Tractor Supply Company: An Earnings Preview

After sending shares lower by 30% at one point earlier this year, investors have changed their minds about Tractor Supply (NASDAQ:TSCO) stock. The rural lifestyle retailer is now comfortably trouncing the broad market in 2020 and leaving behind bigger peers like Walmart through mid-October.

That rally implies there are some high expectations for Tractor Supply’s upcoming earnings report, so let’s take a closer look at the metrics that investors will be watching on Thursday, Oct. 22.

A farm with horses grazing.

Image source: Getty Images.

A soft landing

Business in the fiscal second quarter benefited from unprecedented demand once the initial shock of COVID-19 closures tapered off. Sales shot higher by 30.5% at existing locations and more than doubled in the online selling channel through late June.

Tractor Supply is unlikely to repeat that stellar performance in the third quarter as many of its smaller competitors reopened for business, and federal stimulus support faded. But the retailer should still post solid market-share gains and continued growth. Management previously guided for sales to rise between 16% and 22%, while Wall Street analysts are a bit more optimistic with the consensus estimate falling at the high end of that range.

Bigger profits

Investors are similarly upbeat about Tractor Supply’s earnings outlook. Profits are expected to rise over 30% to $1.33 per share, with estimates again coming in at the top end of management’s guidance of $1.15 to $1.35 to share.

There’s a wider range of outcomes in this metric since Tractor Supply likely saw volatile consumer demand over the quarter. Management is also pouring resources into ultra-fast fulfillment options like same-day delivery. These offerings are helping it win market share but may pressure operating margin over the short term. Finally, the company is paying more for labor costs and pandemic-related safety procedures.

Holiday season outlook

While cautioning about an “extremely dynamic and uncertain [selling] environment,” CEO Hal Lawton and his team have consistently issued short-term sales and profit guidance through the pandemic. We’ll likely get such an update on Thursday, which will help determine whether Tractor Supply is on track to deliver the $10 billion of annual revenue that analysts are predicting for the fiscal year and an earnings haul of roughly $6.25 per share.

Those numbers look great in comparison to the company’s initial forecast for 2020, which predicted sales below $9 billion and profits between $4.90 and $5.10 per share. Clearly, the chain’s merchandising focus and its aggressive push into e-commerce has helped it make the most of consumer shopping changes around the pandemic.

It’s still an open question as to how much of the gains are made up of sales simply pulled forward from future quarters. But Tractor Supply’s store launch outlook is a good indication about where management lands on that question. Executives quickly ramped up the pace of new store openings starting in late spring, which shows that they’re bullish about the potential of their multichannel selling strategy. More robust expansion through the second half of 2020 would be a positive sign for the business heading into the next fiscal year.

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