Thanks to several factors in and out of its control, Tractor Supply last week reported that first quarter net sales rose 42.5% to $2.79 billion. E-commerce sales "experienced triple-digit percentage growth for the fourth consecutive quarter," according to a company press release.
Store comps rose 38.6% (well above the 4.3% increase in the year-ago quarter), and in all geographies the chain saw positive comp growth of at least 30%, with "strong demand for consumable, usable and edible products and robust growth for seasonal categories."
Gross profit rose 48.8% to $983.8 million. Gross margin expanded 148 basis points to 35.2%, thanks mostly to fewer promotions, "less clearance activity and favorable product mix," partly offset by higher transportation costs, the company said. Net income in the quarter rose 116.5% to $181.4 million.
Several forces worked in Tractor Supply's favor in the first quarter — some fleeting, like the government's pandemic relief to consumers and good weather, and others possibly longer lasting, like millennials' migration to the suburbs and rising pet adoption. But it's also benefiting from advantages largely of its own making, several analysts said.
The retailer was once best known for its farm supplies, but its assortment has expanded to cater to an increasingly non-farm population in rural and exurban areas.
"Tractor Supply continues to dominate in rural America," Telsey Advisory Group analyst Joseph Feldman said in emailed comments. "The company's high mix of essentials (over 50% of sales) and robust strategic initiatives ... should continue to fuel growth and market share gains. Tractor Supply's growth remains among the most consistent in our hardlines retail group."
Those strategic initiatives include Tractor Supply's addition of side lot lawn and garden centers, store remodels, an increased focus on pets (the company also runs Petsense), an expanding customer base and more omnichannel services, Feldman said.
The retailer catered to 2.5 million new customers in the first quarter, has seen over 1 million downloads of its app, and expects demand to remain strong. In fact, the company appears to be in a virtuous cycle, with its own strengths helping it to take further advantage of headwinds, analysts said.
The company's reported traffic growth in the quarter is likely from those new customers, according to UBS analyst Michael Lasser. "While macro factors are clearly aiding [Tractor Supply's] performance, we believe [its] initiatives also helped it take full advantage of the favorable environment," UBS said in emailed comments, adding that the new customer growth will continue to spur comp growth.
The store comps growth exceeded the company's expectations, and so it's now raising them, according to CEO Hal Lawton. "Based on our strong performance in the first quarter, the positive macro factors and robust customer retention trends, we are raising our financial outlook for the year," he said in a statement.
For this fiscal year, the company now expects net sales to reach between $11.4 billion and $11.7 billion (up from its previous estimate of between $10.7 billion and $11 billion); comps to rise between 5% and 8% (up from its previous call for between a 2% decrease to a 1% increase); and net income to reach between $820 million and $860 million (up from between $750 million and $800 million).