Dive Brief:
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Tractor Supply on Thursday said it has a definitive agreement to acquire online pet pharmacy Allivet for an unspecified amount. The all-cash deal will expand the retailer's total addressable market by $15 billion and is expected to close in the first quarter.
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The announcement was made as the farm and garden supply retailer released its Q3 results. Net sales rose 1.6% year over year to $3.5 billion, with comps down slightly.
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Gross margin expanded by 56 basis points to 37.2%, and net income dropped 5.3% to $241.5 million, per a company press release.
Dive Insight:
Like its ongoing expansion and renovation of stores, Tractor Supply’s takeover of Allivet, a longtime partner, is meant to stoke growth. The move broadens the retailer’s appeal to pet owners, which already account for about three-quarters of its 37 million loyalty members. It also takes further advantage of higher rates of pet ownership since the pandemic, according to Telsey Advisory Group analysts led by Joseph Feldman.
Those analysts expect Tractor Supply to continue to make gains, helped by what they see as a “rural revitalization” also driven by the pandemic.
“We expect Tractor Supply to continue to gain market share and dominate in rural America,” they said.
The company said it opened 16 new Tractor Supply stores in the third quarter, and that as of Sept. 28, was operating 2,270 Tractor Supply stores in 49 states and 205 Petsense by Tractor Supply stores in 23 states. Almost half of its fleet has undergone its “Project Fusion” renovation and the company now runs more than 550 garden centers, per its release.
Early Q4 sales benefited from emergency response needs precipitated by two major hurricanes during the period, CEO Hal Lawton told analysts. Otherwise the company expects that consumers will “remain prudent with their spending as is typical in an election year.”
Historically, though, presidential elections haven’t made much difference to retail sales, according to Meghann Martindale, who leads retail market intelligence for commercial real estate services firm Avison Young.
Executives provided no update on whether the controversy over their decision to drop the company’s diversity and climate goals has affected sales. Some observers have cautioned that Tractor Supply’s expansion is dependent on connecting with consumers who value diversity and sustainability. Previously, Lawton said the company “certainly heard a range of feedback” on its decision but that it had “no evidence that it had a measurable impact on our business.”
