Tractor Supply Company Reports Second Quarter Results
Earnings per Share Increased 3.6% to $1.16; Sales Increased 4.5% to $1.85 Billion; Comparable Store Sales Decreased 0.5%; Announces CFO Retirement and Planned Management Succession
/EINPresswire.com/ -- BRENTWOOD, TN--(Marketwired - July 20, 2016) - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail store chain in the United States, today announced financial results for its second quarter ended June 25, 2016.
Second Quarter Results
As previously reported in the Company's Business Update press release on June 29, 2016, net sales for the second quarter 2016 increased 4.5% to $1.85 billion from $1.77 billion in the second quarter of 2015. Comparable store sales decreased 0.5% versus a 5.6% increase in the prior year's second quarter. Comparable average ticket decreased 1.9% and comparable store transaction counts increased 1.5%, representing the 33
Gross profit increased 3.8% to $649.2 million from $625.3 million in the prior year's second quarter and gross margin declined to 35.0% compared to 35.3% in the prior year period. Gross margin was negatively affected by a shift in the mix of products sold and higher freight expense from an increase in inbound miles and other transportation costs, which was partially offset by lower diesel fuel costs. These adverse factors more than offset the favorable impact of the Company's ongoing margin initiatives.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 5.2% to $400.0 million from $380.2 million in the prior year period. As a percent of net sales, SG&A increased to 21.6% compared to 21.4% in the second quarter of 2015. The increase as a percentage of net sales was primarily attributable to the decline in comparable store sales and the incremental costs associated with the Company's new distribution facilities. These increases were partially offset by strong expense control and lower year-over-year incentive compensation expense as a percentage of net sales.
Net income increased 2.0% to $156.4 million from $153.3 million and diluted earnings per share increased 3.6% to $1.16 from $1.12 in the second quarter of the prior year.
The Company opened 22 new stores and closed one store, a Del's store, in the second quarter of 2016 compared to 17 new store openings and one store closure in the prior year period.
Greg Sandfort, Chief Executive Officer, stated, "While it's our job to manage the business through changes in weather and other external factors, the extreme weather patterns in the first two months of the quarter simply proved to be too much to overcome in the more seasonal segments of our business. We also do not anticipate that a significant shift in sales will come into the third quarter. As such, we have become a bit more cautious in our outlook for the remainder of the year, although last year's comparable sales comparisons are more favorable in the second half."
Mr. Sandfort continued, "Tractor Supply will continue to invest in our business to drive sales, shorten our supply chain timeline and increase our overall productivity and profitability as a company. We are continuing our test and learn process on the merchandise side, along with implementing an improved allocation system, expanding our new customer loyalty program pilot, growing our store mobile point of sale test and conducting a comprehensive distribution center network analysis. We are pleased with the progress we are making on all of these initiatives. We continue to manage the business with the future in mind and believe continuous improvement in our product and service offerings, in addition to improving systems and efficiencies, will keep Tractor Supply well positioned for growth."
First Six Months Results
Net sales increased 7.0% to $3.32 billion from $3.10 billion in the first six months of 2015. Comparable store sales increased 1.9% versus a 5.7% increase in the first six months of 2015. Gross profit increased 6.9% to $1.14 billion from $1.07 billion and gross margin decreased to 34.4% from 34.5% in the first six months of 2015.
Selling, general and administrative expenses, including depreciation and amortization, increased 7.4% to $786.2 million, and increased as a percent of sales to 23.7% compared to 23.6% for the first six months of 2015.
Net income increased 6.0% to $224.1 million from $211.4 million and net income per diluted share increased 7.8% to $1.66 from $1.54 for the first six months of 2015.
The Company opened 58 new stores and closed four stores, all of which were Del's stores, in the first six months of 2016 compared to 58 new store openings and two store closures during the first six months of 2015.
