Tractor Supply (TSCO -0.02%) investors are in for a volatile trading week ahead. The retailer, which had among the best stock return performances in 2021, is slated to announce its Q4 earnings report in just a few days.
Expectations are running high for that update, despite challenges such as soaring costs and a new wave of COVID-19 pressures on its labor force. With that big picture in mind, let's look at a few metrics to watch on Thursday, Jan. 27.
Image source: Getty Images.
Customer traffic trends
Tractor Supply likely endured several new pressures on its sales trends, including trouble keeping stores fully staffed through the latest pandemic wave. The lifestyle retailer is going up against one of its toughest year-over-year comparisons, too, as sales in late 2020 soared by 31%.
Still, the company should report solid revenue trends on Thursday. It entered the fourth quarter with fantastic momentum, having just closed its sixth consecutive quarter of double-digit comparable-store sales gains. Management in late October said customer traffic trends, "remain structurally sound," meaning they are growing both compared to 2019 and compared to 2020. That's why most investors are expecting revenue to rise about 12% in Q4 on top of the prior year's 31% surge.
Higher costs
If Tractor Supply is having trouble passing along higher costs, there's been no hint of that struggle so far. Gross profit margin remained at roughly 36% of sales last quarter and operating income landed at the same 10% of sales. Executives raised their forecast for profitability, too, and are currently predicting that operating income will cross 10% of sales for the full 2021 year compared to 9.4% in 2020.
TSCO Operating Margin (TTM) data by YCharts
Inflation sped up in the months that followed Tractor Supply's October release, though, and so investors are worried that the company might miss its short-term earnings outlook. Management has some room to offset these pressures by raising prices and cutting costs. However, if shoppers balk at those hikes, or shift away from the more premium products they've been buying lately, Tractor Supply might see weaker profitability than expected.
Looking ahead to 2022
All eyes will be on the new 2022 outlook issued by CEO Hal Lawton and his team. The company will be projecting short-term sales results after annual revenue approached $13 billion this past year compared to $10.6 billion in 2020 and $8.4 billion in 2019. A slowdown is expected after those booming gains, with most investors looking for sales to rise by just around 5% in 2022, mainly thanks to a growing store base.
Watch for executives to describe a persistent lift in demand for lifestyle products and for Tractor Supply's popular same-day delivery and pick-up services. Moving against these wins will be rising costs, labor supply challenges, and stepped-up competition from big-box retailers like Walmart.
Tractor Supply's market share gains over the last two years are the best evidence to show that the growth stock can overcome these issues and keep expanding in 2022. But we'll have a better idea of the scale of success after management issues its official 2022 outlook.
