Tractor Supply (TSCO) has done well during the pandemic. Same store sales (SSS) spiked a very impressive 30.5% in the second quarter, blowing past the company’s own guidance for 20%-25% growth, notes Scott Chan, contributing editor to The Complete Investor.
The company’s focus on the more sparsely populated rural market, catering to the rural lifestyle, has been a major positive during the pandemic.
As more people stayed home, they spent more time on their homes and pets. Catching up technologically also contributed to a very strong quarter.
Offering curbside pickup and rapid delivery are necessities in the current environment, and the company finally launched its first mobile app this year. Online sales have also doubled year-over-year.
While it is unrealistic to expect similar growth, which was driven by the pandemic, every quarter, in the long run we think Tractor Supply should have no problem keeping SSS growth around 3% on average.
Plus, even though its yield is low (in the vicinity of 1%), that’s largely a function of its share price appreciation—i.e., the yield is low for a good reason. In the past five years, its dividend has doubled.
With a low payout ratio (well under 30%), the dividend should continue to grow at a solid pace for the foreseeable future, likely at least high single-digit percent. EPS growth should likely average about 10% a year for the next several years.
Despite already a 45%+ rally so far this year, we think TSCO remains a strong retail bet in the long run. The company is well-positioned to continue to grow through continued same-store growth and footprint expansion.