There's no end in sight for the rural lifestyle retailing boom. Tractor Supply's (NASDAQ:TSCO) recent earnings report showed double-digit percentage sales gains through late June, even as COVID-19 cases plummeted and consumers returned to more-normal movement patterns.
Management sees the good times extending deeper into 2021. In a conference call with Wall Street analysts, CEO Hal Lawton and his team explained how Tractor Supply is gaining market share by leaning on core competitive advantages. The outlook is brightening for earnings, too.
With that big picture in mind, let's look at three highlights from Tractor Supply's shareholder update.
1. No end to the boom
Sales gains slowed as compared to the prior quarter but still reflected booming demand for home maintenance, pet and livestock supplies, and seasonal outdoor merchandise. Even as the pandemic threat wanes, consumers are tilting spending toward the rural lifestyle that Tractor Supply dominates.
Management said the 10.5% sales spike in the second quarter means the COVID demand boost has created some enduring tailwinds for its niche. "Over the first 12 months of the pandemic, our sales grew approximately 35%," Lawton said. This quarter's growth came on top of those gains, he said, and it demonstrates that "all the underlying trends have remained and continue to sustain" the business.
2. Winning share
Part of its growth can be explained by an unusually strong selling environment that's being supported by a booming economy and the rising popularity of hobbies like gardening and increased pet adoptions. But Tractor Supply is also winning more than its fair share of the rural retailing category across both the in-store and digital sales channels.
Management credits assets like the chain's robust omnichannel selling platform, strong customer service, and the ability to keep shelves stocked with sometimes hard-to-find merchandise. These wins are reflected in some of Tractor Supply's highest customer-engagement rates on record. "More customers than ever are shopping [with us]," Lawton said, "and these customers are making more trips than ever and are spending more money per trip than ever." The company says it is noticing high retention for newly acquired customers who came on during the pandemic, too.
3. The outlook for prices and earnings
Higher prices were a big part of the growth story in recent months, but customers don't seem to be balking at the hike in costs. In fact, shoppers are increasingly trading up to more premium products. Sales volumes aren't falling in most situations where Tractor Supply has to pass along higher costs through price hikes. "We believe we are effectively navigating impacts to [profitability]," CFO Kurt Barton said.
Those wins have management predicting slightly higher operating margin in 2021. The company also lifted its sales outlook for the second straight quarter.
Some of the credit for these increases has to go to pent-up demand from the pandemic, along with the temporary lift from federal and state financial stimulus measures. But Tractor Supply is also achieving more enduring wins like a world-class digital fulfillment platform and dominant market share.
Its industry-leading customer satisfaction levels, meanwhile, suggest the retailer has a good shot at maintaining its connection with most of its new shoppers long after the pandemic threat has passed. "As the country opens back up, the [rural] lifestyle remains incredibly relevant," Lawton said.