Tractor Supply Company TSCO seems to be in a good spot, thanks to its strong business strategies. The company is reaping the benefits of its Life Out Here Strategy and the Neighbor’s Club membership program. Its ‘ONETractor’ strategy, which is aimed at connecting stores and online shopping, appears encouraging too. The company has been accelerating its digital capabilities, which has been leading to higher customer engagement and improvement in the conversion rate. The overall customer base has been robust with healthy customer engagement.
Given the changing consumer trends, Tractor Supply is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience. The company’s omnichannel investments include curbside pickup, same-day and next-day delivery, a re-launched website and a new mobile app.
TSCO is significantly enhancing its Neighbor's Club offering. Growth in customer counts and customer retention remain sturdy. Tractor Supply launched Hometown Heroes, which helps recognize military service members, veterans and first responders. This program comes with one banner, which is supporting selfless men and women. We note that nearly 20% of the Hometown Heroes as of the second quarter of 2024 were new to Neighbor's Club and 15% new to Tractor Supply.
In the most recent quarter, Neighbor's Club comp sales surpassed the company’s overall sales. Tractor Supply has reached an all-time high in its sales penetration, recording membership of more than 36 million. About 5 million members were added in the last 12 months. The company concentrates on improving personalization capabilities, mainly its customer data platform, which is expected to be implemented later in the year. Its live goods performance also bodes well.
Regarding its store-growth initiatives, Tractor Supply is persistently focused on the expansion of its store base and the incorporation of technological advancements to boost traffic. These store investments target higher market share and boost productivity across existing and new stores. Its new store productivity seems appealing. The addition of new product categories, greater ease of shopping and modern services enables the company to serve its customers efficiently.
Factors Hindering TSCO’s Growth
Despite its robust initiatives, Tractor Supply is not immune to the difficulties of the current economic landscape. The company grapples with softness in goods. The ongoing shift in spending from goods to services has been a headwind. It has also been witnessing softness in its discretionary businesses like clothing, footwear and decor and in the hardline products of the business, including ag, fencing and pet kennels. As for the retail price, the company’s plans continue to show a headwind from deflation in the third quarter with a moderation in the fourth quarter.
Tractor Supply is reeling under higher depreciation and amortization along with the costs related to the opening of a distribution center. Cost inflation is also concerning. Due to these factors, selling, general and administrative expenses, including depreciation and amortization, as a percentage of sales, expanded 58 basis points year over year in the second quarter. In dollar terms, the metric rose 4.1%. Management anticipates modest fixed cost deleverage ahead. This is likely to affect the company’s profitability in the near term.
Conclusion
Nevertheless, shares of this leading rural lifestyle retailer have gained 37.4% in a year, outperforming the industry’s 14.2% growth. TSCO’s growth efforts have driven this outperformance.
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Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for 2024 sales and earnings per share (EPS) is currently pegged at $14.9 billion and $10.23, respectively. These estimates indicate corresponding growth of 2.4% and 1.4% year over year. The consensus estimate for 2025 sales and EPS is presently pegged at$15.8 billion and $11.13, respectively, implying a year-over-year increase of 5.7% and 8.9%.
Investors who already invested in the stock can retain this Zacks Rank #3 (Hold) company.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie ANF, Boot Barn BOOT and Deckers DECK.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales indicates growth of 13.1% from the year-ago figure. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
Boot Barn, a leading footwear, apparel and accessories retailer, presently flaunts a Zacks Rank of 1. BOOT delivered an average earnings surprise of 7.1% in the trailing four quarters.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 11.6% from the year-ago figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
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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 Nasdaq, Inc.
