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Tractor Supply's Q1 Preliminary Results Solid, View Withdrawn

Zacks Equity Research

Tractor Supply Company TSCO came out with preliminary financial results for first-quarter 2020. The company is likely to achieve top and bottom-line beats in the soon-to-be-reported quarter, outweighing the impacts of the novel coronavirus outbreak that has created a ruckus in the global economy. The company is scheduled to report first-quarter results on Apr 23.

Preliminary Numbers in Detail

Notably, the company’s first-quarter sales rose 7.5% to $1.96 billion as compared to $1.82 billion reported in the year-ago quarter. The current Zacks Consensus Estimate for first-quarter sales is $1.9 billion. Also, comparable store sales improved 4.3% compared with growth of 5% in the prior-year quarter. Such an uptick can be attributable to sturdy sales in March, when customers were increasingly hoarding core everyday items as well as usable and edible merchandise due to the ongoing pandemic. On the flip side, sluggishness in seasonal products for January and February acted as deterrents. 

Particularly in March, the company witnessed a comparable store sales improvement of 12% year over year on the back of robust growth in key consumable categories to the tune of more than 20%. This was partly offset by softness in discretionary categories, including clothing, footwear, toys and gift items. Moreover, the e-commerce business performed well in March. Encouragingly, management envisions adjusted earnings for the first quarter to be 69-71 cents.

COVID-19 Impact on the Stock

Despite impressive first-quarter results and the second-quarter comparable sales starting on a solid note, management withdrew its 2020 guidance on account of uncertain COVID-19 impacts. The company further anticipates incurring operating costs of $30-$50 million during the second quarter. Moreover, it has suspended its share repurchase program from Mar 12. However, Tractor Supply remains financially well positioned with more than $450 million in cash and cash equivalents and roughly $165 million in revolving credit facility, as of Mar 28, 2020. 

Apart from these, the company is on track with plans to review its capital spending and defer some investments. Meanwhile, it is likely to continue to invest in enhanced delivery facilities, additional mobile point-of-sale (PoS) technology and contactless curbside delivery as part of efforts to contain the spread of the virus.

Other major retailers, including Aaron’s AAN, Ross Stores ROST and V.F. Corp. VFC, have also adopted similar moves, given the impact of COVID-19 on their businesses. 

Efforts to Counter This Hurdle

Tractor Supply has kept stores and e-commerce business open for consumers relying on the retail chain for their everyday essentials in these times of crisis. To meet customers growing demand, the company revealed plans to recruit more than 5,000 employees for full-time and part-time positions at nearly 1,900 stores in 49 states and eight distribution centers.

In addition, the company has played its part in the coronavirus battle by undertaking preventive measures, such as contactless store delivery options, to safeguard employees and customers. For this, it has introduced mobile PoS handheld devices in nearly 50% of its stores within two weeks from Mar 25 and plans to introduce the same in all stores by April-end for the convenience of customers. This move is in sync with its plans to implement social distancing, as advised by the authorities, to flatten the curve. 

Moreover, customers will now be able to access same day/next day delivery facilities across all stores nationwide, with the added advantage of contactless curbside pickup and dedicated parking for Buy Online, Pickup In Store (BOPIS). Other notable efforts include reserving an hour for the elderly and vulnerable customers every Wednesday, from 8 a.m. to 9 a.m., alongside spreading awareness about social distancing, monitoring customers in stores, increasing focus on hygiene, installing plexiglass barriers at cashier stands and providing PPE for store employees.

Prior to this, the company had announced plans to provide extra compensation to employees who are supporting the business amid this crisis. To this end, management had pledged to offer a $2-per-hour bonus to all hourly team members starting Mar 16 to Apr 25 along with a one-time $1,000 bonus to store managers and $500 bonus to frontline employees and those in support jobs. This move has been now extended till May 9, with the company announcing 100% medical coverage for COVID-19 treatment. 

All said, we believe that the first-quarter preliminary results, a strong start to the second quarter and efforts to combat COVID-19 impacts are working in the favor of Tractor Supply. Shares of this Zacks Rank #3 (Hold) company have lost 5.7% in the past three months compared with the industry’s decline of 33.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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