Tractor Supply (NASDAQ:TSCO) Posts Q3 Sales In Line With Estimates

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Rural goods retailer Tractor Supply (NASDAQ:TSCO) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 1.6% year on year to $3.47 billion. The company’s outlook for the full year was also close to analysts’ estimates with revenue guided to $14.93 billion at the midpoint. Its GAAP profit of $2.24 per share wasalso in line with analysts’ consensus estimates.

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Tractor Supply (TSCO) Q3 CY2024 Highlights:

• Revenue: $3.47 billion vs analyst estimates of $3.48 billion (in line)
• EPS (GAAP): $2.24 vs analyst expectations of $2.23 (in line)
• Company slightly raised full year revenue and EPS guidance
• EBITDA: $438.1 million vs analyst estimates of $436 million (small beat)
• Gross Margin (GAAP): 37.2%, in line with the same quarter last year
• Operating Margin: 9.4%, in line with the same quarter last year
• EBITDA Margin: 12.6%, in line with the same quarter last year
• Locations: 2,475 at quarter end, up from 2,393 in the same quarter last year
• Same-Store Sales were slightly down year on year, in line with the same quarter last year (slight miss vs expectations of small increase)
• Market Capitalization: $31.51 billion

“We delivered on our expectations for the third quarter amid a tepid retail sales environment while advancing our Life Out Here strategy. The fundamentals of our business remain strong with ongoing market share gains. With nearly 50% of our stores in Project Fusion layout and more than 550 garden centers, we continue to invest in our stores, supply chain and capabilities that build customer loyalty and elevate the standard for our sector. My thanks and appreciation go out to the entire Tractor Supply team for their engagement and commitment to serving Life Out Here, especially during this challenging hurricane season,” said Hal Lawton, President and Chief Executive Officer of Tractor Supply.

Company OverviewStarted as a mail-order tractor parts business, Tractor Supply (NASDAQ:TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.

Specialty Retail

Some retailers try to sell everything under the sun, while others—appropriately called Specialty Retailers—focus on selling a narrow category and aiming to be exceptional at it. Whether it’s eyeglasses, sporting goods, or beauty and cosmetics, these stores win with depth of product in their category as well as in-store expertise and guidance for shoppers who need it. E-commerce competition exists and waning retail foot traffic impacts these retailers, but the magnitude of the headwinds depends on what they sell and what extra value they provide in their stores.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

Tractor Supply is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Tractor Supply’s sales grew at a decent 12.2% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and increased sales at existing, established locations.

This quarter, Tractor Supply grew its revenue by 1.6% year on year, and its $3.47 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, a deceleration versus the last five years. Some tapering is natural given the magnitude of its revenue base, and we still think its growth trajectory is attractive.

Store Performance

Number of StoresA retailer’s store count influences how much it can sell and how quickly revenue can grow.

Tractor Supply sported 2,475 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip and averaged 5.7% annual growth, among the fastest in the consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store SalesThe change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales. Same-store sales provides a deeper understanding of this issue because it measures organic growth for shops open for at least a year.

Tractor Supply’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.1% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its store base.

In the latest quarter, Tractor Supply’s year on year same-store sales were flat. This performance was more or less in line with the same quarter last year.

Key Takeaways from Tractor Supply’s Q3 Results

Revenue and EPS were in line with expectations despite a slight same-store sales miss. The company slightly raised its outlook for full year revenue and EPS, which is encouraging. Overall, this was a decent quarter with no major surprises. The stock remained flat at $292.09 immediately following the results.