Here's How Tractor Supply Co. Outperformed on Profits Again

In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Matt Argersinger, David Kretzmann, and Aaron Bush reflect on the agriculture and home improvement-focused retail chain Tractor Supply Co. (NASDAQ: TSCO) , which continued its streak of strong quarterly results last week.

Same-store sales were up and among the other impressive features of its results -- the gains it's making through its e-commerce channel, as well as its successful "order online, pick up in store" option. However, President Trump's trade war could put a kink in the company's profits.

A full transcript follows the video.

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This video was recorded on July 27, 2018.

Chris Hill: Second quarter profits for Tractor Supply came in higher than expected. David, I get that selling equipment to farmers and ranchers is not the sexiest business in the world, but Tractor Supply's stock has had a good run over the last 12 months.

David Kretzmann: Yeah, up 43% over the past year. This was a great quarter. Same-store sales up 5.6%, which, in a relatively challenging retail landscape, shouldn't be overlooked. I think the company really has a formula for surviving and thriving in the age of Amazon . Like you mentioned, they have a specialty retail focus. They're going after farmers, gardeners, ranchers.

With e-commerce, with their strategy there, they're using their stores to their advantage. Right now, buy online, pickup in store makes up 70% of their e-commerce orders. By the way, they've had 24 straight quarters of double-digit e-commerce sales growth. It's still a relatively small piece of the overall pie, but they are seeing some progress there.

Finally, they also have a loyalty program, The Neighbor's Club, which has 8.7 million members. Those members spend 3-4X the average of non-loyalty members. They're aiming to get 10 million members by the end of the year.

One other cool thing that they're doing in their stores is, they have kiosks. When you're walking through the store, and you see an item that's not quite the right size or fit that you're looking for, you can just order online through that kiosk.

Matt Argersinger: So, definitely thriving in the age of Amazon. Are they going to thrive in the age of Trump and all these tariffs that are coming and hurting potential agricultural exports in the U.S.? I was just wondering if there was any comment about that in the call or the release.

Kretzmann: It definitely came up on the call. That'll be something to watch, especially for those bigger-ticket items like mowers, or larger pieces of equipment. Those will suddenly be a lot more expensive if those tariffs go through. But at this point, they actually raised guidance for the rest of the year, so clearly, they're still optimistic.

Hill: Matty, that was your thought listening to David. My thought was, I didn't think I could feel worse about Starbucks ' loyalty program until David mentioned that Tractor Supply -- which, I'm just going to go out on a limb and say is more of a niche business than a company that sells coffee -- Tractor Supply's loyalty program has 50% as many people in it as Starbucks.

Kretzmann: It just launched a few years ago, too.

Argersinger: It's confounding about Starbucks. We should almost send a question out to our dozens of listeners, how many of you are Starbucks rewards members? It feels like it should be bigger! And yet, Starbucks just doesn't have a very sizable number. It just doesn't make sense.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Starbucks. David Kretzmann owns shares of Amazon, Starbucks, and Tractor Supply. Matthew Argersinger owns shares of Amazon and Starbucks and has the following options: long January 2020 $45 calls on Starbucks. The Motley Fool owns shares of and recommends Amazon and Starbucks. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy .

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

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

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