Fiscal 2016 Outlook
As previously stated in the Company's Business Update press release dated June 29, 2016, the Company has updated its guidance for the expected results of operations in fiscal 2016. A summary of the fiscal 2016 outlook is as follows:
Net Sales $6.8 billion - $6.9 billion
Comparable Store Sales 2.5% - 3.5%
Net Income $451 million - $456 million
Earnings per Diluted Share $3.35 - $3.40
Capital Expenditures $230 million - $250 million
Included in this forecast are additional expenses related to the first year of operations for the new Casa Grande, Arizona distribution center. The forecast also considers the impact of the additional 53
Planned Management Succession
The Company also announced today that Anthony F. Crudele has notified the Company that he plans to retire from his position as Executive Vice President, Chief Financial Officer (CFO) and Treasurer during the first quarter of fiscal 2017 after completing his year-end reporting responsibilities. Kurt D. Barton, the Company's Senior Vice President and Corporate Controller, will succeed Mr. Crudele as Senior Vice President, Chief Financial Officer and Treasurer. As part of the planned succession, Mr. Crudele and Mr. Barton will work together over the next seven months to ensure a smooth transition of duties.
Mr. Barton joined the Company in August 1999 and has served as the Company's Corporate Controller since 2009. Mr. Barton has direct responsibility for the Company's accounting, financial reporting, tax, purchasing, master data management, accounts payable and inventory control functions and is an integral part of the Company's corporate finance and strategy team. Mr. Barton was promoted to Senior Vice President earlier this year. Mr. Barton also served as Director, Internal Audit from 2002 to 2009 and held other leadership roles in accounting during his tenure with the Company. Mr. Barton, a Certified Public Accountant, began his career in public accounting in 1993, spending six years at Ernst & Young, LLP.
Greg Sandfort, Chief Executive Officer, stated, "All of us at Tractor Supply would like to congratulate Tony on his planned retirement and thank him for his many contributions to the Company. Tony has played an integral role in the Company's growth and success over the last 11 years. His accomplishments include improving the Company's forecasting and use of data to drive decisions, developing a more disciplined capital allocation program, leading our continuous improvement process (Tractor Value System) and enhancing the strategic planning process as well as building an effective working relationship with the investment community."
Mr. Sandfort added: "During his tenure, Tony developed a strong finance and accounting team, and we are fortunate to be in a position to promote Kurt Barton to succeed Tony as CFO. Kurt has been with Tractor Supply for 17 years and served as the Company's Corporate Controller since 2009. Kurt is a talented financial leader with a track record of creating value. Kurt's energy and enthusiasm for the business is evident, and he has a deep understanding of the business and strong relationships across the organization. I congratulate Kurt on his upcoming promotion and look forward to working with him as we continue to drive the growth of the Company."
Commenting on his planned retirement, Anthony Crudele stated, "It has been a privilege and honor to be part of the Tractor Supply family and leadership team over the past 11 years. I am proud of the culture we have continued to build and the opportunity to have contributed to the Company's success. Tractor Supply is a unique company with a deep rooted culture of Mission and Values and a great team of people who care about the business and each other. Having worked closely with Kurt and the finance team, I have the utmost confidence that he and the team will continue to move the business forward and I know I am leaving the organization in good hands."
Conference Call Information
Tractor Supply Company will be hosting a conference call at 5:00 p.m. Eastern Time today to discuss the quarterly and full year results. The call will be broadcast simultaneously over the Internet on the Company's website 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 Internet broadcast.
A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.
About Tractor Supply Company
At June 25, 2016, Tractor Supply Company operated 1,542 stores in 49 states. The Company's stores are focused on supplying the lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, livestock, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware, truck, towing and tool products; (3) seasonal products, including heating, lawn and garden items, power equipment, gifts and toys; (4) work/recreational clothing and footwear; and (5) maintenance products for agricultural and rural use.
