Tractor Supply Company Reports Record Third Quarter 2020 Financial Results and Details Life Out Here Strategy
Tractor Supply Company (“Tractor Supply” or the “Company”), the largest rural lifestyle retailer in the United States, today reported financial results for its third quarter ended September 26, 2020. The Company will host a virtual event this morning to provide an overview of its third quarter 2020 financial results and discuss its Life Out Here Strategy to accelerate key strategic initiatives to drive sustainable sales growth and financial performance.
“We were very pleased with the overall performance of our business in the third quarter, which exceeded our expectations. My sincere thanks and appreciation go out to the more than 40,000 Team Members of Tractor Supply for their extraordinary efforts to serve our customers with dedication and passion in the midst of the ongoing challenges of the COVID-19 pandemic and multiple natural disasters in the quarter. Our fundamentals are strong as we continue to gain market share across existing, new and reengaged customers. We are focused on advancing our capabilities to better serve our customers as we look to emerge from the pandemic even stronger,” said Hal Lawton, Tractor Supply’s President and Chief Executive Officer.
“Our Life Out Here Strategy builds on Tractor Supply’s strong heritage of being the dependable and convenient supplier for the Out Here Lifestyle. With a resilient business model and a differentiated and loyal customer base, we are moving at a fast pace to ensure Tractor Supply continues as a strong, relevant company for the future. Given our solid foundation along with our new strategic initiatives, we believe there are many growth opportunities ahead of us. The future is exciting as we look to drive sustainable growth and long-term value for our shareholders,” Lawton added.
Third Quarter 2020 Results
Net sales for the third quarter 2020 increased 31.4% to $2.61 billion from $1.98 billion in the third quarter of 2019. Comparable store sales increased 26.8%, as compared to an increase of 2.9% in the prior year’s third quarter.
The COVID-19 pandemic continued to have a significant impact on consumer demand in the third quarter of 2020 across all of the Company’s major product categories as customers focused on the care of their homes, land and animals. Comparable store sales for the third quarter 2020 were driven by comparable average transaction count and ticket growth of 14.3% and 12.5%, respectively. The comparable store sales results also reflect a strong demand for everyday merchandise, including consumable, usable and edible products, and robust growth for summer seasonal categories. All geographic regions of the Company had robust comparable store sales growth. In addition, the Company’s e-commerce sales experienced triple-digit percentage growth.
Gross profit increased 36.6% to $948.0 million from $694.2 million in the prior year’s third quarter, and gross margin increased 138 basis points to 36.4% from 35.0% in the prior year’s third quarter. The increase in gross margin was driven by lower depth and frequency of sales promotions, less clearance activity and lower transportation costs as a percent of net sales.
Selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 30.7% to $695.8 million from $532.4 million in the prior year’s third quarter. As a percent of net sales, SG&A expenses improved 14 basis points to 26.7% from 26.8% in the third quarter of 2019. The decrease in SG&A as a percent of net sales was primarily attributable to leverage in occupancy, personnel and other operating costs from the increase in comparable store sales. The leverage from these SG&A expenses was partially offset by incremental costs related to the COVID-19 pandemic including additional labor hours and supply costs dedicated to cleaning and sanitation to enhance the health and safety of Team Members and customers, investments in strategic initiatives including advertising, and increased incentive compensation given the record sales and profit performance in the quarter with the majority allocated to the store teams.
The effective income tax rate was 22.2% in the third quarter of both 2020 and 2019.
Net income increased 56.1% to $190.6 million from $122.1 million, and diluted earnings per share increased 58.8% to $1.62 from $1.02 in the third quarter of 2019.
The Company opened 23 new Tractor Supply stores and three new Petsense stores in the third quarter of 2020.
First Nine Months of Fiscal 2020 Results
Net sales for the first nine months of 2020 increased 25.7% to $7.74 billion from $6.16 billion in the first nine months of 2019. Comparable store sales increased 21.5% versus a 3.6% increase in the first nine months of 2019. Gross profit increased 29.9% to $2.77 billion from $2.13 billion, and gross margin was 35.7%, compared to 34.6% in the first nine months of 2019.
SG&A expenses, including depreciation and amortization, increased 23.9% to $1.95 billion but decreased as a percent of net sales to 25.2% compared to 25.6% for the first nine months of 2019.
The effective income tax rate in the first nine months was 22.6% compared to 22.2% in the first nine months of 2019.
Net income increased 46.6% to $613.1 million from $418.2 million, and diluted earnings per share increased 51.6% to $5.23 from $3.45 for the first nine months of 2019.
Year to date through the third quarter, the Company has repurchased approximately 2.9 million shares of its common stock for $263.2 million prior to suspending the share repurchase program on March 12, 2020. The Company has also paid quarterly cash dividends totaling $128.0 million year to date.
During the first nine months of 2020, the Company opened 61 new Tractor Supply stores and six new Petsense stores and closed one Tractor Supply store and three Petsense stores.
