Improving economic trends have helped many retailers post stronger sales lately, but the best results have come from companies that find ways to grow both in their physical stores and through online sales channels.
Tractor Supply (NASDAQ: TSCO) , the rural lifestyle chain, is succeeding with those goals and healthy demand convinced the retailer to raise its 2018 outlook for the second time this year.
More on that forecast in a moment. First, here's a look at how the headline results reported this week compared with the prior-year period:
Data source: Tractor Supply financial filings.
What happened this quarter
Tractor Supply followed its seasonally strong spring selling period with a solid summer as demand stayed robust for its staple and seasonal products. Costs increased, but those drawbacks were more than offset by sales growth and falling tax expenses.
Image source: Getty Images.
Highlights of the quarter include:
- Comparable-store sales rose 5.1%, slowing from the 6.6% in last year's third quarter. With the addition of 23 new locations in the period, bringing its total above 1,700, overall revenue improved 9%.
- Customer traffic growth slowed for a second straight quarter but stayed in positive territory with a 1.4% uptick. That increase combined with a 3.6% boost in average spending per visit to make up Tractor Supply's 5.1% comp sales figure.
- Gross profit margin dipped by less than a quarter of a percentage point to 34.7% of sales. The profitability implies healthy pricing trends that were offset by rising freight and fuel costs.
- Selling expenses rose thanks to higher salaries and spending on the e-commerce sales channel. As a result, operating income landed at $153 million, or 8.1% of sales, compared with $148 million, or 8.6% of sales, a year ago.
- Lower tax expenses more than offset the drop in operating margin to lift bottom-line profitability to 6.2% of sales from 5.3%.
What management had to say
CEO Greg Sandfort and his executive team credited the strong economy for helping the business, but also noted that managers made the right retailing moves during the period.
In a press release, Sandfort said he was delighted with the Q3 results and added, "The team did a great job managing our product assortment, marketing events, and store experience as we cycled a strong comparable-store sales increase of 6.6% in the prior year's third quarter."
Management credited "the strength of our business and positive macro-economic factors" with supporting growth.
Executives lifted their outlook for the second straight quarter, and they now predict sales will land between $7.84 billion and $7.87 billion, compared with a previous target of $7.77 billion to $7.8 billion. Comps should rise by 4% to 4.5%, up from the prior target of 3% to 3.5%. Tractor Supply began the year forecasting a 2% to 3% increase, which would have kept it even with last year's 2.7% gain.
The earnings outlook is brightening, too, despite higher spending on labor and diesel. Sandfort and his team believe the retailer will generate between $4.23 and $4.27 per share in profit, up from July's forecast of between $4.10 and $4.20.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy .