Tractor Supply Company Reports Second Quarter 2024 Financial Results; Updates Fiscal 2024 Financial Outlook

Rhea-AI Summary

Tractor Supply Company (NASDAQ: TSCO) reported its Q2 2024 financial results, showing a 1.5% increase in net sales to $4.25 billion. However, comparable store sales decreased by 0.5%. The company's diluted EPS rose 2.6% to $3.93. Gross profit increased by 2.7% to $1.56 billion, with gross margin improving by 43 basis points to 36.6%. SG&A expenses increased by 4.1% to $994.2 million. Tractor Supply has updated its fiscal 2024 outlook, now expecting net sales between $14.8 billion and $15.0 billion, and earnings per diluted share between $10.00 and $10.40. The company opened 21 new Tractor Supply stores and three new Petsense by Tractor Supply stores in Q2 2024.

Positive

• Net sales increased by 1.5% to $4.25 billion
• Diluted EPS rose 2.6% to $3.93
• Gross profit increased by 2.7% to $1.56 billion
• Gross margin improved by 43 basis points to 36.6%
• Opened 21 new Tractor Supply stores and 3 new Petsense stores

Negative

• Comparable store sales decreased by 0.5%
• SG&A expenses increased by 4.1% to $994.2 million
• SG&A expenses as a percentage of net sales increased 58 basis points to 23.4%

Insights

Financial Analyst

Tractor Supply Company's Q2 2024 results present a mixed picture. While the company managed to increase net sales by 1.5% to $4.25 billion, comparable store sales saw a slight decline of 0.5%. This suggests that growth is primarily driven by new store openings rather than existing store performance.

The gross margin improvement of 43 basis points to 36.6% is a positive sign, indicating effective cost management and pricing strategies. However, this was partially offset by an increase in SG&A expenses as a percentage of net sales, rising 58 basis points to 23.4%. This increase was primarily due to planned growth investments, including a new distribution center.

Despite these challenges, Tractor Supply managed to slightly increase net income by 0.9% to $425.2 million, with diluted EPS growing by 2.6% to $3.93. This demonstrates the company's ability to maintain profitability in a challenging retail environment.

The updated fiscal year 2024 outlook shows a slight downward revision in both net sales and comparable store sales expectations. This cautious outlook suggests that management anticipates ongoing challenges in the retail sector, possibly due to economic uncertainties or changing consumer behaviors.

Investors should closely monitor the company's ability to continue expanding its store base while improving comparable store sales performance in the coming quarters. The ongoing execution of the 'Life Out Here' strategy and market share growth opportunities mentioned by CEO Hal Lawton will be important for long-term value creation.

Retail Industry Expert

Tractor Supply's Q2 results highlight both strengths and challenges in the rural lifestyle retail sector. The slight decline in comparable store sales (-0.5%) is a concern, especially when compared to the 2.5% increase in the same quarter last year. This suggests a potential softening in consumer demand or increased competition in the rural lifestyle segment.

However, the company's performance in seasonal merchandise and big ticket items shows resilience in certain product categories. This could indicate that while consumers might be cutting back on everyday purchases, they're still willing to invest in larger, possibly more essential items for their rural lifestyle needs.

The modest negative performance in consumable, usable and edible products, with positive unit growth offset by average unit price pressure, points to a challenging pricing environment. This could be due to inflationary pressures or competitive pricing strategies in the market.

Tractor Supply's continued store expansion, with 21 new Tractor Supply stores and three new Petsense by Tractor Supply stores opened in Q2, demonstrates confidence in their long-term growth strategy. However, the success of this expansion will depend on the company's ability to reverse the trend in comparable store sales.

The updated fiscal year outlook, with a narrowed range for comparable store sales (-0.5% to +1.0%), suggests cautious optimism from management. Investors should watch for the effectiveness of the company's second half operational initiatives in driving growth and maintaining market share in the competitive rural lifestyle retail sector.

 

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States (the “Company”), today reported financial results for its second quarter ended June 29, 2024.

• Net Sales Increase of 1.5% to $4.25 Billion
• Comparable Store Sales Decrease of 0.5%
• Diluted Earnings per Share (“EPS”) of $3.93
• Company Updates 2024 Financial Outlook

“We are pleased with our second quarter EPS results that were in line with our outlook. My sincere appreciation goes out to our more than 50,000 Team Members for living our Mission and Values every day as we focus on taking care of our customers and each other. The team continued to execute extremely well, upholding the high standards we set for ourselves every day. At the halfway point of the year, we have made significant progress on our Life Out Here strategy. We continue to create more separation between us and our competition, thanks to our Team Members and the meaningful relationships they have with our customers,” said Hal Lawton, President and Chief Executive Officer of Tractor Supply.

Lawton continued, “We are confident that we have the right plans in place to win with our customers given the strength of our second half operational initiatives. We remain excited about the significant market share growth opportunities ahead of us as we focus on the continued creation of long-term value for our shareholders.”

Second Quarter 2024 Results

Net sales for the second quarter of 2024 increased 1.5% to $4.25 billion from $4.18 billion in the second quarter of 2023. The increase in net sales was driven by new store openings, partially offset by the decline in comparable store sales. Comparable store sales decreased 0.5%, as compared to an increase of 2.5% in the prior year’s second quarter, driven by a comparable average transaction count decline of 0.6%, partially offset by a comparable average ticket increase of 0.1%. Comparable store sales results reflect strength in seasonal merchandise including big ticket, partially offset by declines in year-round discretionary categories. As expected, consumable, usable and edible products were modestly negative with positive unit growth offset by average unit price pressure.

Gross profit increased 2.7% to $1.56 billion from $1.51 billion in the prior year’s second quarter, and gross margin increased 43 basis points to 36.6% from 36.2% in the prior year’s second quarter. The gross margin rate increase was primarily attributable to ongoing lower transportation costs along with disciplined product cost management and the continued execution of an everyday low price strategy. These improvements in gross margin rate were partially offset by growth in big ticket categories, which have below chain-average margins.

Selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 4.1% to $994.2 million from $955.4 million in the prior year’s second quarter. As a percentage of net sales, SG&A expenses increased 58 basis points to 23.4% from 22.8% in the second quarter of 2023. The increase in SG&A as a percent of net sales was primarily attributable to planned growth investments, which included the onboarding of a new distribution center and higher depreciation and amortization, as well as modest deleverage of the Company’s fixed costs given the decline in comparable store sales. These factors were partially offset by productivity improvements and strong cost control. During the second quarter of 2024, the Company’s ongoing sale-leaseback strategy benefited SG&A by approximately 12 basis points, net of transaction and repair costs, from the sale of two Tractor Supply locations.

Operating income was $561.5 million in the second quarter of 2024 compared to $559.3 million in the second quarter of 2023.

The effective income tax rate was 22.7% compared to 23.0% in the second quarter of 2023.

Net income increased 0.9% to $425.2 million from $421.2 million. Diluted EPS increased 2.6% to $3.93 compared to $3.83 in the second quarter of 2023.

The Company repurchased approximately 0.5 million shares of its common stock for $139.2 million and paid quarterly cash dividends totaling $118.5 million, returning a total of $257.7 million of capital to shareholders in the second quarter of 2024.

The Company opened 21 new Tractor Supply stores and three new Petsense by Tractor Supply stores in the second quarter of 2024.

Fiscal Year 2024 Financial Outlook

Based on year-to-date performance and its outlook, Tractor Supply is updating its financial guidance. For fiscal year 2024, the Company now expects the following:

	Updated	Previous
Net Sales	$14.8 billion to $15.0 billion	$14.7 billion to $15.1 billion
Comparable Store Sales	(0.5%) to +1.0%	(1.0%) to +1.5%
Operating Margin Rate	9.8% to 10.1%	9.7% to 10.1%
Net Income	$1.08 billion to $1.12 billion	$1.06 billion to $1.13 billion
Earnings per Diluted Share	$10.00 to $10.40	$9.85 to $10.50

Conference Call Information

Tractor Supply Company will hold a conference call today, Thursday, July 25, 2024 at 10 a.m. ET. The call will be webcast live at IR.TractorSupply.com. An investor presentation will be available on the investor relations section of the Company’s website at least 15 minutes prior to the conference call.

Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the webcast.

A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.

About Tractor Supply Company

For more than 85 years, Tractor Supply Company (NASDAQ: TSCO) has been passionate about serving the needs of recreational farmers, ranchers, homeowners, gardeners, pet enthusiasts and all those who enjoy living Life Out Here. Tractor Supply is the largest rural lifestyle retailer in the U.S., ranking 293 on the Fortune 500. The Company’s more than 50,000 Team Members are known for delivering legendary service and helping customers pursue their passions, whether that means being closer to the land, taking care of animals or living a hands-on, DIY lifestyle. In store and online, Tractor Supply provides what customers need – anytime, anywhere, any way they choose at the low prices they deserve.

As of June 29, 2024, the Company operated 2,254 Tractor Supply stores in 49 states. For more information on Tractor Supply, visit www.tractorsupply.com.

Tractor Supply Company also owns and operates Petsense by Tractor Supply, a small-box pet specialty supply retailer providing products and services for pet owners. As of June 29, 2024, the Company operated 205 Petsense by Tractor Supply stores in 23 states. For more information on Petsense by Tractor Supply, visit www.Petsense.com.

Forward-Looking Statements

This press release contains certain forward-looking statements, including statements regarding market share gains, value creation, customer trends, new stores and distribution centers, property development plans, return of capital, and financial guidance for 2024, including net sales, comparable store sales, operating margin rates, net income, earnings per diluted share, capital expenditures and plans, share repurchase, and sale-leaseback transactions. All forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, are subject to the finalization of the Company’s quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company’s operations. Forward-looking statements are usually identified by or are associated with such words as “will,” “would,” “intend,” “expect,” “continue,” “believe,” “anticipate,” “optimistic,” “forecasted” and similar terminology. Actual results could vary materially from the expectations reflected in these statements. As with any business, all phases of our operations are subject to facts outside of our control. These factors include, without limitation, those factors discussed in the “Risk Factors” section of the Company’s Annual Reports or Form 10-K and other filings with the Securities and Exchange Commission, including our upcoming Quarterly Report on Form 10-Q for the quarter ended June 29, 2024, which will describe additional risks relating to the scrutiny of our social and environmental strategies, initiatives and targets and our policies related thereto, which could adversely affect public perception of our business, employee morale, customer or stockholder support and have a material adverse effect on our business, liquidity, financial condition, and/or results of operations. Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company’s Annual Report on Form 10-K, upcoming Quarterly Report on Form 10-Q for the quarter ended June 29, 2024, and other filings with the Securities and Exchange Commission. There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

(Financial tables to follow)

Consolidated Statements of Income (Unaudited) (in thousands, except per share and percentage data)
	Three Months Ended														Six Months Ended
	June 29, 2024							July 1, 2023							June 29, 2024							July 1, 2023
					% of							% of							% of							% of
					Net							Net							Net							Net
					Sales							Sales							Sales							Sales
Net sales	$	4,246,622			100.00	%		$	4,184,695			100.00	%		$	7,641,456			100.00	%		$	7,483,920			100.00	%
Cost of merchandise sold		2,690,996			63.37				2,669,926			63.80				4,864,976			63.67				4,799,243			64.13
Gross profit		1,555,626			36.63				1,514,769			36.20				2,776,480			36.33				2,684,677			35.87
Selling, general and administrative expenses		884,903			20.84				853,158			20.39				1,738,338			22.75				1,681,393			22.47
Depreciation and amortization		109,265			2.57				102,279			2.44				213,558			2.79				199,512			2.67
Operating income		561,458			13.22				559,332			13.37				824,584			10.79				803,772			10.74
Interest expense, net		11,612			0.27				12,343			0.30				23,514			0.31				25,023			0.33
Income before income taxes		549,846			12.95				546,989			13.07				801,070			10.48				778,749			10.41
Income tax expense		124,650			2.94				125,755			3.01				177,707			2.33				174,427			2.33
Net income	$	425,196			10.01	%		$	421,234			10.07	%		$	623,363			8.16	%		$	604,322			8.07	%
Net income per share:
Basic	$	3.95						$	3.85						$	5.78						$	5.51
Diluted	$	3.93						$	3.83						$	5.75						$	5.47
Weighted average shares outstanding:
Basic		107,730							109,426							107,838							109,735
Diluted		108,235							110,041							108,381							110,411
Dividends declared per common share outstanding	$	1.10						$	1.03						$	2.20						$	2.06
Note: Percent of net sales amounts may not sum to totals due to rounding.

