Tractor Supply Company reported earnings improved 8.9 percent in the third quarter but sales came in softer than expected and the rural lifestyle retailer slightly lowered its outlook for the year. Same-store sales were off 0.4 percent due to declines in demand for seasonal goods and big-ticket items.

“We delivered solid growth in both net sales and earnings in the third quarter, although our sales performance was softer than our expectations. Given this environment, we have updated our outlook for the year to reflect continued unfavorable seasonal category performance and discerning consumer spending. Our consistent market share expansion and positive customer trends underscore the enduring strength of our business. We are confident in our ability to navigate in the near term and remain as excited as ever about our bright future. I would like to thank our team for their dedication to our Mission and Values, as this continues to be the key to our customers’ strong loyalty,” said Hal Lawton, president and chief executive officer of Tractor Supply.

“As we near Tractor Supply’s 85th anniversary in December, it serves as a great reminder that we have a long track record of success as a resilient, needs-based retailer. We are committed to continuing to adapt to the current consumer landscape and controlling what we can control. We also remain committed to executing our Life Out Here strategy and laying the foundation for the next 85 years. We believe we have a robust, distinct business model in an attractive market that will continue to be a winning formula,” said Lawton.

Third Quarter 2023 Results
Net sales for the third quarter ended September 30 increased 4.3 percent to $3.41 billion from $3.27 billion in the third quarter of 2022. The increase in net sales was driven by contributions from the acquisition of Orscheln Farm and Home and new store openings. Comparable store sales decreased 0.4 percent, as compared to an increase of 5.7 percent in the prior year’s third quarter, driven by a comparable average ticket decline of 0.3 percent and a flat comparable average transaction count. Comparable store sales performance reflects continued strength in core year-round merchandise, including consumable, usable and edible (CUE) products which significantly outpaced the chain average. This performance largely offset declines in demand for seasonal goods and big-ticket items.

Gross profit increased 7.3 percent to $1.25 billion from $1.17 billion in the prior year’s third quarter, and gross margin increased 101 basis points to 36.7 percent from 35.6 percent in the prior year’s third quarter. Gross margin continued to benefit from the company’s ongoing execution of an everyday low-price strategy, complemented by the use of its Neighbor’s Club loyalty program as a value driver in a sustained higher-cost environment. The gross margin rate increase was primarily attributable to lower transportation costs driven by improvement in the global supply chain and efficiencies from a new distribution center, modestly offset by a negative product mix.

SG&A expenses, including depreciation and amortization, increased 5.8 percent to $909.6 million from $859.4 million in the prior year’s third quarter. As a percentage of net sales, SG&A expenses increased 38 basis points to 26.7 percent from 26.3 percent in the third quarter of 2022. The increase in SG&A as a percentage of net sales was primarily attributable to the company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as higher medical claims and fixed cost deleverage. During the third quarter of 2023, the company completed its strategically planned sale-leaseback of ten Tractor Supply stores, benefiting SG&A by approximately 70 basis points, net of transaction and repair costs. Additionally, the increase in SG&A was partially offset by an adjustment to the useful lives of certain store remodel assets resulting in a one-time benefit to depreciation expense of approximately 35 basis points.

Operating income increased 11.3 percent to $340.9 million from $306.4 million in the third quarter of 2022.

The effective income tax rate was 23.0 percent compared to 22.0 percent in the third quarter of 2022.

Net income increased 8.9 percent to $255.0 million from $234.1 million. Diluted earnings per share (EPS) increased 11.0 percent to $2.33 compared to $2.10 in the third quarter of 2022. The increase in diluted EPS includes a one-time benefit of $0.08 per share from the adjustment to the useful lives of certain store remodel assets.

The company repurchased approximately 0.6 million shares of its common stock for $135.4 million and paid quarterly cash dividends totaling $112.0 million, returning $247.4 million of capital to shareholders in the third quarter of 2023.

The company opened 17 new Tractor Supply stores and four new Petsense by Tractor Supply stores and closed one Petsense by Tractor Supply store in the third quarter of 2023.

Fiscal 2023 Financial Outlook
The company is updating its fiscal 2023 financial guidance to reflect its performance through the third quarter along with its expectations for the remainder of the year: 

  • Sales are expected in the range of  $14.5 billion to $14.6 billion (previous guidance, $14.8 billion to $14.9 billion);
  • Comparable store sales are expected to be flat (previous guidance, positive 1.3 percent to 2.5 percent);
  • Operating margin rates are expected in the range of 10.1 percent to 10.2 percent (previous guidance, 10.2 percent to 10.3 percent);
  • Net income is expected in the range of $1.10 billion to $1.11 billion (previous guidance, $1.12 billion to $1.15 billion); and
  • Earnings per diluted share are expected in the range of  $10.00 to $10.10 (previous guidance, $10.20 to $10.40).

Tractor Supply continues to forecast capital expenditures for the year in the range of $800 million to $850 million. Capital expenditures reflect the implementation of the development program for new store growth that is fully funded through the sale of existing company-owned stores. Additionally, capital plans for 2023 include opening a total of approximately 70 Tractor Supply stores, completing the conversion of Orscheln Farm and Home stores to Tractor Supply, continuing Project Fusion remodels and garden center transformations, building its tenth distribution center and opening a total of 10-to-15 new Petsense by Tractor Supply stores. The updated fiscal 2023 guidance also includes the benefits (both realized and expected) of the previously announced sale-leaseback transactions.

Photo courtesy Tractor Supply