Tractor Supply Falls on Soft Q2 Prelim Results, Cuts Outlook - Analyst Blog


Yesterday evening, Tractor Supply Company ( TSCO ) released its preliminary results for the second quarter of fiscal 2014 wherein its sales remained below expectations. Further, the company sounded cautious about its margins and earnings forecast for the second quarter while it slashed its expectations for fiscal 2014.

The lower-than-anticipated sales results together with a trimmed guidance for the fiscal disappointed the Wall Street causing the company's shares to roll down 5.59% during yesterday's afterhours trading session.

Tractor Supply reported second quarter sales of $1.58 billion, marking an 8.8% rise from $1.46 billion in the prior-year quarter but below the Zacks Consensus Estimate of $1.602 billion. Comparable store sales (Comps) improved 1.9%, against a 7.2% increase registered in the second quarter of fiscal 2013, on the back of sustained strength of consumable, usable and edible products (C.U.E.) and solid traffic counts.

However, the company's sales results were impacted by weaker than anticipated sales of some seasonal merchandise especially in the Northern regions, as well as soft sales results in the safe category and also by deflation effects. Nevertheless, the company stated that sales picked up in the second half of the quarter, partly offsetting the impact of unfavorable weather in the first half.

The company is slated to release its complete second quarter results on Jul 23. Considering the soft sales trends in the second quarter coupled with higher transportation costs and increased promotional activity the company expects gross margin to be flat compared with the prior year quarter. However, gross margin should benefit slightly from the company's initiatives and deflation. The company projects SG&A expenses as a percentage of sales to increase based on the lower-than-expected comps results in the quarter.

Consequently, the company expects earnings per share in the range of 94-95 cents per share, which is below the current Zacks Consensus Estimate of $1.02 per share.

As a result of weakness in the second quarter results the company leaned toward the lower end of its previously stated guidance ranges for fiscal 2014. Previously, the company projected sales of about $5.62-$5.70 billion, comps in the 2.5%−4.0% range and earnings in the range of $2.54-$2.62 per share.

While the company continues to see strength in its core C.U.E. offerings and several seasonal categories, it believes that overall sales of spring seasonal merchandise in the second quarter were not up to the mark. The company blamed the weak results on unfavorable spring weather in the first quarter that carried into the initial part of the second quarter. However, the company recognized the efforts of its staff across the chain, who took charge of the challenging situation and helped in efficient inventory management.

With sales trends now improving, the company remains confident of its performance in the second half of the fiscal year. Tractor Supply currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks in the related industry include Barnes & Noble Inc. ( BKS ), Five Below Inc. ( FIVE ) and Marinemax Inc. ( HZO ), all carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: TSCO , BKS , HZO , FIVE

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