Consolidated Statements of Comprehensive Income (Unaudited) (in thousands)
	Three Months Ended								Six Months Ended
	June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
Net income	$	425,196			$	421,234			$	623,363			$	604,322
Other comprehensive (loss) / income:
Change in fair value of interest rate swaps, net of taxes		(1,382	)			778				(2,113	)			(1,059	)
Total other comprehensive (loss) / income		(1,382	)			778				(2,113	)			(1,059	)
Total comprehensive income	$	423,814			$	422,012			$	621,250			$	603,263

Consolidated Balance Sheets (Unaudited) (in thousands)
	June 29, 2024				July 1, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	394,748			$	620,031
Inventories		3,000,033				2,660,052
Prepaid expenses and other current assets		244,844				297,191
Total current assets		3,639,625				3,577,274
Property and equipment, net		2,566,723				2,185,476
Operating lease right-of-use assets		3,225,156				2,957,792
Goodwill and other intangible assets		269,520				267,088
Other assets		83,500				45,193
Total assets	$	9,784,524			$	9,032,823
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,436,520			$	1,272,232
Accrued employee compensation		69,920				66,181
Other accrued expenses		557,721				464,267
Current portion of finance lease liabilities		3,405				2,860
Current portion of operating lease liabilities		382,111				317,730
Income taxes payable		94,858				114,194
Total current liabilities		2,544,535				2,237,464
Long-term debt		1,730,467				1,727,504
Finance lease liabilities, less current portion		29,661				32,999
Operating lease liabilities, less current portion		2,980,876				2,762,877
Deferred income taxes		54,418				59,157
Other long-term liabilities		139,235				125,670
Total liabilities		7,479,192				6,945,671
Stockholders’ equity:
Common stock		1,423				1,418
Additional paid-in capital		1,349,198				1,283,589
Treasury stock		(5,717,944	)			(5,210,524	)
Accumulated other comprehensive income		4,680				10,216
Retained earnings		6,667,975				6,002,453
Total stockholders’ equity		2,305,332				2,087,152
Total liabilities and stockholders’ equity	$	9,784,524			$	9,032,823

Consolidated Statements of Cash Flows (Unaudited) (in thousands)
	Six Months Ended
	June 29, 2024				July 1, 2023
Cash flows from operating activities:
Net income	$	623,363			$	604,322
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		213,558				199,512
(Gain)/loss on disposition of property and equipment		(4,210	)			(474	)
Share-based compensation expense		25,124				30,179
Deferred income taxes		(10,712	)			30,916
Change in assets and liabilities:
Inventories		(354,179	)			34,626
Prepaid expenses and other current assets		(33,345	)			(22,439	)
Accounts payable		256,717				(126,400	)
Accrued employee compensation		(21,558	)			(56,795	)
Other accrued expenses		19,996				(26,994	)
Income taxes		97,319				104,723
Other		5,270				11,145
Net cash provided by operating activities		817,343				782,321
Cash flows from investing activities:
Capital expenditures		(349,818	)			(349,586	)
Proceeds from sale of property and equipment		18,487				761
Proceeds from Orscheln acquisition net working capital settlement		—				4,310
Net cash used in investing activities		(331,331	)			(344,515	)
Cash flows from financing activities:
Borrowings under debt facilities		335,000				1,767,000
Repayments under debt facilities		(335,000	)			(1,195,000	)
Debt discounts and issuance costs		—				(9,729	)
Principal payments under finance lease liabilities		(864	)			(2,805	)
Repurchase of shares to satisfy tax obligations		(22,717	)			(23,121	)
Repurchase of common stock		(255,756	)			(345,653	)
Net proceeds from issuance of common stock		28,349				15,252
Cash dividends paid to stockholders		(237,347	)			(226,221	)
Net cash used in financing activities		(488,335	)			(20,277	)
Net (decrease)/increase in cash and cash equivalents		(2,323	)			417,529
Cash and cash equivalents at beginning of period		397,071				202,502
Cash and cash equivalents at end of period	$	394,748			$	620,031
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	30,203			$	20,462
Income taxes cash paid		89,875				36,226
Supplemental disclosures of non-cash activities:
Non-cash accruals for property and equipment	$	61,418			$	27,031
Increase of operating lease assets and liabilities from new or modified leases		272,524				260,268
Increase of finance lease assets and liabilities from new or modified leases		—				450