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, capital expenditures, 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, general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold, 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 and execute our 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 our business, competition, weather conditions, the seasonal nature of our business, 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 our 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 and results of examination by taxing authorities, 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)
SECOND QUARTER ENDED
-----------------------------------
June 25, 2016 June 27, 2015
----------------- -----------------
% of % of
Sales Sales
------ ------
Net sales $1,852,534 100.0% $1,772,900 100.0%
Cost of merchandise sold 1,203,312 65.0 1,147,580 64.7
---------- ------ ---------- ------
Gross profit 649,222 35.0 625,320 35.3
Selling, general and administrative
expenses 365,916 19.8 349,842 19.7
Depreciation and amortization 34,057 1.8 30,313 1.7
---------- ------ ---------- ------
Operating income 249,249 13.4 245,165 13.9
Interest expense, net 1,910 0.1 832 0.1
---------- ------ ---------- ------
Income before income taxes 247,339 13.3 244,333 13.8
Income tax expense 90,914 4.9 91,002 5.1
---------- ------ ---------- ------
Net income $ 156,425 8.4% $ 153,331 8.7%
========== ====== ========== ======
Net income per share:
Basic $ 1.17 $ 1.13
========== ==========
Diluted $ 1.16 $ 1.12
========== ==========
Weighted average shares outstanding:
Basic 133,564 136,120
Diluted 134,562 137,400
Dividends declared per common share
outstanding $ 0.24 $ 0.20
========== ==========
SIX MONTHS ENDED
-----------------------------------
June 25, 2016 June 27, 2015
----------------- -----------------
% of % of
Sales Sales
------ ------
Net sales $3,320,331 100.0% $3,104,252 100.0%
Cost of merchandise sold 2,176,665 65.6 2,034,327 65.5
---------- ------ ---------- ------
Gross profit 1,143,666 34.4 1,069,925 34.5
Selling, general and administrative
expenses 718,588 21.6 671,318 21.6
Depreciation and amortization 67,634 2.0 60,595 2.0
---------- ------ ---------- ------
Operating income 357,444 10.8 338,012 10.9
Interest expense, net 3,035 0.1 1,698 0.1
---------- ------ ---------- ------
Income before income taxes 354,409 10.7 336,314 10.8
Income tax expense 130,316 3.9 124,943 4.0
---------- ------ ---------- ------
Net income $ 224,093 6.8% $ 211,371 6.8%
========== ====== ========== ======
Net income per share:
Basic $ 1.68 $ 1.55
========== ==========
Diluted $ 1.66 $ 1.54
========== ==========
Weighted average shares outstanding:
Basic 133,597 136,233
Diluted 134,635 137,567
Dividends declared per common share
outstanding $ 0.44 $ 0.36
========== ==========
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
SECOND QUARTER ENDED SIX MONTHS ENDED
-------------------- --------------------
June 25, June 27, June 25, June 27,
2016 2015 2016 2015
---------- --------- ---------- ---------
Net income $ 156,425 $ 153,331 $ 224,093 $ 211,371
Other comprehensive loss:
Change in fair value of interest
rate swap, net of taxes (1,362) - (1,362) -
---------- --------- ---------- ---------
Total other comprehensive loss (1,362) - (1,362) -
---------- --------- ---------- ---------
Total comprehensive income $ 155,063 $ 153,331 $ 222,731 $ 211,371
========== ========= ========== =========
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 25, June 27,
2016 2015
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 151,112 $ 56,317
Inventories 1,366,499 1,293,146
Prepaid expenses and other current assets 67,613 62,039
Income taxes receivable 3,311 -
------------ ------------
Total current assets 1,588,535 1,411,502
Property and equipment:
Land 94,387 84,391
Buildings and improvements 870,053 723,455
Furniture, fixtures and equipment 544,724 474,975
Computer software and hardware 199,058 166,684
Construction in progress 55,014 74,245
------------ ------------
Property and equipment, gross 1,763,236 1,523,750
