Tractor Supply Co. (TSCO), a leading retail farm and ranch store brand, recorded another quarter of good growth. Earnings per share in the third quarter of fiscal 2010 came in at 43 cents a share, which outdid the Zacks Consensus Estimate of 37 cents a share as well as the prior-year quarter earnings of 30 cents. Results improved on the heels of good inventory and markdown management.
Strong performance in consumable, usable and edible categories − for instance, pet food and animal feed − acted as a catalyst for a 5.0% increase in same-store sales compared with a decrease of 5.1% in the prior-year quarter. Tractor Supply has been witnessing increasing trends in same-store sales. After waning 5.1% in the third quarter of 2009, it grew 0.7%, 2.8% and 6.1% in three consecutive quarters, respectively.
Tractor Supply had suffered setbacks during the recession as buyers avoided big-ticket purchases such as mowers, but results have improved in recent quarters. The company’s impressive merchandising improvement strategy and solid same-store sales trend resulted in double-digit top-line growth for the company. Net sales in the quarter surged 10.9% to $829.1 million from $747.7 million in the prior-year quarter. Total revenue surpassed the Zacks Consensus Estimate of $823.0 million.
Aided by an inflated margin of direct products and a cut in last-in-first-out (LIFO) charges, partially offset by higher transportation cost, gross profit surged 13.5% to $279.1 million compared with $246.0 million in the prior-year quarter.
Better expense management and double-digit top-line growth resulted in 60 basis points of improvement in selling and administration expenses, as a percentage of sales, which came in at 27.5% versus 28.1% in the prior-year quarter. Tractor Supply earned $32.0 million in the quarter, far exceeding the prior-year quarter net income of $22.0 million.
Financial Position
Tractor Supply’s balance sheet had cash and cash equivalents of $170.9 million at the end of the quarter, compared with $94.9 million in the year-ago period. Stockholders’ equity came in at $846.3 million compared with $693.5 million in the prior-year quarter. The company generated $94.5 million in cash from operations.
Store Update
In the quarter under review, Tractor Supply opened 9 new stores. The company currently runs 976 stores in 44 states.
Guidance and Zacks Consensus
Tractor is well positioned to capitalize on positive long-term trends. The company now expects sales for fiscal 2010 to range between $3.53 billion and $3.55 billion, compared with the previous estimate of $3.49 billion to $3.53 billion. Same-store sales are now expected to improve 4.0% to 4.5% compared with the previous guidance of 2.5% to 3.5%.
On the back of perked-up results and brighter sales trends, Tractor Supply expects earnings in 2010 to range between $2.09 and $2.13 per share.
The Zacks Consensus Estimate for 2010 is currently pegged at $2.11 per share, which jumped 5 cents over the last 30 days. For the next quarter and fiscal 2011, the Zacks Consensus Estimates stand at 55 cents and $2.36, respectively.
Tractor Supply’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Our long-term recommendation for the stock remains Outperform.
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