Tractor Supply (TSCO) reported Q3 results that were better than expected; the company continues to experience strong tailwinds as a result of COVID-19, reflected by 31% sales growth driven by growth across all product categories, observes Doug Gerlach, growth stock expert and editor of Investor Advisory Service.
Comparable sales advanced nearly 27%, with both transaction count and ticket growth contributing meaningfully. Tractor continues to gain new customers at a strong clip, with more than 10 million new and reengaged customers visiting since the start of the pandemic.
Repeat activity from these customers has been strong, which should help growth once the benefit from COVID subsides. Gross margin increased primarily due to a reduction in promotional activity, though this was partially offset by incremental costs related to the pandemic. EPS advanced 59% to $1.62.
Tractor indicated Q4 was off to a strong start, though that strength is expected to moderate as the quarter progresses. Guidance is for sales to grow 18%-23% with comparable sales growth of 15%-20%. EPS is expected to be $1.37-$1.47, implying an advance of 13%- 21%.
There will be cost headwinds in the quarter from pandemic-related expenses, investment in strategic growth initiatives, and an increase in wages and benefits for employees.
Management introduced its updated “Life Out Here Strategy.” The strategy includes initiatives such as leveraging technology and analytics to help with product assortment, store remodeling, and most notably, a transformation of the company’s side lots to help promote Tractor as a lawn and garden authority.
For the three to five years after the company has cycled a full year of pandemic-related performance, it believes it can achieve the following performance: sales growth of 6%-7% (versus a prior long-term target of 7%-9%), comparable sales growth of 4%-5% (versus 3%+), and EPS growth of 8%-10% (versus low-double digit).
To support its strategic initiatives the company expects capital expenditures in the range of $450-$550 million annually versus prior baseline capex guidance of $250-$300 million. Over the next five years, it also expects to return approximately $4 billion to shareholders in the form of dividends and buybacks.
