• Tractor Supply Company Reports First Quarter 2018 Financial Results

    Source: Nasdaq GlobeNewswire / 26 Apr 2018 13:01:46   Europe/London

    • Net Sales Increased 7.6%; Comparable Store Sales Increased 3.7%
    • Diluted Earnings Per Share of $0.57
    • $191 Million of Capital Returned to Shareholders in the Quarter
    • Company Confirms 2018 Financial Guidance

    BRENTWOOD, Tenn., April 26, 2018 (GLOBE NEWSWIRE) -- Tractor Supply Company (NASDAQ:TSCO), the largest rural lifestyle retail store chain in the United States, today reported financial results for its first quarter ended March 31, 2018.

    “For the first quarter, we are pleased with our overall performance and how effectively we managed our business.  We generated solid increases in both comparable store sales and gross margin, despite a delay in the spring selling season in many of our markets.  As we enter the second quarter, we believe we are well-positioned to capitalize on the spring selling season.  Looking to the balance of 2018, we remain excited about the opportunities ahead of us as we continue to execute our ONETractor strategy, which we believe will contribute to sustainable long-term growth for our shareholders,” said Greg Sandfort, Tractor Supply’s Chief Executive Officer. 

    First Quarter Results
    Net sales for the first quarter 2018 increased 7.6% to $1.68 billion from $1.56 billion in the first quarter of 2017.  Comparable store sales increased 3.7% compared to a decrease of 2.2% in the prior year’s first quarter.  The comparable store sales results included increases in comparable transaction count and average ticket of 3.2% and 0.5%, respectively.  The comparable store sales growth in the quarter was broad based across all geographic regions.  The increase in comparable store sales was primarily driven by strength in everyday merchandise, including consumable, usable and edible products, along with strong demand for winter seasonal categories.  These increases were offset by lower sales of spring and summer seasonal products.    

    Gross profit increased 8.8% to $563.6 million from $518.2 million in the prior year’s first quarter, and gross margin increased 36 basis points to 33.5% from 33.1% in the prior year’s first quarter.  The increase in gross margin was primarily driven by strong sell-through of winter seasonal categories, partially offset by an increase in transportation costs from higher carrier rates and diesel fuel costs. 

    Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 11.2% to $468.9 million from $421.8 million in the prior year’s first quarter.  As a percent of net sales, SG&A expenses increased 89 basis points to 27.9% from 27.0% in the first quarter of 2017.  The increase in SG&A as a percent of net sales was primarily attributable to investments in team member wages at both the stores and distribution centers, higher store level costs due to increased utility and maintenance expenses from colder temperatures and investments in infrastructure to support the Company’s strategic long-term growth initiatives. The Company estimates that approximately 25 basis points of the increase in SG&A as a percent of net sales were attributable to items that are discrete to the first quarter.

    The effective income tax rate was 20.9% compared to 35.6% in the prior year’s first quarter.  The decrease in the effective income tax rate was primarily related to the U.S. Tax Cuts and Jobs Act that was signed into law in December 2017.  In addition, the realization of discrete federal and state tax credits further reduced income taxes by approximately 200 basis points in the first quarter of 2018.

    Net income increased 18.4% to $71.4 million in the first quarter of 2018 from $60.3 million in the prior year’s first quarter and diluted earnings per share increased 24.0% to $0.57 from $0.46 in the first quarter of 2017.

    The Company opened 15 new Tractor Supply stores and four Petsense stores in the first quarter of 2018 compared to 24 new Tractor Supply store openings and nine Petsense store openings (including the conversion of the two Hometown Pet stores) in the prior year’s first quarter.   

    Fiscal 2018 Outlook
    Given the seasonality of the business and the impact weather can have on the timing of sales and profitability between quarters, the Company continues to believe the business is more accurately assessed by the halves and not the quarters.  Based on year-to-date performance, the Company confirms the following financial guidance for fiscal 2018: 

    Net Sales$7.69 billion - $7.77 billion
    Comparable Store Sales   +2.0% - +3.0%
    Net Income$490 million - $515 million
    Earnings per Diluted Share   $3.95 - $4.15

    Conference Call Information
    Tractor Supply Company will hold a conference call today, Thursday, April 26, 2018 at 9:00 a.m. CT / 10:00 a.m. ET, hosted by Greg Sandfort, Chief Executive Officer; Steve Barbarick, President and Chief Merchandising Officer; and Kurt Barton, Chief Financial Officer.   The call will be webcast live at IR.TractorSupply.com.

    Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the webcast.

    A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.

