Tractor Supply Earnings: What to Watch

Tractor Supply (TSCO 0.03%) is set to report third-quarter earnings on Oct. 22. The company continues to increase sales as the economy reopens. 

In this segment from "Beat & Raise," recorded on Oct. 4, Fool.com contributors Brian Withers and Demitri Kalogeropoulos highlight what to look for when the company releases third-quarter figures. Fool.com contributor Parkev Tatevosian is also in the clip.

Brian Withers: Tractor Supply, a totally different company. [laughs]

Demitri Kalogeropoulos: But this is a great story to watch too. Tractor Supply is a retailer where they build themselves as rural lifestyle retailer. They've just been talking about being in the right place and the right time, in this past, through the pandemic. Their revenue has shot up. I think it was about 35 percent for the 12 months that ended about six months ago. They're still growing on top of these big pandemic boost they had because of all the interest and all that lifestyle changes that are happening right now where people are spending a lot more time around the house. They're spending more money at home maintenance, pets, and pet maintenance is going up, livestock, all these things, gardening, hobbies like that, all those shifts that have happened on a wholesale basis here in the US society. Tractor Supply has been there to help its customers. You can see that in the stock price, it's been doing really well this year. Expectations, there's some estimated earnings date on the 22nd. We're expecting sales to grow almost 20 percent, which is again on top of a huge jump last year. Earnings are supposed to be around flat, but that doesn't really tell much of the story, because like I said, their profitability has been expanding a lot. On that basis, that's been all good news. I'll be watching. Market share, that's the big question. Tractor Supply is not alone in a lot of these categories.

Every national retailer wants that business. Walmart, I can just think of a few, Target, for example, Walmart, and then there's places like Chewy online, that food and things like that. The big question is whether Tractor Supply is holding on to all these new customers that it has secured over the pandemic, and so far, it has been, so I'd be looking for updates there. Profitability is also a big too to watch. This one obviously, they're dealing with a lot more higher costs that they're going to have to pass on to customers. It's a question mark there about how easily it's going to be able to do that, and whether management is going to prioritize growth over earnings, which would make sense too. Then we'll get an updated outlook, perhaps. Tractor Supply already raised its outlook twice this year in the last two quarters, so this could be the third one. If they saw some continued strong demand, I wouldn't be surprised to see that happen.

Brian Withers: Tractor Supply has been an incredibly resilient company over the years. I remember I wrote an article early on in the coronavirus about Tractor Supply and compared it back to the 2008, 2009 financial crisis. The revenue increased throughout the whole time, the stock increased throughout the whole time, and then as they grew, they leveraged their business and their bottom line grew as well. You mentioned that the earnings per share is flat. I feel like this new CEO has just been really smart about investing in the business, investing in employees, investing in the stores. I think part of why they've been so successful during the coronavirus is I think that their customers feel like they're being taken care of.

Whether it's curbside pickup thrown in the back of your pickup truck or plexiglass, they didn't flinch about buying personal protective equipment and masks for employees. I wouldn't be surprised if they beat the earnings number. But I think all of those things have been rather than temporary costs to deal with the coronavirus. I think they're well spent and put a lot of goodwill out there for their customers.

Demitri Kalogeropoulos: I'm always impressed with the combination of, like you mentioned, good management decisions. What I'm thinking of in the pandemic is they definitely pivoted toward digital really aggressively in terms of, like I said, really high customer service and getting next day or within the day, in many cases, delivery and pickup, and executing really well. It's a combination of great strategy, good execution, and that shows up, like you said, in just really steadily growing returns for investors over a long period like in the past decade.

Brian Withers: I think you bring up a good point as I also remember that these guys are really smart. I want to say the individual stores have something like 30,000 stock-keeping units in them. But their online retailer has hundreds of thousands. They are smart about where they put their inventory, and obviously, if it's in a distribution center, it's available for customers just through a different means. They've been steadily growing their online presence as well and not just their brick-and-mortar presence. Awesome. I'm excited. These guys are just seller operators and the new CEO, I can't remember his name that they put in. He got in in October, just before the coronavirus.

Demitri Kalogeropoulos: I think it's Hal Lawton, I believe.

Brian Withers: Yeah, Hal, yes. Really, really stellar. Do you follow Tractor Supply at all, Parkev?

Parkev Tatevosian: No, I don't, but I mean, incredible timing for that CEO. I mean, geesh.

Brian Withers: Yeah, [laughs] welcome. It was an outside hire too. Not only did he get to learn the company, he got it under some amazing circumstances.