Tractor Supply Company

Tractor Supply Company (NASDAQ: TSCO) is a rural lifestyle retailer in the United States. The Company is focused on supplying the needs of recreational farmers and ranchers. It operates retail stores under the names Tractor Supply Company and Petsense by Tractor Supply. Its stores are located in towns outlying various metropolitan markets and in rural communities. 

Recent Business and Financial Updates

• Financial Performance Overview: Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, reported its financial results for the third quarter ending September 28, 2024. Net sales increased by 1.6% to USD 3.47 billion, driven primarily by new store openings. Comparable store sales experienced a slight decline of 0.2%, reflecting a 0.5% decrease in average ticket value, partially offset by a 0.3% rise in transaction counts. Despite a tepid retail environment, the Company delivered on expectations and demonstrated resilience in its operations.
• Gross Profit and Margin Improvements: Gross profit for the third quarter grew by 3.2% to USD 1.29 billion, with the gross margin improving by 56 basis points to 37.2%. This improvement was driven by lower transportation costs, disciplined product cost management, and the successful execution of the Company’s everyday low-price strategy. These gains were partially offset by growth in big-ticket categories, which carry lower-than-average margins. The Company continues to focus on maintaining pricing discipline and enhancing profitability while navigating market challenges.
• Increased SG&A Expenses and Operating Income: Selling, general, and administrative (SG&A) expenses, including depreciation and amortization, rose by 6.2% to USD 965.8 million, primarily due to planned investments in growth initiatives. Key contributors included the onboarding of a new distribution center and the absence of a USD 11 million one-time depreciation benefit recorded in the previous year. SG&A expenses as a percentage of net sales increased to 27.8%, reflecting modest deleverage caused by the slight decline in comparable store sales. As a result, operating income for the quarter stood at USD 324.6 million compared to USD 340.9 million in the prior year.
• Net Income and Capital Allocation: The Company reported net income of USD 241.5 million, a decline of 5.3% compared to USD 255.0 million in the prior year’s third quarter. Diluted earnings per share (EPS) decreased by 3.9% to USD 2.24, impacted by the absence of a one-time depreciation adjustment, which had benefited the prior year’s EPS by USD 0.08. During the quarter, Tractor Supply returned USD 267.6 million to shareholders through the repurchase of approximately 0.6 million shares for USD 149.8 million and cash dividends totaling USD 117.8 million.
• Strategic Initiatives and Store Expansion: The Company continued its store expansion efforts by opening 16 new Tractor Supply stores during the third quarter. Significant progress has also been made on the Project Fusion layout, with nearly 50% of stores now upgraded. Additionally, the Company has developed over 550 garden centers, further enhancing its in-store offerings. The announcement of a definitive agreement to acquire Allivet, a leading online pet pharmacy, highlights Tractor Supply’s strategic move to expand its pet product offerings and deliver greater value to its 37 million Neighbor’s Club members.
• Fiscal Year 2024 Financial Outlook: Based on year-to-date performance, Tractor Supply has updated its fiscal year 2024 guidance. The Company now projects net sales of USD 14.85 billion to USD 15.0 billion, with comparable store sales ranging from 0.0% to 1.0%. Operating margin is expected to remain between 9.8% and 10.1%, and net income is anticipated to range from USD 1.09 billion to USD 1.12 billion. Diluted earnings per share are forecasted between USD 10.10 and USD 10.40. This outlook reflects the Company’s confidence in its ability to generate consistent, profitable growth while delivering long-term shareholder value.
• Leadership and Forward Strategy: Hal Lawton, President and Chief Executive Officer, emphasized the Company’s strong fundamentals and continued focus on advancing the "Life Out Here" strategy. He acknowledged the team’s efforts amid challenges, including the recent hurricane season, and reiterated the commitment to enhancing customer loyalty through strategic investments in stores, supply chains, and digital capabilities. Lawton expressed optimism about the future, particularly with initiatives such as the Allivet acquisition, which unlocks new growth opportunities in pet prescription services. The Company remains well-positioned to capture market share and achieve sustainable, long-term success.

Technical Observation (on the daily chart):

The 14-day Relative Strength Index (RSI) currently registers a value of 41.06, indicating a downward trajectory with the likelihood of consolidation in the near term. Furthermore, the stock is presently positioned between the 50-period Simple Moving Average (SMA) and the 200-period SMA, which are expected to act as dynamic resistance and support levels in the short to medium term, respectively. The price is approaching a critical support zone in the range of USD 260 to USD 270; should this level hold, it may trigger an upward momentum, potentially driving the price toward its 52-week high levels. 

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘WATCH’ rating has been given for Tractor Supply Company (NASDAQ: TSCO) at the current market price of USD 275.24 as of December 17, 2024, at 09:30 am PST. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is December 17, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.