Selected Financial and Operating Information (Unaudited)
	Three Months Ended								Six Months Ended
	June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
Sales Information:
Comparable store sales (decrease)/increase		(0.5	)%			2.5	%			0.2	%			2.3	%
New store sales (% of total sales)		2.0	%			4.8	%			2.0	%			4.5	%
Average transaction value	$	63.46			$	63.56			$	61.24			$	61.44
Comparable store average transaction value (decrease)/increase (a)		0.1	%			0.6	%			(0.1	)%			1.6	%
Comparable store average transaction count (decrease)/increase		(0.6	)%			1.8	%			0.3	%			0.7	%
Total selling square footage (000’s)		38,383				37,809				38,383				37,809
Exclusive brands (% of total sales)		26.7	%			28.0	%			28.1	%			29.8	%
Imports (% of total sales)		10.9	%			11.5	%			11.0	%			11.5	%
Store Count Information:
Tractor Supply
Beginning of period		2,233				2,164				2,216				2,147
New stores opened		21				17				38				34
Stores closed		—				—				—				—
End of period		2,254				2,181				2,254				2,181
Petsense by Tractor Supply
Beginning of period		202				189				198				186
New stores opened		3				3				7				6
Stores closed		—				—				—				—
End of period		205				192				205				192
Consolidated end of period		2,459				2,373				2,459				2,373
Pre-opening costs (000’s)	$	2,251			$	4,878			$	4,613			$	7,942
Balance Sheet Information:
Average inventory per store (000’s) (b)	$	1,138.0			$	1,032.9			$	1,138.0			$	1,032.9
Inventory turns (annualized)		3.64				3.92				3.41				3.57
Share repurchase program:
Cost (000’s) (c)	$	140,546			$	157,448			$	259,089			$	354,616
Average purchase price per share	$	272.52			$	222.42			$	254.81			$	225.34

(a)	Comparable store average transaction value changes include the impact of transaction value changes achieved on the current period change in transaction count.
(b)	Assumes average inventory cost, excluding inventory in transit.
(c)	Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as a part of the cost basis of the shares within treasury stock.
Note: Comparable store metrics percentages may not sum to total due to rounding.

	Three Months Ended								Six Months Ended
	June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
Capital Expenditures (millions):
Existing stores	$	76.4			$	79.1			$	134.2			$	162.1
New stores, relocated stores and stores not yet opened		58.0				28.3				119.7				61.5
Information technology		35.7				29.2				60.1				51.1
Distribution center capacity and improvements		19.1				54.1				32.2				73.7
Corporate and other		3.4				1.0				3.6				1.2
Total	$	192.6			$	191.7			$	349.8			$	349.6

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240725392237/en/

Mary Winn Pilkington (615) 440-4212

Joseph Underwood (615) 440-4658

investorrelations@tractorsupply.com

Source: Tractor Supply Company

FAQ

What was Tractor Supply's net sales growth in Q2 2024?

Tractor Supply's net sales increased by 1.5% to $4.25 billion in Q2 2024 compared to the same period in 2023.

How did TSCO's comparable store sales perform in Q2 2024?

Tractor Supply's comparable store sales decreased by 0.5% in Q2 2024, compared to an increase of 2.5% in Q2 2023.

What is Tractor Supply's updated EPS guidance for fiscal 2024?

Tractor Supply updated its earnings per diluted share guidance for fiscal 2024 to a range of $10.00 to $10.40.

How many new stores did TSCO open in Q2 2024?

Tractor Supply opened 21 new Tractor Supply stores and three new Petsense by Tractor Supply stores in Q2 2024.