Fourth Quarter 2020 Financial Outlook
The impact that the COVID-19 pandemic will have on the broader economy and the Company’s fiscal 2020 results remains uncertain.
The Company is providing the following updated guidance for the expected results of operations in the fourth quarter of 2020:
Net Sales – $2.6 billion – $2.7 billion
Comparable Store Sales – +15% – +20%
Net Income – $163 million – $175 million
Earnings per Diluted Share – $1.37 – $1.47
COVID-19 related costs will continue to impact the business and are estimated to be approximately $17 million to $20 million in the fourth quarter. Additionally, the Company has prioritized its Life Out Here strategic growth initiatives, which will also impact the cost structure and are estimated to be approximately $12 million to $15 million in the fourth quarter. As previously disclosed and consistent with the third quarter of 2020, the Company anticipates permanent wage and benefit changes that will cost approximately $13 million in the fourth quarter.
For fiscal 2020, the Company continues to forecast capital expenditures in the range of $300 million to $325 million and plans to open approximately 80 new Tractor Supply stores and 10 new Petsense locations.
The Company is in a very strong liquidity position with current cash and cash equivalents of approximately $1.11 billion and no amounts drawn on its $500 million revolving credit facility as of September 26, 2020.
Life Out Here Strategy and Long-Term Financial Targets
The five major pillars of the Life Out Here Strategy that will be discussed by Lawton and other executives at today’s event are outlined below:
1.) Deliver Legendary Customer Experiences: Expand and deepen Tractor Supply’s customer base by providing personalized, localized and memorable customer engagements.
2.) Advance the Company’s ONETractor Capabilities: Evolve the Company’s Anytime, Anywhere, Any Way customer experiences by digitizing business processes and furthering omni channel capabilities.
3.) Operate the Tractor Way: Drive operations excellence and productivity through continuous improvement, space utilization and advanced supply chain capabilities.
4.) Go the Country Mile with our Team: Connect, empower and grow Team Members to enhance their lives and the communities they live in, enabling them to provide legendary service to the Company’s customers.
5.) Generate Healthy Shareholder Return: Allocate resources in a disciplined and efficient manner to drive profitable growth and build total shareholder value.
As part of today’s webcast video event, Tractor Supply’s management will share greater details on how the Company’s Life Out Here Strategy is anticipated to create sustainable shareholder value. Key initiatives in support of the strategy include space productivity through its Side Lot Transformation and Project Fusion store remodels, continued omni channel initiatives and digitization of its business processes, evolution of its Neighbor’s Club loyalty program and improved in-store merchandising execution through the use of Field Activity Support Teams.
As part of its Life Out Here Strategy, Tractor Supply has currently set the following annual financial growth rate targets for the three to five years starting once the Company believes it has cycled a year of normalized macro conditions from the impacts of the COVID-19 pandemic. These estimated growth rate targets do not constitute guidance for any currently identifiable period and represent long-term annual targets over time. Performance in any individual year may be lower or higher than these targets. Management will provide insights on these financial targets at today’s event.
Net Sales – +6% – +7% (Target)
Comparable Store Sales – +4% – +5% (Target)
Operating Margin – 9.0% – 9.5% (Target)
Earnings per Diluted Share – +8% – +10% (Target)
“In an environment that continues to be highly uncertain, our Life Out Here Strategy is intensely focused on controlling what we can control as we look to emerge from the pandemic even stronger than before. We believe that Tractor Supply is well positioned for long-term sustainable growth. With a strong balance sheet and significant free cash flow generation, we have the ability to invest from a position of strength in our strategic initiatives to drive growth as we maintain a disciplined capital allocation process,” said Kurt Barton, Tractor Supply’s Chief Financial Officer.
The Company anticipates capital expenditures in the range of $450 million to $550 million annually to execute this strategy. This includes plans in 2021 to open approximately 75 to 80 new Tractor Supply stores, remodel 150 to 200 stores and transform the side lots in 150 to 200 locations.
For the full third quarter results, click here.
About Tractor Supply Company
Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, has been passionate about serving its unique niche, as a one-stop shop for recreational farmers, ranchers and all those who enjoy living the rural lifestyle, for more than 80 years. Tractor Supply offers an extensive mix of products necessary to care for home, land, pets and animals with a focus on product localization, exclusive brands and legendary customer service that addresses the needs of the Out Here lifestyle. With more than 38,000 Team Members, the Company leverages its physical store assets with digital capabilities to offer customers the convenience of purchasing products they need anytime, anywhere and any way they choose at the everyday low prices they deserve. At June 27, 2020, the Company operated 1,881 Tractor Supply stores in 49 states and an e-commerce website at www.TractorSupply.com. Tractor Supply Company also owns and operates Petsense, a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-size communities, and offering a variety of pet products and services. At June 27, 2020, the Company operated 180 Petsense stores in 25 states. For more information on Petsense, visit www.Petsense.com. To stay up to date on all things for Life Out Here, follow Tractor Supply on Facebook, Instagram and Twitter.
Mary Winn Pilkington – Media Relations – (615) 440-4212
Source: Tractor Supply Company