Tractor Supply Company (TSCO) reported better-than-expected earnings results for the fourth quarter as well as for fiscal 2014. The company’s earnings per share of 81 cents for the fourth quarter were 19.1% higher than the prior-year quarter and ahead of the Zacks Consensus Estimate of 76 cents.
For the full-year, earnings of $2.66 per share surged 14.7% from $2.32 per share reported in 2013 and also surpassed the Zacks Consensus Estimate of $2.61.
Results benefited mainly from strong sales driven by improved comparable-store sales (comps), increase in operating margin and lower expenses as a percentage of sales.
Revenue
Tractor Supply reported fourth-quarter sales of $1,584.3 million, marking a 12% rise from $1,415.1 million in the prior-year quarter and beating the Zacks Consensus Estimate of $1,574 million. Comps improved 5.3%, against a 3.5% increase registered in the fourth quarter of fiscal 2013, aided by increased traffic and ticket. Comps also gained from sustained strength in consumable, usable and edible (C.U.E.) and big ticket products along with strong sales of winter related goods.
During the quarter, comparable store transaction count was up 3.0% while average ticket rose 2.3%.
For the full-year, the company reported net sales of $5,711.7 million, up 10.6% from $5,164.8 million in the prior year, backed by a 3.8% increase in comps. Net sales for the year also surpassed the Zacks Consensus Estimate of $5,698 million.
Quarter in Detail
The company’s gross margin rose 10 basis points (bps) to 34% benefiting from better price management and fewer markdowns of seasonal products due to strong demand for winter goods, partly offset by increased transportation costs. In dollar terms, gross profit escalated 12.5% to $539.6 million compared with $479.7 million in the prior-year quarter.
Selling, general and administrative expenses (SG&A), including depreciation and amortization, as a percentage of sales, fell 70 bps to 22.8% due to lower store operating costs that resulted from strong comps growth and lesser incentive compensation expense.
On a stand-alone basis, SG&A expenses rose 8.5% to $331.8 million, in dollar terms, while depreciation & amortization expense came in at $30.1 million, 11.5% higher than last year.
Operating income for the quarter rose nearly 21% to $177.7 million. Operating margin expanded 80 bps to 11.2%, as against 10.4% in the prior-year period.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $51.1 million, compared with $142.7 million at prior-year quarter end. As of Dec 27, 2014, stockholders’ equity was $1,293.6 million, compared with $1,246.9 million as of Dec 28, 2013.
Store Update
In the fourth quarter of fiscal 2014, Tractor Supply opened 22 new stores and closed one store compared with the addition of 31 stores and no closures in fourth-quarter 2013. Hence, during the year, the company opened 107 new stores, while closing only one. As of Dec 27 2014, Tractor Supply operated 1,382 stores in 49 states.
Guidance
Following a remarkable end to 2014, the company provided its initial forecast for fiscal 2015. The company expects sales in the range of $6.2–$6.3 billion in 2015, with comps growth of 2.5%–4.0%. Full-year earnings are expected in the range of $2.95–$3.05 per share.
Tractor supply anticipates capital spending for fiscal 2015 in the $190–$200 million range that will support the company’s store opening plans and the construction of a new Southwest distribution center in Casa Grande, AZ, slated to open in fiscal 2015. In 2015, the company intends to open about 110–115 new stores.
Other Stocks to Consider
Tractor Supply currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Build-A-Bear Workshop Inc. (BBW), CST Brands Inc. (CST) and ULTA Salon, Cosmetics & Fragrance Inc. (ULTA). While Build-A-Bear sports a Zacks Rank #1 (Strong Buy), CST Brands and ULTA Salon carry a Zacks Rank #2 (Buy).
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