Tractor Supply Company on Thursday announced plans to expand its store footprint but lowered its guidance for the year. In Q2, net sales rose 7.2% year over year to $4.2 billion, driven by its acquisition of Orscheln Farm and Home, new store openings and 2.5% comp sales growth.
Gross profit rose 9.3% to $1.5 billion, with gross margin expanding 69 basis points to 36.2%, thanks mostly to lower transportation costs and efficiencies from a new distribution center, but also from the company’s everyday low price strategy. Net income rose 6.2% year over year to $421.2 million from $396.5 million.
The retailer said its updated real estate plans include 200 more stores than previously planned, for a new target of 3,000 U.S. stores. Tractor Supply plans 80 new stores in 2024, and expects to open about 90 new stores per year beginning in 2025.
In addition to expanding its footprint, Tractor Supply will aim for more leasebacks — selling its owned stores and leasing them instead — in order to capture the value of its property holdings.
This is not a huge shift, but rather a move to execute on its existing real estate philosophy while capitalizing on stores it does own, according to Chief Financial Officer Kurt Barton. And it will help fund the retailer’s expansion plans, he said.
“The sale leaseback of existing stores fits right in with the fact that we're an asset-light model,” he told analysts Thursday morning. “We do not believe owning stores fits, which is why we have over 95% of our stores under a lease. And over time — 30 plus years — we've accumulated, not strategically, a number of owned stores. There's a bit of pent-up value in the stores. And it's a great time right now to use those stores to fuel ... a strategy that allows us to even further drive new stores and bring efficiency in the new store models.”
Some analysts saw Tractor Supply’s second quarter as soft, missing expectations for sales and earnings. But Telsey Advisory Group analysts led by Joseph Feldman noted that several key initiatives — its planned store growth; addition of lawn and garden centers in many stores; store remodel plans; growing focus on pet supplies; expanded omnichannel capabilities; growth in its loyalty program; and supply chain improvements — are working in its favor.
“Tractor Supply's high mix of essentials (>50% of sales), solid execution, and robust initiatives ... should continue to fuel growth and market share gains,” Feldman said in emailed comments.