Springtime brings with it a feeling of renewal and fresh starts. In that spirit, Spring can also be a good time to take a look at your portfolio and not only pull some weeds but also plant some seeds that will grow over the coming years and hopefully decades. With the overall market still down on the year, now is a great time to buy some stocks on sale and reap the rewards when the stock market inevitably rebounds.
As we head into the end of the month, two companies stand out to me as stocks to buy in April. Tractor Supply Company (TSCO -0.01%) and Ulta Beauty (ULTA 0.70%) represent very different aspects of the consumer segment, but each is positioned for continued success in 2022 and beyond.
Catering to recreational farmers and anyone who enjoys the outdoor lifestyle, Tractor Supply is a leader in its space, selling everything from pet food and livestock feed to lawn and tractor equipment to anyone living what they call the rural lifestyle. While this may be a niche part of the consumer market, the results have been impressive.
For the first quarter of 2021, revenue increased 8.3%, comparable-store sales grew 5.2%, and earnings per share rose 6.5% year over year. At first glance, these may seem like respectable but pedestrian results for a retailer.
Yet, when you look at the year-ago quarter they're being compared to, it tells a different story. In Q1 of 2021, revenue, comparable-store sales, and earnings per share were up 43%, 39%, and 118%, respectively, compared to Q1 of 2020. With that perspective, this quarter's results are much more impressive.
The company expects a strong remainder of the year as well. Full-year guidance calls for revenue growth of 8% (to $13.7 billion), comparable-store sales growth of 3% to 4.5%, and earnings-per-share growth of approximately 9%. These expected results are all compared to a strong 2021 as mentioned above, so meeting them would be equally as impressive.
Meanwhile, Tractor Supply's shares are handily beating the market over the past year, rising 16% compared to the S&P 500's 4%. That stock performance also means that Tractor Supply isn't exactly cheap, trading at 24 times trailing earnings, a hefty valuation for a retailer.
However, excluding the market crash of early 2020, Tractor Supply hasn't traded for less than 20 times earnings, and yet the stock's performance has been strong, demonstrating that the premium may be worth paying.
Having grown to be the largest beauty retailer in the United States, Ulta Beauty has consistently put up earnings results that demonstrate how the company has been able to achieve its market penetration and scale. Ulta has been able to simultaneously provide a welcoming in-store experience as well as a robust digital strategy, allowing its customers to shop in whatever way they prefer.
Ulta reported its full-year 2021 results in March and posted year-over-year revenue growth of 40% and comparable-store sales growth of 38%. The comparable-store growth was driven by a 30% increase in the number of transactions as well as a 6% increase in the average ticket (the amount a customer spends on one order).
Ulta also improved its gross margin to 39%, from 32% in 2020, and decreased its operating expenses as a percentage of revenue by almost 2%.
Similar to the tough comps experienced by Tractor Supply this year, Ulta will be facing the same challenge in 2022. Full-year guidance calls for revenue growth of 22% and comparable-store sales growth of 3% to 4%. Nothing to write home about in the absence of any context but impressive considering how strong 2021 was for the business.
Also important for shareholders is how management has allocated capital. Over the past five years, the company has used share repurchases to decease shares outstanding by more than 15%. In March of this year, Ulta's board approved an additional $2 billion in share repurchases. These decisions are directly accretive to shareholders as the repurchases increased the value of each share held.
Ulta's stock has been a market beater over the past year, leading the S&P 500 by over 20%. The shares currently sport a price-to-earnings ratio of 23 and a price-to-sales ratio of 2.6. Neither multiple would be considered cheap for the retail industry, but Ulta has proven itself to be a strong performer with no evidence of that changing in the near future.