Tractor Supply Company Reports Third Quarter 2023 Financial Results; Updates Fiscal 2023 Financial Outlook
BRENTWOOD, Tenn.-(BUSINESS WIRE)-Oct 26, 2023-
Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States (the “Company”), today reported financial results for its third quarter ended September 30, 2023.
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- Net Sales Increase of 4.3% to $3.41 Billion with a Comparable Store Sales Decline of 0.4%
- Diluted Earnings per Share Growth of 11.0% to $2.33
- Underlying Customer Trends Remain Solid with Growth in Active, Reactivated and New Customer Counts for the Quarter
- Company Reaches Significant Milestones in Its Life Out Here Strategic Initiatives with 35% of Chain in Project Fusion Layout and Completion of More Than 420 Garden Centers
“We delivered solid growth in both net sales and earnings in the third quarter, although our sales performance was softer than our expectations. Given this environment, we have updated our outlook for the year to reflect continued unfavorable seasonal category performance and discerning consumer spending. Our consistent market share expansion and positive customer trends underscore the enduring strength of our business. We are confident in our ability to navigate in the near-term and remain as excited as ever about our bright future. I would like to thank our team for their dedication to our Mission and Values, as this continues to be the key to our customers’ strong loyalty,” said Hal Lawton, President and Chief Executive Officer of Tractor Supply.
“As we near Tractor Supply’s 85th anniversary in December, it serves as a great reminder that we have a long track record of success as a resilient, needs-based retailer. We are committed to continuing to adapt to the current consumer landscape and controlling what we can control. We also remain committed to executing our Life Out Here strategy and laying the foundation for the next 85 years. We believe we have a robust, distinct business model in an attractive market that will continue to be a winning formula,” said Lawton.
Third Quarter 2023 Results
Net sales for the third quarter of 2023 increased 4.3% to $3.41 billion from $3.27 billion in the third quarter of 2022. The increase in net sales was driven by contributions from the acquisition of Orscheln Farm and Home and new store openings. Comparable store sales decreased 0.4%, as compared to an increase of 5.7% in the prior year’s third quarter, driven by a comparable average ticket decline of 0.3% and a flat comparable average transaction count. Comparable store sales performance reflects continued strength in core year-round merchandise, including consumable, usable and edible (“C.U.E.”) products which significantly outpaced the chain average. This performance largely offset declines in demand for seasonal goods and big-ticket items.
Gross profit increased 7.3% to $1.25 billion from $1.17 billion in the prior year’s third quarter, and gross margin increased 101 basis points to 36.7% from 35.6% in the prior year’s third quarter. Gross margin continued to benefit from the Company’s ongoing execution of an everyday low price strategy, complemented by the use of its Neighbor’s Club loyalty program as a value driver in a sustained higher-cost environment. The gross margin rate increase was primarily attributable to lower transportation costs driven by improvement in the global supply chain and efficiencies from a new distribution center, modestly offset by negative product mix.
Selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 5.8% to $909.6 million from $859.4 million in the prior year’s third quarter. As a percentage of net sales, SG&A expenses increased 38 basis points to 26.7% from 26.3% in the third quarter of 2022. The increase in SG&A as a percentage of net sales was primarily attributable to the Company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as higher medical claims and fixed cost deleverage. During the third quarter of 2023, the Company completed its strategically planned sale-leaseback of 10 Tractor Supply store locations, benefiting SG&A by approximately 70 basis points, net of transaction and repair costs. Additionally, the increase in SG&A was partially offset by an adjustment to the useful lives of certain store remodel assets resulting in a one-time benefit to depreciation expense of approximately 35 basis points.
Operating income increased 11.3% to $340.9 million from $306.4 million in the third quarter of 2022.
The effective income tax rate was 23.0% compared to 22.0% in the third quarter of 2022.
Net income increased 8.9% to $255.0 million from $234.1 million. Diluted earnings per share (“EPS”) increased 11.0% to $2.33 compared to $2.10 in the third quarter of 2022. The increase in diluted EPS includes a one-time benefit of $0.08 per share from the adjustment to the useful lives of certain store remodel assets.
The Company repurchased approximately 0.6 million shares of its common stock for $135.4 million and paid quarterly cash dividends totaling $112.0 million, returning $247.4 million of capital to shareholders in the third quarter of 2023.
The Company opened 17 new Tractor Supply stores and four new Petsense by Tractor Supply stores and closed one Petsense by Tractor Supply store in the third quarter of 2023.
Fiscal 2023 Financial Outlook
The Company is updating its fiscal 2023 financial guidance to reflect its performance through the third quarter along with its expectations for the remainder of the year.
