Tractor Supply Inventory (TSCO) Up on Q4 Profit and Outperform – Jan 27, 2022

shares Tractor Supply Company (TSCO Free report) over 5% ahead of the January 27 trading session, following impressive last-quarter results of 2021. Both the top and bottom lines have improved year on year and surpassed Zacks consensus estimate. Results gained from strength in Life Out Here strategy and customer health trends. For the seventh consecutive quarter, the company achieved a 10% increase in comparable store sales. Encouragingly, the administration has issued an optimistic view of 2022.

Tractor Supply earnings of $1.93 per share improved 17.7% year over year, topping Zacks’ consensus estimate of $1.84.

Net sales jumped 15.3% year over year to $3,319 million and beat Zacks Consensus’ estimate of $3,241 million. The improvement was driven by a 12.7% increase in businesses, led by a 10.3% growth in average comparable tickets and a 2.4% increase in average comparable transactions.

Strong demand for everyday merchandise, including consumer and edible products, as well as strong summer seasonal categories, also contributed to the companies’ growth. The company has seen corporate growth across all major geographies and trade categories. Tractor Supply Inc. saw strong double-digit sales growth in the e-commerce space, posting an increase for the 38th consecutive quarter.

Shares of No. 3 (Hold) Zacks are up 40% in the past year versus an industry drop of 24.4%.

Image source: Zacks Investment Research

Margins and costs

Gross profit increased 12.6% year-over-year to $1,120.6 million, while gross profit margin contracted 83 basis points to 33.8%. Pricing efforts and other initiatives to drive margins are partly offset by cost inflation, high transportation costs and an unfavorable product mix.

Selling, general and administrative expenses, including depreciation and amortization, as a percentage of sales, increased 325 basis points to 24.9%. In dollar terms, general commission expense and adjusted securities, including depreciation and amortization, were up 12.3% year over year. The scale helped increase occupancy and other fixed expenses, lower the costs of responding to the COVID-19 pandemic, and reduce incentive compensation. This has been offset to some extent by higher wage rates, overtime in stores, and investments in strategic efforts.

Adjusted operating income advanced 13.4% year over year, while operating income jumped 58.9% to $293.1 million in the fourth quarter. Operating margin expanded 242 basis points to 8.8%.

Financial Center

Tractor Supply closed the fourth quarter with cash and cash equivalents of $878 million, long-term debt of $986.4 million, and total equity of $2,002.7 million. It also does not have any amount drawn from its $500 million revolving credit facility as of December 25, 2021.

In 2021, the company incurred a capital expenditure of $628.4 million and generated cash flows from operating activities of $1,138.7 million.

Tractor Supply returned $260.1 million to its shareholders in the fourth quarter, including $200.9 million in repurchases of 0.9 million shares and $59.2 million in quarterly cash dividends. Notably, the company raised its quarterly dividend by 77% to 92 cents, marking its thirteenth consecutive quarter of profit increase. Dividends will be paid on March 22, 2022 from the shareholder register effective February 21.

Going forward, management anticipates share buybacks of between $700 million and $800 million in 2022. The company also expanded its existing stock buyback program by $2 billion, bringing the total share repurchase authorizations to date to $6.5 billion.

For 2022, Tractor Supply expects to incur capital expenditures of between $625 and $675 million.

Store update

In the quarter under review, the company opened 36 tractor supply stores and one BitSense store. As of December 25, 2021, it operated 2,003 tractor-supply stores across 49 states and 178 Bitsense stores in 23 states.

Management remains on the right track with store opening initiatives. It plans to open 75-80 tractor supply stores and 10 Bitsense stores in 2022. TSCO also plans to remodel 150 stores and convert sidecars at 100 locations. The company revealed plans to open its ninth distribution center this fall.

2022 forecast

Driven by strong quarterly results, management has provided optimistic guidance for 2022. The company now expects net sales of between $13.6 and $13.8 billion. Companies are likely to grow 3-4.5%. Operating margin is expected to be 10.1-10.3%. Net income is expected to range between $1.04 and $1.08 billion. Earnings per share are likely to be $9.20 – $9.50. The offer does not include the effects of the acquisition of Orscheln Farm as it is currently subject to usual closing conditions.

Business Developments

The company has made good progress on its Life Out Here strategy and other initiatives – including store productivity growth through Project Fusion and the Side Lot transformation program, an improved in-store experience, better customer engagement and improved supply chain operations. As part of these plans, it has revised its long-term financial growth targets for the period 2022-2026.

Management still expects net sales growth of 6-7%, while businesses are expected to grow 4-5%. Operating margin is now expected to be 10.1-10.6%, up from the previously mentioned 9-9.5%. Earnings per share are likely to grow 8-11%, up from 8-10% previously announced.

stock to consider

We’ve highlighted three top-rated companies in the retail-wholesale sector, namely Ulta Beauty (Ulta free report), Capri Holdings (CPRI free report) and Costco Wholesale Company (cost free report).

Ulta Beauty, the leading cosmetics retailer, currently boasts a Zacks rating of #1 (a strong buy). ULTA posted a surprise fourth-quarter profit of 76% on average. ULTA shares are up 21.6% in the past year. you can see The full list of Zacks #1 stocks today is here.

Zacks Consensus’ estimate for Ulta Beauty’s 2022 financial sales and earnings per share (EPS) indicates 6.9% and 5% growth, respectively, from last year’s levels. ULTA has an expected EPS growth rate of 16.5% for three to five years.

Capri Holdings, which operates membership warehouses, currently holds a Zacks #2 (purchase) rating. The company posted a surprise fourth-quarter profit of 1024.9% on average. CPRI shares are up 28.4% in the past year.

Zacks’ consensus estimate of Capri Holdings’ sales and earnings per share for the current fiscal year both indicate growth of 33.2% and 181.1% each compared to figures for the same period last year. CPRI has a projected EPS growth rate of 35.5% for three to five years.

Costco Wholesale currently has a Zacks No. 2 rating. The company posted a surprise fourth-quarter profit of 8.3% on average. COST shares are up 36.4% in the past year.

A Zacks consensus estimate of Costco Wholesale and EPS sales for the current fiscal year indicates both growth of 10.8% and 13.9% compared to numbers for the same period last year. COST has a projected EPS growth rate of 8.8% for three to five years.

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