Tractor Supply's Q3 Preview: Analyst Sees Tougher Comps, Macro Pressure & More

Telsey Advisory Group analyst Joseph Feldman reiterates the Outperform rating on Tractor Supply Company TSCO, lowering the price target to $245 from $265.

Tractor Supply will report 3Q23 earnings on Thursday, October 26.

The analyst expects total sales growth of 7.0% to $3.5 billion, on a lower comp of 1.0% vs. 2.5% previously. Feldman revises 3Q23 EPS estimate to $2.30 from $2.32.

Feldman's moderated sales forecast reflects Tractor Supply lapping difficult comparisons from the past three years fueled by heightened spending as a result of the pandemic and government stimulus—comps of 27%, 13%, and 6% in 3Q20, 3Q21, and 3Q22, respectively.

The analyst also sees slowing inflation weighing on average ticket, as the average monthly growth in the CPI fell to 3.5% in 3Q23 from 4.0% in 2Q23 and 8.3% in 3Q22.

The analyst also forecasts softening macro demand indicators—U.S. government industry retail sales were down 4.4% YoY in 3Q23, and the agricultural customer base is weaker, with corn prices and farmer incomes both down significantly.

Feldman projects inline gross margin expansion of 55 bps to 36.2%, reflecting lower freight costs and benefits from strategic initiatives, partially offset by inflation and an unfavorable product mix shift toward C.U.E (consumable, usable and edible). 

Given ongoing wage pressure and strategic investments, the analyst estimates roughly inline SG&A ratio deleverage of ~10 bps to 26.4%. 

The analyst projects an operating margin expansion of 38 bps to 9.7%. Given the unfavorable macro trends, the analyst lowers the 2024 EPS estimate to $11.05, down from $11.42.

Price Action: TSCO shares are trading lower by 2.96% to $196.27 on the last check Friday.