Will Tractor Supply's Rapid Growth Persist?

With fantastic recent quarterly results and a dividend just raised by a whopping 77%, Tractor Supply (TSCO 0.85%) has become a hot growth stock. In this episode of "3 Minute Stocks Updates" on Motley Fool Live, recorded on Feb. 2, Fool.com contributors Brian Withers and Toby Bordelon talk about what the future might have in store for the growth of the rural lifestyle retailer.

Brian Withers: This sleepy, not-so-little out there retailer had a fantastic quarter, classic beat and raise scenario. The company seems to be executing on all cylinders. Top-line revenue up 15%. It was a tough comp. They had 31% growth last Q4, so 15% on top of a 31%. They open their 2,000 stores. Loyalty members grew 24%. Their loyalty members rival Starbucks' active member count with about 24 million members. Comparable-store sales up 13%, and 40% on a two-year basis. Gross margin declined a bit to 34%. They cited inflation, and product, and transportation costs. Earnings per share up 68%. This is an incredibly shareholder-friendly company. They returned a billion to shareholders this year in buybacks and in dividends, and raised their dividend for the upcoming dividend in March, 77% [laughs] to 92 cents per share. That's their 13th year of increasing dividends. E-commerce accounted for 7% of revenue and marked a 38th consecutive quarter of strong double-digit growth. Operating grew 59%, net income grew 8%. The outlook for the quarter is strong, but not as strong as last year. About 8% for revenue for 2022. Comparable sales of 3% to 4.5% and net income at 10%. The net income is an increase as they pass on price increases to customers. I mentioned very shareholder friendly. Let me show you this chart real quick. They have decreased their share count considerably. This is over the last decade. This is the share count. Toby, I know this is something you'll like, if they do any stock-based compensation, they're not diluting their shareholders for sure. Great quarter and things are looking well ahead for this company.

Toby Bordelon: I love to see that, Brian, and especially fascinating to see if they have almost as many loyalty members as Starbucks does.

Withers: Yeah.

Bordelon: It's just almost mind-boggling when you think about the two different companies. But my big question here on the e-commerce business. It's growing fast, but it's still really small relative to the total. When I think of Tractor Supply, a robust e-commerce business doesn't necessarily come to mind as what they got going on. Do you think it can become a substantially larger part of the business, and how does it ultimately fit into what they're doing now?

Withers: Yes. They took this fourth-quarter earnings release, and for shareholders who haven't listened to an earnings release in a while, they did essentially a full investor update and dove into a lot of their growth initiatives and their long-term strategy. They have a great presentation on their website as well as once the transcripts gets recorded on Fool.com, it's a great read. But don't think of it as an e-commerce business necessarily, Toby, think of it as more of an omnichannel and digital-forward platform. They've released an app back in October, late 2020. It's had 2 million downloads and it's already a 100 million-plus platform where people are ordering through their mobile devices. They've attracted 1.4 million new customers because of the app. But at the end of the day, the store is going to continue to be the hub. They have buy online, pick up in stores. They're converting their garden centers to drive-thrus, where the employees of the store will be able to load your orders into the back of your pickup. In this mobile-first, digitally powered customer experience with the app, is going to help combine with the loyalty program and then the analytics that they get. Customers will be able to research items and get feedback from knowledgeable people and knowledgeable insights that they come to depend on from Tractor Supply, even in the app. There's also a "my pet" feature where you can put in your pets and you'll have easy access to pet prescriptions, vet services, and managing product prescriptions through that. Ultimately, the company has plans to grow this e-commerce/omnichannel digital effort to be 15% of its overall revenue by 2026, exceeding 2 billion in sales.