Dj Tractor Supply Corporate Stock Underperforms Wednesday When Compared To Competitors

Tractor Supply Company TSCO seems to be in a good spot, thanks to its sturdy business strategies. The company is reaping the benefits from 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. Shares of this leading rural retail farm and ranch store chain have gained 32.6% year to date against the industry’s 3.1% decline.

Recently, Tractor Supply revealed that it had agreed to acquire Allivet, which is a privately-held leading online pet pharmacy. This buyout will complement and reinforce the company’s portfolio of companion animals, equestrian and livestock customers. The deal will also enable TSCO to introduce a low-cost pet and animal pharmacy solution for the 37-million Neighbor’s Club members.

The new deal brings a key opportunity to gain share of wallet with the club members, about 75% of whom are pet owners. The deal will also strengthen the company’s product and services offering, extend its overall addressable market by $15 billion and solidify relationship between the companies.

TSCO’s Growth Strategies in Detail

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 new mobile app. Management aims at leveraging AI technologies to boost search, redesign checkout and add a new refreshed homepage on personalization.

TSCO is significantly enhancing its Neighbor's Club offering. As the company continues to make investments in the program, it has been seeing strong growth in customer counts and customer retention. In the third quarter of 2024, the Neighbor's Club comp sales surpassed the company’s overall sales. Tractor Supply has reached an all-time high on its sales penetration, recording membership of more than 37 million members.

The company is also focused on improving personalization capabilities, mainly its customer data platform. Its live goods performance also bodes well. Digital sales continued to outperform, with double-digit growth in the third quarter of 2024. The company has been making major improvements in search and checkout. It has been accelerating its digital capabilities, which has been leading to higher customer engagement and conversion rate improvement.

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 and drive the top line. In the third quarter, TSCO introduced 16 flagship stores, bringing the year-to-date count to 54. Management intends to continue its store-opening initiatives in 2024.

Project Fusion is the company’s state-of-the-art space productivity program built to enrich customer experience in the mature store base. It currently has 45% of the chain in its Project Fusion layout and more than 550 garden centers. Such store investments target higher market share and boost productivity across the existing and new stores. Addition of product categories, greater ease of shopping and modern services enables the company to serve its customers efficiently.

Factors Hindering TSCO’s Growth

Tractor Supply has been reeling under higher depreciation and amortization along with the costs related to the opening of a distribution center. Also, cost inflation is concerning. During the third quarter, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 119 basis points (bps) year over year. In dollar terms, the metric rose 6.2%.

The higher SG&A expense rate resulted from growth investments, which comprised the onboarding of a new distribution center, lapping a one-time depreciation cost benefit in the last year and modest deleveraged fixed costs. The new distribution center was nearly a 25-bps headwind on SG&A for the quarter. Further, the operating income was down 4.8% year over year, with the operating margin declining 63 bps to 9.4% in the reported quarter. In addition, a tepid retail sales environment is concerning.

Conclusion

TSCO has been taking cost-saving initiatives to tackle cost issues. 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 $10.24, respectively. These estimates indicate corresponding growth of 2.5% and 1.5% year over year. The consensus estimate for 2025 sales and EPS is presently pegged at $15.7 billion and $11, respectively, indicating a year-over-year increase of 5.1% and 7.4%. Tractor Supply currently carries a Zacks Rank #3 (Hold).

Key Picks

We have highlighted three better-ranked stocks, namely Boot Barn BOOT, Abercombie ANF and Deckers DECK.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company has a trailing four-quarter earnings surprise of 6.8%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 13.9% from the year-ago figure.

Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank of 2 (Buy). ANF delivered an earnings surprise of 16.8% in the last reported quarter.

The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.

Deckers, a footwear and accessories dealer, currently carries a Zacks Rank of 2. DECK delivered an average earnings surprise of 41.1% in the trailing four quarters.

The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 13.7% from the year-ago figure.

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