Tractor Supply Goes on Sale
By
Rob Plaza
October 26, 2009
|
Unlike most retailers, Tractor Supply's (Nasdaq: TSCO) results over the past several quarters have been resilient, thanks to its business strategy.
Much of the company's success comes from its diversified sales mix. It offers a wide range of products, including staples like pet care and work clothes as well as big-ticket items like outdoor power equipment and heaters. Additionally, Tractor Supply's unique positioning is another reason for its success. It is a one-stop shop for farmers and ranchers with locations in rural areas. This strategy helps it avoid taking on household names like Wal-Mart Stores (NYSE: WMT), Home Depot (NYSE: HD), or PetSmart (Nasdaq: PETM).
That strategy helped the company report solid third-quarter results. Net sales increased 1.9%, to $747.7 million, from the year-ago quarter. Net income increased 38.5%, to $22.0 million or $0.60 per diluted share, compared to the third quarter of 2008.
Still, the company's same-store sales decreased 5.1%. Weak sales of its seasonal big-ticket items resulted in shoppers spending 10.4% less, on average, per visit. That more than offset the 5.9% increase in store traffic. While the big-ticket sales were disappointing, sales of its core categories did much better. Those sales include animal and pet-related products and repair/replacement parts, which are staples for Tractor Supply's customers. Looking ahead, management expects its customers to continue to put off big-ticket discretionary purchases in favor of non-discretionary purchases.
The market didn't hide its disappointment about the company's third-quarter report, and shares are off more than 9% since the news. However, this overreaction ignores the company's long-term potential. Like Costco (NYSE: COST), Tractor Supply is still one of the only growth stories in retail. It currently runs 912 stores in 44 states, and management has a long-term target of 1,800 stores. If Tractor Supply can maintain its profitable store model and almost double its total number of stores, it will be in a position to deliver strong sales growth and even stronger earnings growth over the next several years.
Those investors with an eye on the long term may want to think about stocking up on Tractor Supply shares while they're on sale.
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