Tractor Supply Company 's TSCO fourth-quarter 2016 results marked the company's second consecutive earnings beat, wherein earnings topped estimates and improved year over year. Further, the company's sales surpassed estimates and grew year over year backed by an extra week of sales in calendar 2016. Further, the company provided its initial view for 2017.
Consequently, shares of this farm and ranch store retailer rose 3.6% in after-hours trading yesterday. However, Tractor Supply's shares have declined 12.3% in the last one year, significantly underperforming the Zacks categorized Retail-Miscellaneous/Diversified industry's growth of 11.8% in the same time frame.
The company's earnings of 94 cents per share rose 14.6% year over year, beating the Zacks Consensus Estimate of 92 cents.
The top line grew 16.4% year over year to $1,916.5 million, and surpassed the Zacks Consensus Estimate of $1,847 million. Sales for the quarter benefited from an extra sales week as 2016 had 53 weeks compared with 52 weeks in 2015. This gain represented about 6.2 percentage points of the sales growth recorded in the quarter. Further, quarterly comps of this Zacks Rank #3 (Hold) company gained 3.1% compared with a 1.4% decline recorded in the year-ago quarter. Moreover, the 53rd week included one additional comparable store sales day in the quarter, which added nearly 60 basis points (bps) to comps growth.
Comps also benefited from a 4% rise in comparable store transaction count, offset by a 0.9% fall in average ticket. This represented the 35th straight quarter of comparable store transaction count. Based on categories, Tractor Supply's comps continued to benefit from solid demand for the basic daily use products including consumable, usable and edible (C.U.E.) and hardline goods like livestock and pet; bird and wildlife; trailers and accessories; and hand tools and livestock equipment.
Margins & Costs
The company's gross profit rose 15.2% year over year to $646.3 million, while gross margin declined 40 bps to 33.7%. Gross margins were hampered by a greater mix of the lower-margin C.U.E. products as well as higher promotional activities.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, remained flat at 23.6%. Management stated that gains from lower occupancy expenses, due to 53 weeks of sales and a rise in comps. However, it was counteracted by an increase in store personnel and advertising expenses owing to various sales boosting actions along with higher acquisition and operating expenses related to the Petsense acquisition. In dollar terms, SG&A expenses (including depreciation and amortization) escalated 16.5% to $451.6 million.
Operating income margin contracted 40 bps to 10.1% in fourth-quarter 2016. However, operating income, in dollar terms, climbed 12.3% to nearly $194.6 million.
Full-Year 2016 Synopsis
For 2016, the company's earnings came at $3.27 per share, down 9% year over year and beat the Zacks Consensus Estimate by a couple of cents. Revenues for the year rose 8.9% to $6,779.6 million and surpassed the Zacks Consensus Estimate of $6,728 million.
Tractor Supply ended the year with cash and cash equivalents of $53.9 million, long-term debt of $263.9 million, and total stockholders' equity of $1,453.2 million, as of Dec 31, 2016.
Further, the company incurred capital expenditure of $226 million in 2016, while it generated cash flow from operating activities of about $639 million.
During the fourth quarter, Tractor Supply opened 21 stores and closed one Del's store, compared with the addition of 26 stores and three store closures - including two Del's stores, in fourth-quarter 2015. Further, the company acquired Petsense LLC in the fourth quarter, which opened eight stores and closed one store during the quarter. This brings the total Petsense store count to 143 at the end of the fourth quarter.
In 2016, the company opened 113 new stores and closed six Del's stores. This compares to the company's 114 new store openings and eight store closures - including five Del's stores, in 2015. As of Dec 31, 2016, the company operated 1,595 Tractor Supply stores in 49 states and 143 Petsense stores in 26 states.
In 2017, the company expects to open about 100 Tractor Supply and 25-30 Petsense stores. Of the namesake stores to be opened in 2017, the company expects 45% of the openings to occur in the first half of the year. Further, the company remains on track with the transition of its Del's stores, anticipating shutting down nine Del's stores in 2017 as it continues with the expansion of Tractor Supply stores in Western U.S. Moreover, the aforementioned Petsense expansion includes the transformation of two HomeTown Pet stores to Petsense.
Following the robust 2016 results, Tractor Supply provided its initial guidance for 2017. Management anticipates sales in the range of $7.22-$7.29 billion for 2017, with expected comps growth of 2-3%. Further, the company anticipates net income of $445-$457 million, with earnings per share envisioned in the band of $3.44-$3.52. Tractor Supply anticipates EBIT margin to contract in the range of 25-40 bps.
Further, the company expects capital expenditures in the range of $270-$290 million for 2017. The company expects to spend a part of this allocation for the opening of nearly 100 Tractor Supply stores and 25-30 Petsense stores.
The company expects to continue returning value to shareholders in the form of share buybacks, keeping track with its long-term balanced approach to shareholder return. In 2017, the company anticipates having borrowed positions at the end of every quarter, targeting its debt position at year-end to range within $400-$450 million.
Tractor Supply Company Price, Consensus and EPS Surprise
Stocks to Consider
Better-ranked stocks in the same space include Big 5 Sporting Goods Corp. BGFV , sporting a Zacks Rank #1 (Strong Buy), and Cabela's Inc. CAB and Barnes & Noble Inc. BKS , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Big 5 Sporting, with a long-term EPS growth rate of 12%, has surged 31.6% in the past one year. The company has topped earnings by an average of 4.8% in the trailing four quarters and has witnessed positive estimate revisions in the past 30 days.
Cabela's, with a long-term EPS growth rate of 12.5%, has recorded a growth of 37.4% in the last one year.
Barnes & Noble has surged 37.1% in the last one year. The stock has a long-term earnings growth rate of 10% and has topped earnings by an average of 4% in the trailing four quarters.
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