Rural lifestyle retailer Tractor Supply (TSCO 0.85%)saw its sales surge during the back half of 2020 and for the full year of 2021, as the business proved to be a COVID-19 beneficiary. It seems to be holding on to the wave of new customers it gained over the last few years. Indeed, the company's sales growth accelerated during the fourth quarter. In addition, Tractor Supply management said it expected robust growth this year as well.
Here's a look at what's driving the company's impressive business momentum -- and why it is well positioned for further growth in 2023 and beyond.
Benefitting from a winter storm and an extra week
While Tractor Supply's business is certainly doing well, investors should note that the company benefited from two exceptional events during the quarter. First, the retailer had an extra sales week during the quarter compared to the year-ago period. Management said this accounted for 6.8 percentage points of Tractor Supply's reported year-over-year revenue growth rate of 20.7%. Second, management estimates that severe winter storms in late December helped drive an extra two percentage points of comparable-store sales growth for the period. Nevertheless, the company's net-sales growth and comparable-store sales growth rates were both strong even when excluding these factors.
Capturing Tractor Supply's momentum, comparable-store sales growth rose 8.6% in Q4, helped by ticket size and transaction-frequency growth. For the full year of 2022, comparable-store sales rose 6.3%. Importantly, Tractor Supply estimates that it continued to gain market share throughout the year across its product categories.
Strong catalysts
While there are a number of drivers for Tractor Supply's business, there are some areas where the company has executed particularly well recently: its loyalty program, store remodels and expansions, and store openings.
In its Q4 earnings report, Tractor Supply said that since it initiated its "Life Out Here" strategy just over two years ago, it has grown its loyalty program membership 47% to 28 million members, remodeled 30% of its store base to its new "Project Fusion" format, and built 300 garden centers at its stores. "These investments are resonating with our customers as we exited the year with strong traffic growth," said Tractor Supply CEO Hal Lawton in the company's Q4 update.
As far as store launches, the company opened 63 new Tractor Supply stores during the year and nine new Petsense by Tractor Supply stores. It closed only one store. The company also acquired 81 stores from Orscheln Farm and Home during the year. These stores are set to be rebranded as Tractor Supply stores this year. Including its Orscheln Farm and Home and Petsense by Tractor Supply stores, the company operated about 2,300 stores at the end of 2022.
All of these catalysts have management confident about the company's potential in 2023. Tractor Supply management said it expects total sales during the year to be between $15.0 billion and $15.3 billion, up from sales of approximately $14.2 billion in 2022. The company expects comparable-store sales to increase at a rate between 3.5% and 5.5% year over year. These sales are expected to generate earnings per share between $10.30 and $10.60.