    About Tractor Supply Company
    Tractor Supply Company (NASDAQ:TSCO) is in its 80th year of operation and, since being founded in 1938, has grown to become the largest rural lifestyle retailer in the United States. With about 28,000 team members, more than 1,700 stores in 49 states and an e-commerce website, Tractor Supply is passionate about serving its unique niche, as a one-stop shop for recreational farmers, ranchers and all those who enjoy living the rural lifestyle. Tractor Supply offers an extensive mix of products necessary to care for home, land, pets and animals with a focus on product localization, exclusive brands and legendary customer service that addresses the needs of the Out Here lifestyle. The Company leverages its physical store assets with digital capabilities to offer customers the convenience of purchasing products they need anytime, anywhere and any way they choose at the everyday prices they deserve. At March 31, 2018, the Company operated 1,700 Tractor Supply stores in 49 states and an e-commerce website at www.TractorSupply.com

    Tractor Supply Company also owns and operates Petsense, a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-size communities, and offering a variety of pet products and services.  At March 31, 2018, the Company operated 172 Petsense stores in 27 states.  For more information on Petsense, visit www.petsense.com.

    Tractor Supply Company
    Investor Contacts:
    Mary Winn Pilkington (615) 440-4212
    Beth Thompson (615) 440-4102

    Media Contacts:
    Alecia Pulman/Brittany Rae Fraser, ICR (203) 682-8200          

    Forward-Looking Statements

    As with any business, all phases of the Company’s operations are subject to influences outside its control.  This information contains certain forward-looking statements, including statements regarding sales and earnings growth, estimated results of operations, including, but not limited to, net income and comparable store sales, capital expenditures, the amount of share repurchases, marketing, merchandising and strategic initiatives and new store and distribution center openings and expenses in future periods.  These forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company’s quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company’s operations.  These factors include, without limitation, national, regional and local economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold, weather conditions, the seasonal nature of the business, transportation costs, including but not limited to, carrier rates and fuel costs,  purchase price volatility (including inflationary and deflationary pressures), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses, including but not limited to, increases in wages, and execute key gross margin enhancing initiatives, the availability of favorable credit sources, capital market conditions in general, the ability to open new stores in the manner and number currently contemplated, the impact of new stores on the business, competition, including competition from online retailers, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified employees, product liability and other claims, changes in federal, state or local regulations, potential judgments, fines, legal fees and other costs, breach of information systems or theft of employee or customer data, ongoing and potential future legal or regulatory proceedings, management of the Company’s information systems, failure to develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes, including expected effects of the Tax Cuts and Jobs Act, and results of examination by taxing authorities, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, the ability to maintain an effective system of internal control over financial reporting, and changes in accounting standards, assumptions and estimates.  Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements.  Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.  There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

    (Financial tables to follow)

    Condensed Consolidated Statements of Income
    (Unaudited)
    (in thousands, except per share amounts)

     FIRST QUARTER ENDED
     March 31, 2018 April 1, 2017
       % of   % of
       Sales   Sales
    Net sales$1,682,901  100.0% $1,564,078  100.0%
    Cost of merchandise sold1,119,252  66.5  1,045,875  66.9 
    Gross profit563,649  33.5  518,203  33.1 
            
    Selling, general and administrative expenses426,113  25.3  382,114  24.4 
    Depreciation and amortization42,787  2.6  39,727  2.5 
            
    Operating income94,749  5.6  96,362  6.2 
    Interest expense, net4,468  0.3  2,777  0.2 
            
    Income before income taxes90,281  5.3  93,585  6.0 
    Income tax expense18,848  1.1  33,274  2.1 
    Net income$71,433  4.2% $60,311  3.9%
            
    Net income per share:       
    Basic$0.57    $0.46   
    Diluted$0.57    $0.46   
            
    Weighted average shares outstanding:       
    Basic124,477    130,276   
    Diluted125,174    131,090   
            
    Dividends declared per common share outstanding$0.27    $0.24   
     

    Condensed Consolidated Statements of Comprehensive Income
    (Unaudited)
    (in thousands)

     FIRST QUARTER ENDED
     March 31, 2018 April 1, 2017
    Net income$71,433  $60,311 
        
    Other comprehensive income:   
    Change in fair value of interest rate swaps, net of taxes1,832  281 
    Total other comprehensive income1,832  281 
    Total comprehensive income$73,265  $60,592 
     

    Condensed Consolidated Balance Sheets
    (Unaudited)
    (in thousands)

     March 31, 2018 April 1, 2017
    ASSETS   
    Current assets:   
    Cash and cash equivalents$132,398  $72,701 
    Inventories1,760,065  1,657,761 
    Prepaid expenses and other current assets86,815  86,459 
    Income taxes receivable4,815  7,339 
    Total current assets1,984,093  1,824,260 
        
    Property and equipment:   
    Land99,336  96,535 
    Buildings and improvements1,055,487  975,155 
    Furniture, fixtures and equipment611,504  578,352 
    Computer software and hardware273,104  231,091 
    Construction in progress98,595  26,067 
    Property and equipment, gross2,138,026  1,907,200 
    Accumulated depreciation and amortization(1,087,627) (950,163)
    Property and equipment, net1,050,399  957,037 
        
    Goodwill and other intangible assets124,492  125,717 
    Deferred income taxes18,585  46,829 
    Other assets30,218  22,559 
    Total assets$3,207,787  $2,976,402 
        
