Tractor Prospers on Top-Line Growth - Analyst Blog

Tractor Supply Co. ( ">TSCO ) , a leading retail firm and ranch store brand, recorded another quarter of good growth. Earnings per share in the fourth quarter of fiscal 2010 came in at 67 cents a share, breezing past the Zacks Consensus Estimate of 37 cents a share as well as the prior-year earnings of 62 cents per share.

For the fiscal 2010, the company reported earnings per share of $2.25 outpacing the Zacks Consensus Estimate of $2.20 and the prior-year figure of $1.63 per share.

Strong performance in consumable, usable and edible categories − for instance, pet food and animal feed − acted as a catalyst for a 13.1% increase in same-store sales compared with a mere 0.7% in the prior-year quarter. Tractor Supply has been witnessing increasing trends in same-store sales.

During the recession Tractor Supply had suffered setbacks as buyers avoided big-ticket purchases such as mowers, but recent quarters have positively seen an up tick in results. The company's impressive merchandising improvement strategy and solid same-store sales trend resulted in double-digit top-line growth for the company. Net sales in the quarter surged 19.7% to $1,039.6 million from $862.5 million in the prior-year quarter. Total revenue easily beat the Zacks Consensus Estimate of $970.0 million.

Net sales for the year climbed 13.5% to $3,638.3 million from $3,206.9 million in the prior year. Total revenue skipped past the Zacks Consensus Estimate of $3,584.0 million.

Better direct product margin was partially offset by higher transportation costs and an adverse of mix of merchandise. The resultant gross profit surged 18.6% to $336.9 million compared with $284.2 million in the prior-year quarter.

Gross profit for fiscal 2010 jumped 15.5% to $1,203.7 million versus $1,041.9 million in the prior year. Gross margin improved 60 basis points to 33.1%.

Strong same-store sales resulted in a 120 basis point improvement in selling and administration expenses, as a percentage of sales, which came in at 25.0% versus 26.2% in the prior-year quarter. Tractor Supply earned $50.2 million in the quarter, far exceeding the prior-year quarter net income of $37.3 million.

Financial Position

Tractor Supply's balance sheet had cash and cash equivalents of $257.3 million at the end of the year, compared with $172.9 million at prior-year end. Stockholders' equity came in at $933.2 million compared with $779.2 million in 2009. The company generated $222.6 million in cash from operations in fiscal 2010.

Store Update

In the quarter under review, Tractor Supply opened 27 new stores and closed 2 stores. In fiscal 2010, the company opened a total of 74 new stores and closed 3 stores. The company currently runs as many as 1,001 stores in 44 states.

Guidance and Zacks Consensus

Tractor is well positioned to capitalize on positive long-term trends. The company now expects sales for fiscal 2011 to range between $4.00 billion and $4.07 billion backed by expectation of same-store sales increase of 2.5% to 4.5%.

On the back of perked-up results and brighter sales trends, Tractor Supply expects earnings in 2011 to range between $2.54 and $2.62 per share. The Zacks Consensus Estimate for 2011 is currently pegged at $2.52 per share, which jumped 3 cents over the last 30 days.

Competition

The company operates in a highly fragmented industry and faces competition from larger retailers like The Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW).

Tractor Supply's shares maintain a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation. Our long-term recommendation on the stock remains Outperform.

 
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