Tractor Supply's (TSCO 3.26%) management team disappointed some shareholders when they revealed in late April that sales trends missed their targets in Q1. This demand pressure also led to roughly flat earnings for the rural-lifestyle retailer, as compared to the prior-year period.
Yet company executives made encouraging comments about a rebound starting early in fiscal Q2. Let's take a closer look at why this period is so critical for the business and whether the retailer is still on track to cross $15 billion of annual sales in 2023.
The slowdown
It can sound like a poor excuse when executives blame the weather for surprisingly weak sales, as Tractor Supply did in late April. Light demand in March was driven by "less favorable spring weather trends," CEO Hal Lawton said in a statement. Comparable-store sales (comps) missed management's target as a result, slowing to 2% from 9% in the previous quarter.
Seasonal products, like fertilizer and mulch, make up a large portion of the company's business. That's why even a slight delay in the start of spring weather can make a big, if temporary, impact.
Tractor Supply says in its 10-K report that this seasonality makes quarterly growth a poor metric for investors to follow. "Our business can be more accurately assessed by focusing on the performance of the halves, not the quarters," the company said.
The steady forecast
The chain's 2023 outlook also implies that the weak Q1 period was driven by some sales being pushed into the start of Q2. Tractor Supply is still aiming to achieve comps growth of between 3.5% and 5.5%, or just below last year's 6% increase.
Revenue should expand to $15 billion from $14 billion in 2022 and $12.7 billion in 2021. Lawton expressed confidence in the company's consumer base, citing rising customer traffic through most of the first quarter. Tractor Supply also won market share in the period, suggesting no serious new competitive challenge.
Looking ahead
Tractor Supply's 2023 results will ultimately depend mainly on how well the company performs in the spring and winter selling seasons. But the more important factors for investors to follow aren't as volatile. Metrics like market share, customer loyalty, and profit margin help determine the long-term path of the business, and these have all been positive through most of the pandemic and its aftermath.
TSCO Operating Margin (TTM) data by YCharts.
Investors will have a much clearer picture of Tractor Supply's short-term trends after the company announces Q2 results in late June. For patient investors, though, the stock looks attractive today at a price-to-sales ratio of 1.9. Demand shifts due to weather or slowing consumer spending patterns might pressure earnings in any given year.
But Tractor Supply has generated strong returns for its shareholders through a simple approach that combines steady market-share growth with an expanding product portfolio in stores and online. These wins don't guarantee rising earnings in a particular year, but they do point to excellent profit growth over many years.