    LIABILITIES AND STOCKHOLDERS’ EQUITY   
    Current liabilities:   
    Accounts payable$732,524  $563,525 
    Accrued employee compensation23,274  21,049 
    Other accrued expenses200,053  187,247 
    Current portion of long-term debt25,000  12,500 
    Current portion of capital lease obligations3,545  1,356 
    Income taxes payable29,539  31,407 
    Total current liabilities1,013,935  817,084 
        
    Long-term debt679,565  598,919 
    Capital lease obligations, less current maturities31,717  25,525 
    Deferred rent106,542  101,001 
    Other long-term liabilities62,783  54,375 
    Total liabilities1,894,542  1,596,904 
        
    Stockholders’ equity:   
    Common stock1,364  1,361 
    Additional paid-in capital728,588  683,012 
    Treasury stock(2,288,364) (1,876,045)
    Accumulated other comprehensive income5,190  1,673 
    Retained earnings2,866,467  2,569,497 
    Total stockholders’ equity1,313,245  1,379,498 
    Total liabilities and stockholders’ equity$3,207,787  $2,976,402 
     

    Condensed Consolidated Statements of Cash Flows
    (Unaudited)
    (in thousands)

     Three Months Ended
     March 31, 2018 April 1, 2017
    Cash flows from operating activities:   
    Net income$71,433  $60,311 
    Adjustments to reconcile net income to net cash used in operating activities:   
    Depreciation and amortization42,787  39,727 
    Loss on disposition of property and equipment94  179 
    Share-based compensation expense8,567  7,557 
    Deferred income taxes(91) (1,611)
    Change in assets and liabilities:   
    Inventories(306,857) (288,105)
    Prepaid expenses and other current assets1,437  4,098 
    Accounts payable155,956  44,003 
    Accrued employee compensation(8,399) (4,197)
    Other accrued expenses(5,226) (28,144)
    Income taxes18,712  22,266 
    Other(276) 2,258 
    Net cash used in operating activities(21,863) (141,658)
    Cash flows from investing activities:   
    Capital expenditures(45,144) (34,883)
    Proceeds from sale of property and equipment13  28 
    Net cash used in investing activities(45,131) (34,855)
    Cash flows from financing activities:   
    Borrowings under debt facilities375,000  475,000 
    Repayments under debt facilities(96,250) (137,500)
    Debt issuance costs(346)  
    Principal payments under capital lease obligations(900) (332)
    Repurchase of shares to satisfy tax obligations(569) (653)
    Repurchase of common stock(157,463) (114,547)
    Net proceeds from issuance of common stock4,363  4,593 
    Cash dividends paid to stockholders(33,591) (31,263)
    Net cash provided by financing activities90,244  195,298 
    Net change in cash and cash equivalents23,250  18,785 
    Cash and cash equivalents at beginning of period109,148  53,916 
    Cash and cash equivalents at end of period$132,398  $72,701 
        
    Supplemental disclosures of cash flow information:   
    Cash paid during the period for:   
    Interest$2,534  $2,125 
    Income taxes789  12,739 
        
    Supplemental disclosures of non-cash activities:   
    Property and equipment acquired through capital lease$  $ 
    Non-cash accruals for construction in progress12,270  12,044 
          

    Selected Financial and Operating Information (a)
    (Unaudited)

      FIRST QUARTER ENDED
      March 31, 2018 April 1, 2017
    Sales Information:    
    Comparable store sales increase (decrease)  3.7%  (2.2)%
    New store sales (% of total sales)  4.0%  6.6%
    Average transaction value $42.65 $42.46 
    Comparable store average transaction value increase (decrease)  0.5%  (0.9)%
    Comparable store average transaction count increase (decrease)  3.2%  (1.4)%
    Total selling square footage (000’s)  28,502  26,920 
    Exclusive brands (% of total sales)  32.7%  32.5%
    Imports (% of total sales)  11.8%  11.7%
         
    Store Count Information:    
    Tractor Supply    
    Beginning of period  1,685  1,595 
    New stores opened  15  24 
    Stores closed    (2)
    End of period  1,700  1,617 
    Petsense    
    Beginning of period  168  143 
    New stores opened  4  9 
    Stores closed     
    End of period  172  152 
    Consolidated end of period  1,872  1,769 
         
    Pre-opening costs (000’s) $1,667 $2,604 
         
    Balance Sheet Information:    
    Average inventory per store (000’s) (b) $891.5 $882.5 
    Inventory turns (annualized)  2.89  2.86 
    Share repurchase program:    
    Cost (000’s) $157,463 $114,547 
    Average purchase price per share $66.53 $71.76 
         
    Capital Expenditures (in millions):    
    Information technology $17.8 $8.2 
    Distribution center capacity and improvements  12.4  1.0 
    New and relocated stores and stores not yet opened  10.5  17.1 
    Existing stores  4.3  8.6 
    Corporate and other  0.1   
    Total $45.1 $34.9 
     

    (a)  Beginning in the fourth quarter ended December 31, 2016, selected financial and operating information includes the consolidation of Petsense unless otherwise noted.  Petsense stores are not considered comparable stores until 12 months after the date of acquisition.
    (b) Assumes average inventory cost, excluding inventory in transit.

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