Tractor Supply Company (TSCO) reported third-quarter 2014 earnings per share of 55 cents, 19.6% higher than the prior-year quarter and ahead of the Zacks Consensus Estimate of 51 cents. Results benefited mainly from improvement in both traffic and ticket that led to strong increase in sales, operating margin and earnings.
Revenue
Tractor Supply reported third-quarter sales of $1,360.0 million, marking a 12.6% rise from $1,208.1 million in the prior-year quarter and beating the Zacks Consensus Estimate of $1,322 million. Comparable-store sales (Comps) improved 5.6%, against a 7.5% increase registered in the third quarter of fiscal 2013, on the back of increased traffic and ticket. Comps also gained from sustained strength in consumable, usable and edible (C.U.E.) and seasonal products coupled with favorable weather conditions throughout the quarter.
However, the company’s sales results were slightly impacted by deflation, mainly in livestock feed, bird feed, lubricants and fencing.
During the quarter, comparable store transaction count was up 3.3% while average ticket rose 2.2%.
Quarter in Detail
The company’s gross margin dipped 30 basis points (bps) to 34.1% as benefits from the gross margin enhancing initiatives and deflation were more than offset by rise in transportation costs and product mix. However, in dollar terms, gross profit escalated 11.6% to $464.1 million compared with $415.7 million in the prior-year quarter.
Selling, general and administrative expenses (SG&A), including depreciation and amortization, as a percentage of sales, rose 80 bps to 25.2% due to increased comps that aided lower store operating costs and incentive compensation expense.
On a stand-alone basis, SG&A expenses rose 8.6% to $312.7 million, in dollar terms, while depreciation & amortization expense came in at $29.4 million, 12.6% higher than last year.
Operating income for the quarter rose nearly 20% to $122.0 million. Operating margin expanded 50 bps to 8.9%, as against 8.4% in the prior-year period.
Financial Position
Tractor Supply ended the quarter with cash and cash equivalents of $47.5 million, compared with $46.0 million at prior-year quarter end. As of Sep 27, 2014, stockholders’ equity was $1,230.2 million, compared with $1,184.5 million as of Sep 28, 2013.
Store Update
In the third quarter of fiscal 2014, Tractor Supply opened 30 new stores compared with the addition of 23 stores in the prior-year period. So far in fiscal 2014, the company has opened 85 stores against a total of 71 opened in the first nine months of fiscal 2013. As of Sep 27 2014, Tractor Supply operated 1,361 stores in 48 states.
Guidance
Following the third-quarter results, the company adjusted its sales and earnings forecast for fiscal 2014. The company now expects sales, comps and earnings to come in the higher end of its previously stated guidance ranges of $5.62–$5.70 billion, 2.5%–4.0% and $2.54–$2.62, respectively.
The company lowered its capital spending guidance for fiscal 2014 by $30 million, which now range between $190 and $200 million compared with $220 and $230 million projected earlier. The company retained its store growth plan of opening about 102 to 106 new stores in fiscal 2014.
Other Stocks to Consider
Tractor Supply currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the related industry include Barnes & Noble Inc. (BKS), Office Depot Inc. (ODP) and Bed Bath & Beyond Inc. (BBBY). While Barnes & Noble and Office Depot carry a Zacks Rank #1 (Strong Buy), Bed Bath & Beyond has a Zacks Rank #2 (Buy).
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