Here’s why Tractor Supply (TSCO) is getting ahead of the industry
Tractor Supply Company TSCO witnessed a strong run on the stock exchanges, driven by robust e-commerce activity, strong demand, and strategic growth efforts. Zacks Rank #2 (Buy) has gained 4.9% over the past year against industry and Retail-Wholesale declines of 28.5% and 28.2%, respectively.
Additionally, an upward trend in the Zacks consensus estimate echoes the same sentiment. Zacks’ consensus estimate for Tractor Supply’s 2022 sales and EPS suggests growth of 8.8% and 10.2%, respectively, over reported numbers from the prior year. Earnings estimates for the current fiscal year have risen 1.8% to $9.49 in the past 30 days.
Let’s go deeper
Tractor Supply gained strength thanks to the Life Out Here strategy and healthy demand for its product categories. Strong demand for everyday merchandise, including consumable, usable and edible products, as well as robust winter seasonal categories, bodes well. Driven by that, it released impressive Q1 2022 results, in which both top and bottom results improved year-over-year and topped Zacks’ consensus estimate. It was the ninth consecutive quarter of earnings surprises and the eighth straight beat in sales.
Image source: Zacks Investment Research
Given changing consumer trends, the company remains focused on integrating its physical and digital operations to provide consumers with a seamless shopping experience. It is on the right track with the “ONETractor” strategy to connect stores and online shopping. The company’s omnichannel investments include curbside pickup, same-day and next-day delivery, a relaunched website, and the new mobile app.
It recorded solid double-digit growth in e-commerce sales, achieving the 39th consecutive quarter of increases. Its mobile application has more than 3 million downloads and represents more than 15% of online sales. The company’s Neighbour’s Club loyalty program remains strong, with a 24% year-over-year increase in membership. Tractor Supply ended the first quarter with 24.8 million Neighbor’s Club members. Management is expected to reach over $2 billion in sales by 2026.
The company is making good progress with its Life Out Here strategy, which is built on five key pillars: Customers, Digitization, Execution, Team Members and Total Shareholder Return. Previously, the company launched the Field Operations Support Team (“FAST”) and implemented various technology and service enhancements across the enterprise.
Tractor Supply is also on track with the Project Fusion renovations and Side Lot transformation to stay nationally strong and locally relevant by bringing the latest merchandising strategies to life. Management plans to turn secondary lots into 100 locations in 2022. These are significant store investments and should drive productivity in existing and new stores.
As part of these efforts, management has revised long-term financial growth objectives for 2022-2026. It envisions achieving net sales growth of 6-7% for the aforementioned period, while comps are expected to grow 4-5%. The operating margin is expected to be 10.1-10.6%, up from the previously mentioned 9-9.5%. Earnings per share are expected to rise 8-11% from the previously reported 8-10%.
Tractor Supply also remains on track with its store opening initiatives to drive traffic and increase revenue. It plans to open 75-80 Tractor Supply stores and 10 Petsense stores in 2022.
Consequently, management expects net sales of $13.6 billion to $13.8 billion for 2022. Compensation is expected to increase by 3 to 4.5 percent. The operating margin should be 10.1 to 10.3%. Net income is expected to be $1.04 billion to $1.08 billion. Earnings per share should be $9.20 to $9.50. The view does not include the impacts of the acquisition of Orscheln Farm as it is currently subject to customary closing conditions. Forecasts for 2022 include an additional week or 53rd week, which is expected to contribute 1.5 percentage points and 15 cents to sales and earnings, respectively.
Despite product cost inflation, higher transportation costs and supply chain constraints, we believe that online strength, solid demand and well-organized efforts are likely to help the stock maintain his stellar show. Moreover, a long-term earnings growth rate of 9.8% reflects its inherent strength.
Other actions to consider
Here are three other top-ranked stocks to consider – Ross Stores ROST, Bookmark Jewelers GIS and Target company TGT.
Ross Stores operates as a discount retailer of clothing and home accessories primarily in the United States. It currently has a Zacks rank of No. 2. ROST has a trailing four-quarter earnings surprise of 33.3% on average. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ consensus estimate for Ross Stores current-year sales and EPS suggests growth of 5% and 3.9%, respectively, over reported figures for the prior-year period.
Signet Jewelers, the retailer of diamond jewelry, watches and other goods, currently has a No. 2 Zacks rank. SIG has a trailing four-quarter earnings surprise of 73.8% on average.
Although Zacks’ consensus estimate for Signet Jewelers’ current fiscal year sales suggests 5.2% growth, its EPS reflects an 8.2% decline, respectively, from the company’s reported numbers. period of the previous year.
Target Corporation, which provides a range of products from household essentials and electronics to toys and apparel for men, women, and children, currently carries a Zacks No. 2 rank. TGT has a four-quarter earnings surprise of 21, 3% on average.
Zacks’ consensus estimate for Target Corporation’s current-year sales and EPS suggests growth of 3.7% and 7.3%, respectively, from numbers reported a year ago.
Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report