Dive Brief:
- New stores and comparable sales helped drive Tractor Supply Co.’s first-quarter net sales to $3.39 billion, up 3% from $3.3 billion a year ago, the retailer said in a Thursday earnings announcement. Comps grew 1% versus 2% year over year led by transaction growth.
- Gross profit rose 4.4% to $1.22 billion from $1.17 billion a year ago. Operating income rose 7.6% to $263.1 million from $244.4 million, while net income rose 8.2% to $198.2 million from $183 million for Q1.
- Tractor Supply is maintaining its full-year financial guidance. The company anticipates net sales will range from $14.7 billion to $15.1 billion, with comp sales down 1% to up 1.5% and net income ranging from $1.06 billion to $1.13 billion. This year, Tractor Supply still plans to open 80 new stores, 10 to 15 new Petsense stores and continue a company-wide initiative to remodel existing stores.
Dive Insight:
According to CEO Hal Lawton, Tractor Supply saw several positive signs in the first quarter. They include ongoing market share gains, transaction growth and strength in big-ticket sales.
Additionally, Lawton said during a Thursday earnings call that the company does not see additional downward deflationary pressures in the current environment and that the transition from an inflationary cycle to a disinflationary environment is playing out as anticipated.
“In our view, the U.S. economy is strong, unemployment continues at a low level, wages are growing at a steady clip,” Lawton said on a call with analysts. “In spite of sticky inflation, consumer spending remains strong and mobility has slowed as a consequence of a challenging housing market. But that said, we continue to see outsize population growth in rural markets.”
However, a continued shift in consumer spending from goods to services continues to be a headwind, Lawton said. “In the first few months of the calendar year, consumer spending growth was nearly 7% whereas consumer spending on goods growth was less than 1%,” Lawton said. “As a result, the mix of goods as a share of [personal consumption expenditures] are now only 100 basis points above their pre-COVID average. This progressive shift is in line with our expectations.”
Analysts with Telsey Advisory Group, led by Joe Feldman, said in a note published ahead of the earnings call they are confident in Tractor Supply’s long-term outlook based on its high mix of essentials, which comprise over 50% of sales, the company’s solid execution and a slate of growth initiatives.
In addition to growing physical store footprint, the initiatives include an increased focus on pets with Petsense locations, expanding omnichannel capabilities, loyalty program growth and supply chain improvement. Last month, Tractor Supply revamped its loyalty program, lowering the reward threshold.
The company opened 17 new Tractor Supply stores and four new Petsense stores in the first quarter. Overall, Tractor Supply said it had 2,233 namesake stores in 49 states as of March 30. It plans to open its 10th distribution center this year; the company opened its largest distribution center in Ohio last year.
However, while the retailer’s consumable, usable and edible categories will likely continue to outperform, Wedbush analysts led by Seth Basham said in a pre-call note that share gains in key categories like pet, which represents about 25% of sales, are slowing despite expanding SKUs. Tractor Supply’s sales and growth initiatives remain comp drivers but their return on invested capital “remains questionable,” Basham said.
“Meanwhile, discretionary demand remains depressed and prospects for improvement may be pushed out with interest rates backing up,” Basham said. “Contributions from inflation remain muted but could tick higher in [the second half] with oil futures increasing 17% YTD.”
