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Tractor Supply Earnings Preview: 3 Trends to Watch

By Demitri Kalogeropoulos – Oct 17, 2021 at 8:45AM

Key Points

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The rural lifestyle retailer has some big questions to answer for investors.

One of retail's best growth stories is about to be tested. Tractor Supply (TSCO -1.01%), the rural lifestyle company that's seen sales surge in the past 18 months, is due to report earnings results for the third quarter while updating its outlook for the wider fiscal year.

Expectations are running high heading into the announcement, slated for Thursday, Oct. 21. Let's look at three key trends to watch for in that report.

A farm with horses grazing.

Image source: Getty Images.

1. Tractor Supply is facing high expectations

Wall Street is looking for good news on the sales front. Revenue jumped 11% last quarter, after all, even as the company went up against booming growth from a year earlier. "All the underlying [growth] trends have remained," through 2021, CEO Hal Lawton said in an earnings call back in July, "and continue to sustain."

Most investors are expecting sales to grow 19% this quarter, to $2.8 billion, which would translate into further solid gains compared with 2019. Look for management to highlight market share trends as rivals work to pry away some of its loyal customers in areas like pet food and home decoration and maintenance. Tractor Supply's rising customer satisfaction metrics suggest the chain might succeed in keeping those shoppers engaged with its business through 2021 and beyond.

2. Balancing prices and sales growth

The company likely faced major challenges around the supply chain and inflation through the late summer weeks. CFO Kurt Barton said the chain wasn't worried about its ability to raise prices, though, especially since shoppers are spending freely on more premium products today.

Still, watch operating margin for any sign of stress on Tractor Supply's profitability. Executives are aiming to push that metric slightly higher in 2021, but that outlook might shift with the recent acceleration of inflation.

Meanwhile, shareholders are hoping the chain has secured enough inventory to satisfy demand heading into the holiday quarter. It's possible Tractor Supply had to sacrifice short-term earnings to meet that goal. That's the right strategy, though, to maximize long-term growth.

3. Will Tractor Supply raise its outlook again?

Tractor Supply has raised its 2021 outlook in each of the past two quarters and might make it three-for-three this week. Heading into the announcement, sales are projected to rise by between 11% and 13% as operating margin inches up to roughly 10% of sales. Those forecasts had stood at between 5% and 8% and 9.5% of sales, respectively, before the mid-July report.

The stock's rally in recent weeks suggests investors are hoping for another upgrade on Thursday that perhaps has the chain targeting annual sales significantly above $12 billion. That yearly mark stood at just $8.4 billion in 2019, before the pandemic lifted demand trends.

It's clearly great news for the business that Tractor Supply can reasonably aim for a nearly 50% higher sales base in just two years. But investors are even more excited about its potential to use its new market share to deepen its presence in popular niches like pet food, gardening, and home supplies, well after the pandemic threat has faded.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.

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