—propel consumers to make frequent replacement purchases and are less frequently substituted.

Although omnichannel efforts are pervasive across the retail landscape, we commend Tractor Supply for developing its capabilities early. The firm incorporated a buy online pickup in store, or BOPIS, option prior to the pandemic, contributing to its customer engagement. In 2021 (most recent data available), around 80% of digital transactions utilized the BOPIS system and drove in-store traffic. For example, fulfillment of a needs-based BOPIS trip exposes consumers to Tractor Supply’s expansive product mix, driving sales in adjacent categories. Increased traffic emphasizes the value behind having a brick-and-mortar presence along with technological capabilities, especially when considering the premium cost required to ship large or heavy products to homes. Tractor Supply continues to see e-commence growth (up a mid-single-digit clip in 2022). We suspect e-commerce makes up a high-single-digit percentage of Tractor Supply’s sales, well ahead of the farm and ranch retail average of about 1%. We believe this protects Tractor Supply’s competitive position and prevents customer attrition as customers can buy what they want how they want.

Impeccable customer service also supports Tractor Supply’s brand, in our opinion. Associates advise consumers on animal and property care given their knowledge of Tractor Supply’s specialized product assortment. Stellar customer service stems from internal cultural initiatives over time. Recent endeavors, such as Project Fusion and ONETractor (omnichannel) should support customer satisfaction. Project Fusion provides consumers with improved store layouts, displays, and finishes while expanding product selections. In stores where this rollout has been adopted with an added garden center, the location has generated an average high-single-digit comparable sales increase, compared with the companywide increase of 6.3% in 2022. ONETractor provides a more seamless customer experience through digital stockyard kiosks and enhanced CRM (customer relationship management). As such, Tractor Supply has been able to capture purchase driver metrics ahead of the industry benchmarks in team member friendliness, speed and ease of checkout, and team member knowledge with scores of 63%, 60%, and 50%, respectively. For reference, industry averages fall at 55%, 50%, and 43%. These efforts highlight Tractor Supply’s willingness to cater to evolving consumer shopping preferences to protect its market share leadership.

Brand gains also stem from the enhanced private-label credit card, the addition of mixing centers (to improve in-stock levels of inventory), and a robust loyalty program. Credit card data offers visibility into localized purchasing patterns of different demographics, allowing for optimal merchandising, which benefits Tractor Supply. But the firm’s private-label credit card also offers an attractive 5% discount on purchases, well above that offered at competitors Fleet Farm and Blain’s Farm & Fleet. And the Neighbor’s Club loyalty program, which now boasts over 30 million members, offers insight into the behavior of Tractor Supply’s best customers to ensure appropriate product availability. Seventy percent of total sales stem from loyalty members, which spend 3 times more than non-members and exhibit a topnotch 97% retention rate.

We believe that Tractor Supply’s investments across initiatives help maintain its top position in the outdoor lifestyle market and stay relevant to its consumer base. Likewise, wide-moat Home Depot nearly doubled its business-as-usual capital expenditure from 2018-20 to deliver similar improvements (in store formats and associates, products, and supply chain) to its respective proficiencies, indicating the need for market leaders to invest to remain competitive.

In considering the competitive landscape, we think Tractor Supply is protected from brand erosion from new entrants for a few reasons. To start, we surmise the capital investment required to enter the playing field makes the endeavor unattractive. For a competitor to open 1,000 boxes, we estimate the firm would require at least $130 million in capital to finance pre-opening costs just related to payroll and rent. But we note even with Tractor Supply’s success over the last decade, there have been no competitors that have been attracted to the space or have grown to become an increasing threat—in fact, the nearest similar peer, Menard’s, still has only around 350 locations and remains regionally based in the Midwest.

In addition, even if a peer could scale locations, we suspect the entrant would have to pay a premium to steal or attract and train talent to at least reach the benchmark in customer service, particularly when labor is constrained. On top of that, a national competitor would have to either find existing, or build new, strategically located distribution facilities to keep pace with fast-turning C.U.E. inventory and a wide geographic footprint. Aside from additional costs related to distribution, potentially limited real estate availability and an industry incumbent often could limit an entrants’ ability to scale adequately. Here, an outsider could struggle to secure the vendor relationships necessary to support the scale of the business quickly, given the relative uncertainty tied to forging contracts with unproven, incoming players. Altogether, we believe the lack of a differentiated product assortment, wide footprint, and superior customer service levels will remain challenging factors for competitors to overcome.

