Rural lifestyle retailer Tractor Supply (TSCO 0.94%)reported third-quarter financial results on Thursday, Oct. 24, that showed a 1.6% year-over-year increase in net sales to $3.47 billion, primarily due to new store openings. However, comparable store sales slipped by 0.2%, highlighting a challenging retail environment.
Earnings per share (EPS) fell 3.9% to $2.24, down from $2.33 in Q3 2023. Tractor Supply noted improvements in gross profit with a 3.2% rise, while gross margin increased to 37.2%, up by 56 basis points compared to the previous year.
Although the revenue growth was a positive, the decline in EPS suggests the company is getting hit by higher operating expenses.
| Metric | Q3 2024 | Q3 2023 | Change (YOY) |
|---|---|---|---|
| Net sales | $3.47 billion | $3.41 billion | 1.6% |
| Comparable store sales | -0.2% | -0.4% | N/A |
| Gross profit | $1.29 billion | $1.25 billion | 3.2% |
| Diluted EPS | $2.24 | $2.33 | (3.9%) |
| Net income | $241.5 million | $255.0 million | (5.3%) |
Source: Tractor Supply Co. YOY = Year over year.
Tractor Supply's Business Overview
Tractor Supply is a leading rural lifestyle retailer in the U.S., catering to recreational farmers, ranchers, and pet owners. It operates a large network of stores offering products for livestock, agriculture, and companion animal needs. The company's strategy includes expanding its physical store footprint to enhance market reach, especially in rural areas.
The company's recent focus areas include its omnichannel strategy, aimed at integrating its digital and physical shopping experiences. With investments in e-commerce and digital platforms, Tractor Supply seeks to improve customer engagement and broaden its market presence. Other key pillars of its strategy are aimed at increasing store openings and optimizing store layouts through initiatives like Project Fusion. A focus on customer loyalty programs and exclusive brands also drives its retail strategy.
Quarterly Highlights
During Q3 2024, Tractor Supply opened 16 new stores, bringing its total to 2,270 Tractor Supply locations and 205 Petsense by Tractor Supply outlets. This expansion is a significant contributor to its net sales growth. The Project Fusion initiative, now in nearly 50% of its stores, aims to enhance customer experience through improved store layouts and service capabilities.
Financially, the company saw improvements in its gross margin, which rose by 56 basis points to 37.2%. This rise was driven by operational efficiencies, such as reduced transportation costs and better cost management, despite pressures from lower-margin product categories. Gross profit increased by 3.2% to $1.29 billion, reflecting strong margin management.
One notable acquisition during the quarter was of Allivet, an online pet pharmacy. This move supports Tractor Supply’s omnichannel strategy by expanding its digital product offerings in the lucrative pet pharmaceutical market.
There was a slight decrease in comparable store sales by 0.2%, reflecting competitive pressures and varied consumer demand. Additionally, net income declined by 5.3% to $241.5 million, influenced by higher SG&A expenses, which rose to $965.8 million from $909.6 million in the previous year. Despite these challenges, the dividend per share was increased to $1.10, up from $1.03 last year, marking a continued return of cash to shareholders.
Looking Ahead
For fiscal year 2024, Tractor Supply updated the low end of its range outlook slightly. It revised its guidance for net sales to range between $14.85 billion and $15.0 billion, and comparable store sales growth is expected between 0.0% and 1.0%. This reflects a cautious optimism regarding market conditions.
Management's focus remains on store expansion and enhancing digital capabilities. Investors should watch how effectively Tractor Supply implements its strategic initiatives, such as store opening plans and digital platform enhancements. It will be crucial for maintaining growth and outpacing its financial challenges.