For fiscal 2023, the Company now expects the following:
Condensed Consolidated Statements of Comprehensive Income |
|||||||||||||
(Unaudited) |
|||||||||||||
(in thousands) |
|||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||
|
September 30, 2023 |
|
September 24, 2022 |
|
September 30, 2023 |
|
September 24, 2022 |
||||||
Net income |
$ |
255,001 |
|
|
$ |
234,137 |
|
$ |
859,323 |
|
|
$ |
817,842 |
|
|
|
|
|
|
|
|
||||||
Other comprehensive (loss) / income: |
|
|
|
|
|
|
|
||||||
Change in fair value of interest rate swaps, net of taxes |
|
(924 |
) |
|
|
3,150 |
|
|
(1,983 |
) |
|
|
10,953 |
Total other comprehensive (loss) / income |
|
(924 |
) |
|
|
3,150 |
|
|
(1,983 |
) |
|
|
10,953 |
Total comprehensive income |
$ |
254,077 |
|
|
$ |
237,287 |
|
$ |
857,340 |
|
|
$ |
828,795 |
Condensed Consolidated Statements of Cash Flows |
|||||||
(Unaudited) |
|||||||
(in thousands) |
|||||||
|
|
||||||
|
Nine Months Ended |
||||||
|
September 30, 2023 |
|
September 24, 2022 |
||||
Cash flows from operating activities: |
|
|
|
||||
Net income |
$ |
859,323 |
|
|
$ |
817,842 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
||||
Depreciation and amortization |
|
289,775 |
|
|
|
248,242 |
|
(Gain)/loss on disposition of property and equipment |
|
(27,460 |
) |
|
|
1,453 |
|
Share-based compensation expense |
|
45,150 |
|
|
|
38,531 |
|
Deferred income taxes |
|
8,082 |
|
|
|
41,977 |
|
Change in assets and liabilities: |
|
|
|
||||
Inventories |
|
(147,521 |
) |
|
|
(487,001 |
) |
Prepaid expenses and other current assets |
|
(28,647 |
) |
|
|
(47,823 |
) |
Accounts payable |
|
13,554 |
|
|
|
63,963 |
|
Accrued employee compensation |
|
(73,019 |
) |
|
|
(29,228 |
) |
Other accrued expenses |
|
(53,795 |
) |
|
|
(40,241 |
) |
Income taxes |
|
24,176 |
|
|
|
13,612 |
|
Other |
|
28,308 |
|
|
|
5,003 |
|
Net cash provided by operating activities |
|
937,926 |
|
|
|
626,330 |
|
Cash flows from investing activities: |
|
|
|
||||
Capital expenditures |
|
(526,723 |
) |
|
|
(451,154 |
) |
Proceeds from sale of property and equipment |
|
57,801 |
|
|
|
169 |
|
Proceeds from Orscheln acquisition net working capital settlement |
|
4,310 |
|
|
|
— |
|
Proceeds from sale of Orscheln corporate headquarters and distribution center |
|
10,000 |
|
|
|
— |
|
Net cash used in investing activities |
|
(454,612 |
) |
|
|
(450,985 |
) |
Cash flows from financing activities: |
|
|
|
||||
Borrowings under debt facilities |
|
1,767,000 |
|
|
|
120,000 |
|
Repayments under debt facilities |
|
(1,195,000 |
) |
|
|
(30,000 |
) |
Debt discounts and issuance costs |
|
(9,729 |
) |
|
|
— |
|
Principal payments under finance lease liabilities |
|
(3,606 |
) |
|
|
(3,288 |
) |
Repurchase of shares to satisfy tax obligations |
|
(24,015 |
) |
|
|
(28,376 |
) |
Repurchase of common stock |
|
(480,407 |
) |
|
|
(608,016 |
) |
Net proceeds from issuance of common stock |
|
19,853 |
|
|
|
15,497 |
|
Cash dividends paid to stockholders |
|
(338,219 |
) |
|
|
(307,951 |
) |
Net cash used in financing activities |
|
(264,123 |
) |
|
|
(842,134 |
) |
Net increase/(decrease) in cash and cash equivalents |
|
219,191 |
|
|
|
(666,789 |
) |
Cash and cash equivalents at beginning of period |
|
202,502 |
|
|
|
878,030 |
|
Cash and cash equivalents at end of period |
$ |
421,693 |
|
|
$ |
211,241 |
|
|
|
|
|
||||
Supplemental disclosures of cash flow information: |
|
|
|
||||
Cash paid during the period for: |
|
|
|
||||
Interest, net of amounts capitalized |
$ |
29,011 |
|
|
$ |
16,130 |
|
Income taxes cash paid |
|
215,637 |
|
|
|
184,887 |
|
Supplemental disclosures of non-cash activities: |
|
|
|
||||
Non-cash accruals for property and equipment |
$ |
20,359 |
|
|
$ |
43,984 |
|
Increase of operating lease assets and liabilities from new or modified leases |
|
481,177 |
|
|
|
264,318 |
|
Increase of finance lease assets and liabilities from new or modified leases |
|
450 |
|
|
|
5,143 |
|
(a) |
Comparable store average transaction value changes include the impact of transaction value changes achieved on the current period change in transaction count. |
(b) |
Assumes average inventory cost, excluding inventory in transit. |
(c) |
Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as a part of the cost basis of the shares within treasury stock. |
Note: Comparable store metrics percentages may not sum to total due to rounding. | |
Note: With the exception of store count information, new stores sales (% of total sales), total selling square footage, and average inventory per store, all metrics listed above exclude unconvertedOrscheln Farm and Home stores. |