Tractor Supply Company Reaps What It Sows

Slowing Growth Caps Gains In Tractor Supply Company

Tractor Supply Company (NASDAQ: TSCO) is one of our favorite stories from the pandemic but it seems that, at long last, those tailwinds have ceased to blow. The company is still growing and is still forecasting growth but it has slowed from the high double-digits of last year to the low single-digits of this year. This fact may cap gains moving forward and keep the stock rangebound over the next quarter or so but there is an opportunity brewing as well. The company’s growth has been hindered by materials availability hindering new store openings, a situation that should be corrected over the next quarter or so. In that scenario, growth may reaccelerate later in the year and drive the stock up to a new high. 

Tractor Supply Company Delivers Bumper Crop Of Earnings 

Tractor Supply had a great quarter in which growth came in above the analyst consensus. The company reported $3.02 billion in net revenue for a gain of 8.2% over last year. The gain is driven by organic growth as well as new stores with comps up 5.2% over last year. The comp gain is on top of last year’s 38.6% increase and total revenue beat the Marketbeat.com consensus by 330 basis points. Internally, sales were driven by a 6.7% increase in ticket average offset by a 1.4% decline in ticket counts. Execs say sales were underpinned by a wide range of product categories including everyday items, consumables, and seasonal needs. eCommerce, a pillar of the Life Out Here strategy, grew by double digits for the 39th consecutive quarter. 

Moving down the report, the company experienced some margin compression but pricing efforts and internal efficiencies offset most of the decline. The gross margin shrank by 29 basis points to drive gross profit growth of 7.4%. The SG&A expense increased but fell 11 basis points to leave operating income at +6.0%. On the bottom line, the company reported $0.65 in GAAP EPS for a gain of 6.5% and all figures were better than expected. The GAAP EPS is $0.23 better than the consensus and up a dime from last year. 

Turning to the guidance, the company reiterated its previous guidance for revenue growth of 3% to 4.5% but we see upside risk in the numbers. Not only are home improvement and lifestyle trends still strong but the company says it is still on track to open 75 to 80 new stores. In our view, the company will come in above the high end of its range and top the current consensus estimate by a few hundred basis points by the end of the year. 

The Analysts Like "Life Out Here" 

At least 3 of the 19 analysts covering Tractor Supply Company have come out with commentary since the earnings report was released. All three maintained a Strong Buy/Overweight rating and raised their price target to a consensus of $255. The $255 target is about 18% above the current price action and compares well to the broader Marketbeat.com consensus of $237. The Marketbeat.com consensus has been trending higher and we see that trend continuing. 

The Technical Outlook: Tractor Supply Company Moves Lower Within Range 

Price action in Tractor Supply Company is range bound between $190 and $240 and looks like it will retest the low end before it retests the high end. The price action is moving lower in the wake of the earnings report and confirming resistance at the $217 level. The indicators are consistent with a move lower as well, but suggest this move is weak and already nearing oversold conditions. Assuming the market uses this dip as a buying opportunity, we see a chance for the stock to hit the $190 level but would view it, or a bounce from a higher level, as an attractive entry point for the stock.