What happened

Tractor Supply (NASDAQ:TSCO) shareholders lost ground to a falling market on Monday. The retailer's stock fell 7% two hours into the trading day compared to a 1.5% drop in the broader market, according to data provided by S&P Global Market Intelligence.

Wall Street found reasons to complain about its recent earnings report, even though that announcement showed strong sales growth in the fiscal second quarter.

Horses graze outside of a farm house.

Image source: Getty Images.

So what

Comparable-store sales jumped 10.5%, management revealed on Monday morning, to beat the 6% increase most investors were expecting. Tractor Supply benefited from further market share gains, along with booming interest across its portfolio of rural lifestyle products.

"As the country reopens," CEO Hal Lawton said in a press release, the chain's niche "remains incredibly relevant as we continue to grow our active customer count and retain last year's new and reengaged customers."

Despite that strong sales result, and management's boosted outlook, investors decided to take profits off the table. Heading into Monday's announcement, Tractor Supply's stock had been up over 35%, year to date.

Now what

Lawton and his team aren't seeing a demand slowdown in the second half of the year. Instead, executives lifted their sales and profit outlook for the second straight quarter. Tractor Supply is now on pace to increase sales by between 11% and 13% this year compared to the prior range of 5% to 8%. The retailer entered the year predicting flat revenue following last year's surge.

Profits are also growing much more quickly, with operating margin now on track to hit 10% of sales compared to the past goal of 9.5%. These wins should translate into nearly $8 of earnings per share in 2021, a full $1 above prior forecasts.

In that context, the stock's decline can only be blamed on profit taking. The wider market was down on Monday, sure, but Tractor Supply has also soared since late 2020.

Today's slump still leaves shares higher by over 20% so far this year. And the company should generate strong returns for investors if it keeps winning market share through this growth cycle in the home and pet products niches.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.