Tractor Supply Company(TSCO)

Tractor Supply Company

Stock: TSCO

Rating: Good

Author: Waleed M. Tariq

Summary

  • TSCO is exploiting its huge and growing network of stores, distribution centers, and online presence to strengthen its market position.
  • TSCO will likely use its size and expertise to increase profits.
  • TSCO’s stated policy to pay its shareholders through improved dividends and share repurchases are certain to continue.

Bullish

  • TSCO is expected to use its scale and knowledge to increase profits.
  • Its geographical reach, hundreds of items, and digital technology adoption will help it cope with the existing and emerging competition.
  • Customer demand has boosted net sales across all key product categories, channels, and regions. 
    Sales climbed 13.4% each year during the past five years.

Bearish

  • Besides the unforeseen abnormalities, I am purely bullish on TSCO.

The Formula For Success:

Building An Exceptional Footprint

  • TSCO is expanding its geographic and digital footprint. Tractor Supply Company opened its 1,000th shop in 2011.

Identifying And Focusing On A Market Niche

  • Tractor Supply Company serves farmers, animal and pet owners, ranches, gardeners, urban   and remote residents, and also contractors and tradesmen. 
  • The company offers 16,000 to 22,000 products per store and over 170,000 online.

Great Customer Service

  • It offers enhanced customer-centric experiences via its more than 46,000 motivated and well-trained team members, technology, and service advancements, as well as expanding target audiences outside current retail store locations.

Mastery Of Logistics

  • Using an enterprise resource planning system, transport management system,and distribution center and labor management tools can help reduce logistics costs, track products, expedite merchandise distribution to stores, and deliver products ordered online or via mobile application to customers’ homes or offices.

Marketing

  • TSCO’s strategy is to increase and deepen its client base by providing personal, localized, and memorable customer encounters and digital shopping experiences; offering very competitive products and intelligently planned promotions through traditional, digital, and social media activities.

Seriously Investing

  • In fiscal 2021 and 2020, TSCO invested $627.3 million and $292.2 million in new stores, store remodels, outdoor side lot renovations, IT, and other strategic projects. 
  • The value of inventory rose to $2,191 million in 2021 from $1,783 million in 2020. TSCO is also investing $100 million in new Ohio warehouse.
Fiscal Year
2021 2020 Variance
Existing stores $326.90 $73.70 $253.20
Information technology 124.80 133.00 (8.20)
Distribution center capacity and improvements 93.30 23.40 69.90
New and relocated stores and stores not yet opened 73.00 58.80 14.20
Corporate and other 10.40 5.10 5.30
Total capital expenditures $628.40 $294.00 $334.40

Source: Tractor Supply Company Annual Reports 2021 & 2020

 A Master Of The Game

  • TSCO is reaping the rewards of years of judicious investing.

Sales Growth

  • Customer demand has boosted net sales across all key market segments, channels, and also regions. 
Sales climbed by 13.4% annually over the last five years.
2021 2020 2019 2018
Value Change Value Change Value Change Value Change
Net Sales $billion $12.73 19.9% $10.62 27.18% $8.35 5.6% $7.91 9.0%

Source: Tractor Supply Company Annual Reports 2021, 2020, 2019 & 2018

Increasing Profitability

  • As sales expand, profit margins improve indicating increased corporate efficiency.
Year 2021 Year 2020 Year 2019 Year 2018
Value Change Value Change Value Change Value
Gross profit $4.48 19.0% $3.76 31% 2.87 6.3% 2.7
Gross margin 35.2% 35.4% 34.4 % 34.2 %
Operating income $1.31 31.1% $996.9 34.1% 743.2 6.0% 701.73
Operating income as % of sales 10.3% 9.4% 8.9 % 9.4 %
Net Income $997.1 33.1% $749 33.3% $562.35 5.6% $532.36
Net income as % of sales 7.83% 7.05% 6.7 % 5.8 %

Source: Tractor Supply Company Annual Reports 2021, 2020, 2019 & 2018

A Gritty Eye On Growth Opportunities Going Forward

  • TSCO thinks it has proven technique for identifying store sites and that additional store gro-wth is possible in many existing and new markets. TSCO anticipates 2022 capital expenditures of $625 million to $675 million. 
  • The company expects to open 75 to 80 Tractor Supply and 10 Petsense stores in 2022, thus increasing selling square footage by percent.

Conclusion

  • The company’s continued stock buybacks and cash dividends demonstrate its faith in its fina-ncial health, which may boost share prices.
  • Unless severe economic conditions impair consumer spending or trade rules, tariffs, and other laws change, TSCO stock should continue to rise.