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Why Tractor Supply Company Declined 13.7% in April

By Royston Yang – May 8, 2022 at 7:15AM

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The rural lifestyle retailer continued to report increases in sales and profits for its first quarter.

What happened

Shares of Tractor Supply Company (TSCO 0.27%), the largest rural lifestyle retailer in the U.S., declined 13.7% in April, according to data provided by S&P Global Market Intelligence.

The decline has brought the stock down by 14.5% for the year to date.

An adult and a child on a farm with a wheelbarrow.

Image source: Getty images.

So what

Tractor Supply had reported a decent set of earnings for its first quarter of 2022. Net sales rose 8.3% year over year to $3.02 billion, with comparable-store sales inching up 5.2% year over year. Gross margin, however, came slightly under pressure, falling from 35.2% last year to 34.9% due to cost inflation and higher transportation costs. Net income inched up just 3.2% year over year to $187.2 million. A quarterly dividend of $0.92 per share was declared, 77% higher than in the corresponding period last year.

Investors were probably disappointed by the slowdown in the company's growth rate after the pandemic fueled a surge in demand from people who turned their focus to their homes and farms. For the first quarter of 2021, net sales had increased by 42.5% year over year while comparable sales surged by 38.6%. Tractor Supply had maintained its guidance for 2022 for net sales of between $13.6 billion and $13.8 billion. This level of sales was a year-over-year increase of 7.6% from 2021, and followed a near-20% year-over-year increase from 2020's net sales. Comparable sales also featured a declining trend, from 23.1% in 2020 to 16.9% in 2021, and just 3.8% forecast for this year.

Now what

It's natural to expect the tailwinds from the pandemic to abate as borders start to reopen and economies sputter back to life. Some trends, however, should endure, such as increased pet ownership, trip consolidation, and an increase in homeownership by younger couples. Tractor Supply has identified significant room for further growth, and pegged a total addressable market of around $180 billion for the rural lifestyle and pets sectors. The company also sees room for around 2,700 stores, significantly higher than the 2,003 stores it had as of March 26.

Meanwhile, Tractor Supply continues to expand its portfolio of products. Its partnership with Robert Bosch Tool Corporation will introduce two famous brands -- Dremel and Bosch power tools -- to nearly 1,000 locations by the end of this year. Tractor Supply is also seeing a healthy rise in the number of members within its "Neighbor's Club" loyalty program, climbing by 24.8% year over year to 24.8 million members at the end of the first quarter.

Royston Yang has positions in Tractor Supply. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.

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