It's no secret that Tractor Supply's (NASDAQ:TSCO) business benefited from pandemic-related changes in consumer shopping. The rural lifestyle retailer saw a sustained demand uptick as people focused more on home and pet care last year. Sales jumped 27% in 2020 compared to 3% in the prior year.
Investors have been bracing for a sharp slowdown as the COVID-19 threat lessens by late 2021. But, in a conference call with Wall Street analysts, CEO Hal Lawton and his team explained why their outlook for the business is brightening.
Let's look at some standout quotes from that presentation, including Lawton's summary of Tractor Supply's strong market share.
Ten words that say a lot
"We're gaining share across all categories, online and in stores."
Executives said the booming growth in the first quarter was supported by several unusual benefits. These one-time bumps included great weather in most of the country, rising prices, and federal stimulus support. The factors helped comparable-store sales jump 39% through March, marking an acceleration over the prior quarter's 27% spike.
But Lawton said Tractor Supply's growth was also a function of market share growth and a more engaged customer base. Support for this bullish reading showed up in places like customer traffic, which jumped 21%; average spending, up 18%; and booming demand in the e-commerce sales channel. Across all channels, 2.5 million customers engaged with Tractor Supply's business, up 30% over last year.
"This quarter marked the ninth consecutive quarter of year-over-year gross margin rate expansion"
-- CFO Kurt Barton
Tractor Supply had good news to report on the financial side of the ledger, with gross profit margin rising 1.5 percentage points to 35% of sales. Higher prices helped, and so did a shift toward more profitable products like trailers, fences, safes, and outdoor power equipment.
Some of this lift came from the stimulus checks that helped support booming consumer spending in early 2021. But Tractor Supply sees longer-terms shifts at work, too, including higher pet adoption rates and rising engagement in hobbies like gardening and backyard poultry farming. Gross profit margin has now increased for more than two full years.
"Our updated guidance reflects the strong results from the first quarter and the positive momentum we see in our business continuing into the second quarter."
Tractor Supply usually resists updating its annual outlook in the first quarter because so much of its year depends on how well the spring months go for the business. That volatility will be amplified by the fact that it is starting to lap surging demand from a year earlier when the pandemic threat was ramping up.
But executives saw enough good news that they broke from tradition and issued a new 2021 forecast. Sales will rise by between 5% and 8%, they said, compared to their last outlook calling for between a 2% decline and a 1% uptick.
Operating margin will climb a bit faster, too, thanks to rising prices and robust demand for big-ticket farming products. Overall, earnings should land between $7.05 per share and $7.40 per share compared to the February forecast calling for between $6.50 per share and $6.90 per share of profit.
Investors should take that boost as a clear sign that Tractor Supply's pandemic lift isn't nearly finished. Instead, the retailer could settle back down to a significantly higher annual growth rate than the low single digits it managed in each of the two years preceding the pandemic in 2020.