Wide

Economic Moat

Tractor Supply

Tractor Supply Co. engages in the retail sale of farm and ranch products. It operates retail farm & ranch stores and focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. The firm operates the retail stores under the names: Tractor Supply Company, Del's Feed & Farm Supply, and Petsense. Its product categories include equine, livestock, pet, and small animal, hardware, truck, towing, and tool, heating, lawn and garden items, power equipment, gifts, and toys, recreational clothing and footwear, and maintenance products for agricultural and rural use. The company was founded by Charles E. Schmidt, Sr. in 1938 and is headquartered in Brentwood, TN.

Earnings data Q2 2023

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Tractor Supply Co. engages in the retail sale of farm and ranch products. It operates retail farm & ranch stores and focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. The firm operates the retail stores under the names: Tractor Supply Company, Orscheln Farm & Home, and Petsense. Its product categories include equine, livestock, pet, and small animal, hardware, truck, towing, and tool, heating, lawn and garden items, power equipment, gifts, and toys, recreational clothing and footwear, and maintenance products for agricultural and rural use. The company was founded by Charles E. Schmidt, Sr. in 1938 and is headquartered in Brentwood, TN.

Cigna

Domino's Pizza

Intuit

Mastercard

Microchip Technology

MarketAxess Holdings

MSCI

Charles Schwab

Sirius XM Hlds

SS&C Technologies Hlds

Skyworks Solutions

W. R. Berkley

Zoetis

I present my top 15 high-growth dividend stocks to consider during the month of June. The watchlist underperformed VIG in May, but continues to outpace the ETF year-to-date and since inception. Five new stocks have been added to the watchlist for June: Intuit, Mastercard, Microchip Technology Inc., Sirius XM Holdings, and Skyworks Solutions.

My Top 15 High Growth Dividend Stocks For June 2023

Lowe's

Tractor Supply has a brighter growth outlook. Income investors might prefer Lowe's stock.

Better Buy: Tractor Supply vs. Lowe's Stock

This retail stock has delivered market-beating returns to investors. Sales are still growing but have weakened under rising inflation.

Tractor Supply Stock: Buy, Sell, or Hold?

Tractor Supply stock has dipped more than 11% in the past month, potentially offering a new opportunity for investors. Despite concerns about tightening consumer spending, Tractor Supply's Q1 report showed net sales increasing 9.1% to $3.3 billion and comparable store sales increasing 2.1%. I believe Tractor Supply's customer base and product offerings make it less susceptible to recessionary dynamics, as demonstrated by its growth during the Great Recession.

Buying Tractor Supply While Mr. Market Thinks It's A Discretionary Business

Apple

DraftKings

DexCom

Fortinet

Li Auto Inc.

NVIDIA

Spotify

Want to ride the hot hand of the market? Consider these nine momentum stocks that are climbing the charts this year.

9 Momentum Stocks to Buy Now

Tractor Supply (TSCO) is well-poised on the back of online strength, solid demand and other growth efforts despite inflation and cost woes.

Here's Why it is Apt to Hold Tractor Supply (TSCO) for Now

AutoZone

BJ`s Wholesale Club Holdings Inc

Burlington Stores

Costco

Floor & Decor Holdings

Grocery Outlet

Ross Stores

Sprouts Farmers Markets

Target

Tapestry

Urban Outfitters

Every earnings season there are retail horror stories but also some companies that stand out in a competitive environment. Below is a list of 13 U.S. retailers that have put up good quarterly numbers.

13 retailers posted a good earnings season based on two key measures. Are their stocks worth a look?

Expedia

Tractor Supply continues to open new stores as it fills a unique niche in retail. Expedia is riding the recovery in the travel industry, and the stock looks cheap.

Nasdaq Bear Market: 2 Stocks You'll Wish You Had in Your Portfolio

Arhaus

Dick's Sporting Goods

Five Below

While challenges prevail in the Retail - Miscellaneous industry, players such as Tractor Supply (TSCO), DICK'S Sporting Goods (DKS), Five Below (FIVE) and Arhaus (ARHS) look well poised on their business operating model and prospects.

4 Retail-Miscellaneous Stocks With Potential to Beat Industry Blues

Brookfield Infrastructure Partners L.P.

Prologis

Tractor Supply, Prologis, and Brookfield Infrastructure are in very different businesses. But they share key attributes, including outperforming the market and growing their dividend.

Got $1,500? You Can Confidently Add These 3 Stocks to Your Portfolio

BRENTWOOD, Tenn.--(BUSINESS WIRE)--Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, announced its participation in the following upcoming investor conferences: 2023 Baird Global Consumer, Technology and Services Conference Date: June 6, 2023 Time: 9:05-9:35 a.m. Eastern Time Oppenheimer 23rd Annual Consumer Growth and E-Commerce Conference Date: June 14, 2023 Time: 9:45-10:20 a.m. Eastern Time Both presentations will be webcast live at IR.Tractor.

