Tractor Supply (TSCO) Looks Poised for 2022 on Growth Efforts

·5 min read

Tractor Supply Company TSCO looks well-placed for 2022, driven by strength in the Life Out Here Strategy and healthy customer trends. Its e-commerce business and Neighbor's Club loyalty program also bode well. These upsides are likely to continue working well for TSCO, helping it counter escalated cost and supply chain hurdles.

Factors in Tractor Supply’s Favor

Tractor Supply remains focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. The company’s omni-channel investments, including curbside pickup; same-day, next-day delivery; a re-launched website and a new mobile app, have been aiding digital sales. The company witnessed continued momentum in e-commerce with double-digit sales growth of more than 40% in third-quarter 2021. Its mobile app has over 2 million downloads and accounts for above 10% of its e-commerce sales. The company is gaining share across all its categories.

In addition, the Neighbor's Club loyalty program remains sturdy, with year-over-year sales increase of 20%. Tractor Supply exited the third quarter with over 22 million Neighbor's Club members, with the latter presently representing for roughly 70% of the sales. The number of high-value per customers of this program rose about 30% in the quarter.

It is progressing well with its Life Out Here Strategy, which is based on five key pillars, including customers, digitization, execution, team members and total shareholder return. As part of the plan, the company provided long-term financial growth targets for three to five years. Management envisions achieving net sales growth in the bracket of 6-7%, while comps are expected to grow between 4-5%. Further, operating margin is expected in the range of 9-9.5% and earnings per share are expected to grow in the bracket of 8-10%.

The company launched the Field Activity Support Team (“FAST”) and is implementing various technology and service enhancements across the enterprise. It is also on track with Project Fusion remodels and Side Lot transformation to remain nationally strong and locally relevant by bringing the latest merchandising strategies to life. Management anticipates completing nearly 150 Side Lots by the end of 2021. These have been significant investments toward stores, and are expected to boost productivity across the existing and new stores.

Tractor Supply also remains on track with its store-opening initiatives to induce traffic and drive the top line. In the third quarter, it opened 12 Tractor Supply stores and three Petsense stores. Management plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021.

Driven by these factors, shares of this Zacks Rank #3 (Hold) stock rallied 42.5% in a year’s time against the industry’s decline of 21.3%.

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However, the company has been witnessing increased wage rates and investments in the Life Out Here strategic efforts. Product cost inflation, escalated freight expenses that are inclusive of the domestic and import costs, as well as supply chain constraints, also act as deterrents.

Looking Ahead

Although cost woes and supply chain issues are concerning, we believe that strategic initiatives, solid online show and high demand are likely to craft Tractor Supply’s growth story in the days ahead.

Management, on its last earnings call, raised its view for 2021. It expects net sales of $12.6 billion, indicating an improvement from the previous view of $12.1-$12.3 billion. Comps are likely to grow 16%, up from 11-13% as guided earlier. Operating margin is now anticipated to be 10.2-10.3%, higher than 9.7-9.9% envisioned earlier. Earnings per share are now expected to be $8.40-$8.50, implying a rise from $7.70-$8.00 estimated earlier.

The Zacks Consensus Estimate for TSCO’s 2021 sales and earnings per share (EPS) suggests year-over-year growth of 19% and 23.9%, respectively. The consensus mark for 2022 earnings has moved 0.2% north over the past seven days to $8.57. Also, a long-term earnings growth rate of 10.2% and a VGM Score of B drives optimism.

Other Stocks to Consider

We have highlighted three other top-ranked companies in the Retail - Wholesale sector, namely, Ulta Beauty ULTA, Capri Holdings CPRI and Costco Wholesale Corporation COST.

Ulta Beauty, the leading beauty retailer, presently flaunts a Zacks Rank of 1 (Strong Buy). ULTA has a trailing four-quarter earnings surprise of 76%, on average. Shares of ULTA have rallied 24.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ulta Beauty’s fiscal 2022 sales and earnings per share (EPS) suggests growth of 6.9% and 5%, respectively, from the corresponding year-ago levels. ULTA has an expected EPS growth rate of 16.5% for three-five years.

Capri Holdings, which operates membership warehouses, presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 35.8% in the past year.

The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 33.2% and 181.1% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 35.5% for three to five years.

Costco Wholesale presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average. Shares of COST have rallied 40% in the past year.

The Zacks Consensus Estimate for Costco Wholesale’s sales and EPS for the current financial year suggests respective growth of 10.8% and 13.9% from the year-ago period’s reported figures. COST has an expected EPS growth rate of 8.8% for three to five years.


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