In this Market Foolery segment, host Mac Greer, David Kretzmann of Supernova and Rule Breakers, and Matt Argersinger of Million Dollar Portfolio, discuss the solid results from the home improvement, agriculture, and animal care products specialist. At a time when many retailers are in contraction, it's growing sales, adding stores and building its footprint. But it's finally getting serious about its online channel too, which is something the Fools are happy to see.
A full transcript follows the video.
This video was recorded on July 27, 2017.
Mac Greer: Guys, let's switch gears and talk Tractor Supply (TSCO 1.35%).
David Kretzmann: Sexy.
Greer: See what I did there? Shares of Tractor Supply up on better-than-expected earnings. David, this was a stock you talked recently about on our Motley Fool Money show; it was one of the stocks on your radar. I know one of the points you made is, this is one of those retailers that may be Amazon-resistant.
Kretzmann: I think so. Looking at the conference call, though, an interesting sign of the times, the word "online" was mentioned 56 times in this conference call. The same quarter last year, it wasn't mentioned once. So that shows a sign of the times. A lot can change in a year. But they are making progress. They're still continuing to open stores -- about 1,600 Tractor Supply stores. They acquired a small-town pet-store chain called Petsense last year, which has about 160 locations.
So they're continuing to build that brick-and-mortar retail presence, but they are also investing a lot in their online and e-commerce business. They've completed the rollout this quarter of their buy-online, pick up-in-store program. Fifty-five percent of their online orders are now picked up in the store through that program. They've also noticed that the average order value through that program is higher than the average order size of someone who's just walking into the brick-and-mortar store and making a purchase without going online.
So they've also rolled out a loyalty program nationwide that has 4 million members now -- the Neighbors Club. This was certainly an improvement from the first quarter, where poor weather in some of their key markets dented their results. I like that management, this quarter, credited good weather for some of the positive performance. They recognize that it goes both ways when it comes to weather.
Greer: You never hear that.
Kretzmann: You don't hear that very often.
Greer: Weather always gets blamed, but never the credit.
Kretzmann: It's true. So it's nice when you see a management team that gives credit to the weather when they recognize that's part of the reason they reported good results.
They did lower their guidance for the rest of the year. It was primarily because their first quarter started off a lot weaker than they anticipated. But the second-quarter results as a whole were pretty strong. You had sales up 9%, same-store sales up 2.2%, EPS up 8%. So they're not lighting the world on fire, but I think the type of demographic they serve in these rural, small-town markets, I don't think that's a demographic that Amazon's going to be going after.
And a lot of the items they sell are a lot heavier. You're probably not going to buy a 50-pound bag of feed through Amazon. That might be the type of thing you buy online and pick up in the store. So I really like that they are finally focusing more on building that internet presence. They have a goal to open up to 2,500 stores in the U.S. So they still have some room to grow there, and I think they can continue to grow that online presence.
Matt Argersinger: Speaking of that online presence -- I'm going to be like Steve Broido for a second -- should Tractor Supply buy farmersonly.com?
Kretzmann: [laughs] That could be a nice --
Greer: What what is farmersonly.com?
Kretzmann: You're not a user, Mac?
Greer: No.
Argersinger: Come on, Mac. No, honestly, I've only seen the commercials, but I think it's a dating site for farmers. And I think, as a way of enriching the ecosystem --
Kretzmann: A lot of synergies there.
Argersinger: You could have meetups at Tractor Supply.
Greer: I think that makes sense.
Kretzmann: They already do some farmers' markets at their stores. So, hey, some dating meetups?
Greer: How do they know? If you're a non-farmer and you go on the site, how do they know?
Kretzmann: Yeah, what's that registration process like?
Greer: Is there any sort of vetting?
Kretzmann: But what non-farmers would go to that site?
Greer: Someone who wanted to meet a farmer. If you want to meet a farmer.
Kretzmann: If you're eager, yeah. And who wouldn't want to meet a farmer? That was a dumb question on my part.
Greer: Farmersonly.com, I see an acquisition happening.
Argersinger: It just seems to make sense to me.
Greer: I could also see Amazon buying them. Amazon is on a spree.
Kretzmann: Buying Tractor Supply or farmersonly.com?
Greer: Farmersonly.com, because then you have Whole Foods, you have farmersonly.com, it all makes sense to me.
Kretzmann: I think so. It blends together.
Greer: In my strange brain.