Tractor Supply to Present at Upcoming Conferences

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- #4H--Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, announced today the recipients of the company's inaugural “Emerging Artists Program” in partnership with country music artists Lainey Wilson, Ashley McBryde, Dustin Lynch, Lauren Alaina, and Kat & Alex, along with Opry Entertainment Group. The program was created to discover and support emerging country artists who live and love what Tractor Supply calls “Life.

Tractor Supply Company Announces Recipients of Inaugural Emerging Artists Program Led by Country Stars Lainey Wilson, Ashley McBryde, Dustin Lynch, Lauren Alaina, and Kat & Alex, Along With Opry Entertainment Group

Tractor Supply's profit margins are stable. Sales trends slowed in Q1 but are likely to be strong for the wider year.

A Bull Market Is Coming: 3 Reasons to Buy Tractor Supply Stock

Tractor Supply Company is a strong investment option for potential investors seeking stability and long-term growth, serving the unique needs of recreational farmers, ranchers, and rural homeowners. TSCO's impressive dividend growth, healthy financials, and share buybacks make it an appealing choice, despite current valuations not being highly attractive.

Tractor Supply Company: A Dividend Powerhouse

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- #4H--Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, in partnership with National 4-H Council, today announced its Paper Clover fundraising campaign has raised a cumulative $20 million for the nation's youth. Tractor Supply reached the milestone during its spring Paper Clover event, which generated over $1 million dollars for 4-H programs across the country. “The success of this fundraising effort is a testament to.

Tractor Supply's Paper Clover Campaign Reaches $20 Million Donation Milestone for 4-H

Tractor Supply's net sales surged higher during the first quarter. The company's payout could see massive growth in the future.

1 Amazing Stock That Dividend Growth Investors Should Consider Buying

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- #4H--Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, today announced that its Board of Directors declared a quarterly cash dividend of $1.03 per share of the Company's common stock. The dividend will be paid on June 13, 2023 to stockholders of record of the Company's common stock as of the close of business on May 30, 2023. About Tractor Supply Company For 85 years, Tractor Supply Company (NASDAQ: TSCO) has been pas.

Tractor Supply Company Declares Quarterly Dividend

Outdoor living is a specialty niche in the massive retail industry. Tractor Supply has grown and shared profits with investors.

This Stock Has Returned 68,830%: Here Is Why There's More in the Tank

Sales trends slowed in Q1, but mainly due to the weather. There are good reasons to expect solid returns from this stock.

Where Will Tractor Supply Stock Be in 1 Year?

Tractor Supply serves an attractive demographic and is dominating the rural retail market. BJ's Wholesale is following a similar growth path as Costco, but trades at a much cheaper valuation.

2 Unstoppable Retail Stocks for the Next Decade

Ulta Beauty

Tractor Supply is targeting another year of solid growth in 2023. Ulta Beauty is increasing sales and profits even as it opens more stores.

2 Top Growth Stocks to Buy in May

Investors with an interest in Retail - Miscellaneous stocks have likely encountered both Dick's Sporting Goods (DKS) and Tractor Supply (TSCO). But which of these two stocks is more attractive to value investors?

DKS or TSCO: Which Is the Better Value Stock Right Now?

Monolithic Power Systems

Sherwin-Williams

Visa

I present my top 15 high-growth dividend stocks to consider during the month of May. The watchlist posted a gain of 0.41% in April, trailing both VIG and SPY.

My Top 15 High-Growth Dividend Stocks For May 2023

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- #4H--Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, in partnership with reigning ACM Entertainer of the Year and passionate animal advocate Miranda Lambert's MuttNation Foundation, announced today the first grants funded by customer donations to the Relief for Rescues Fund have been dispersed to support shelters and impacted animals of recent natural disasters. Since its inception in March, the fund has generated o.

Tractor Supply and MuttNation Foundation Deploy First Funding From Relief for Rescues Fund

Abbott Labs

Accenture Plc

AGCO

Arthur J. Gallagher & Co.

Clorox

ConocoPhillips

Carlisle Companies

Coterra Energy

D.R. Horton

EOG Resources

Expeditors International of Washington

Marsh & McLennan

Owens Corning

SAP SE

Steel Dynamics

Stryker

We explain why selling cash-covered puts and covered calls are relatively safe choices for earning a high income. We will discuss how to formulate an options income strategy that's sustainable and repeatable.

Earn Double-Digit Income With Options (May 2023)

News for Tractor Supply Stock (TSCO)