Accumulated depreciation and amortization (861,274) (754,847)
------------ ------------
Property and equipment, net 901,962 768,903
Goodwill 10,258 10,258
Deferred income taxes 58,812 60,980
Other assets 19,199 19,627
------------ ------------
Total assets $ 2,578,766 $ 2,271,270
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,394 $ 452,669
Accrued employee compensation 27,744 28,910
Other accrued expenses 201,077 185,631
Current portion of long-term debt 10,000 -
Current portion of capital lease obligations 1,081 441
Income taxes payable 54,139 77,950
------------ ------------
Total current liabilities 724,435 745,601
Long-term debt 186,212 -
Capital lease obligations, less current maturities 21,494 8,652
Deferred rent 89,317 81,446
Other long-term liabilities 55,379 52,124
------------ ------------
Total liabilities 1,076,837 887,823
------------ ------------
Stockholders' equity:
Common stock 1,358 1,349
Additional paid-in capital 647,719 563,096
Treasury stock (1,536,695) (1,261,625)
Accumulated other comprehensive loss (1,362) -
Retained earnings 2,390,909 2,080,627
------------ ------------
Total stockholders' equity 1,501,929 1,383,447
------------ ------------
Total liabilities and stockholders' equity $ 2,578,766 $ 2,271,270
============ ============
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
SIX MONTHS ENDED
-------------------------
June 25, June 27,
2016 2015
------------ ------------
Cash flows from operating activities:
Net income $ 224,093 $ 211,371
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 67,634 60,595
Loss (gain) on disposition of property and
equipment 233 (15)
Share-based compensation expense 11,212 9,835
Excess tax benefit of stock options exercised (10,282) (12,900)
Deferred income taxes (3,618) (11,236)
Change in assets and liabilities:
Inventories (82,124) (177,696)
Prepaid expenses and other current assets 19,897 4,405
Accounts payable 3,145 81,846
Accrued employee compensation (14,940) (8,146)
Other accrued expenses (9,972) (4,533)
Income taxes 59,424 78,414
Other 3,214 1,475
------------ ------------
Net cash provided by operating activities 267,916 233,415
------------ ------------
Cash flows from investing activities:
Capital expenditures (100,956) (97,014)
Proceeds from sale of property and equipment 40 301
------------ ------------
Net cash used in investing activities (100,916) (96,713)
------------ ------------
Cash flows from financing activities:
Borrowings under senior credit facility 595,000 180,000
Repayments under senior credit facility (547,500) (180,000)
Debt issuance costs (1,380) -
Excess tax benefit of stock options exercised 10,282 12,900
Principal payments under capital lease
obligations (513) (199)
Repurchase of shares to satisfy tax obligations (843) (1,095)
Repurchase of common stock (106,905) (124,540)
Net proceeds from issuance of common stock 30,943 30,466
Cash dividends paid to stockholders (58,785) (49,051)
------------ ------------
Net cash used in financing activities (79,701) (131,519)
------------ ------------
Net change in cash and cash equivalents 87,299 5,183
Cash and cash equivalents at beginning of period 63,813 51,134
------------ ------------
Cash and cash equivalents at end of period $ 151,112 $ 56,317
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,153 $ 694
Income taxes 73,205 57,367
Supplemental disclosures of non-cash activities:
Property and equipment acquired through capital
lease $ 5,218 $ 4,122
Non-cash accruals for construction in progress 32,075 22,442
Selected Financial and Operating Information
(Unaudited)
SECOND QUARTER ENDED SIX MONTHS ENDED
---------------------- ----------------------
June 25, June 27, June 25, June 27,
2016 2015 2016 2015
----------- ---------- ----------- ----------
Sales Information:
------------------------------
Comparable store sales
increase (0.5)% 5.6% 1.9% 5.7%
New store sales (% of total
sales) 5.2% 5.8% 5.2% 5.9%
Average transaction value $46.75 $47.54 $44.76 $45.04
Comparable store average
transaction value increase (1.9)% 1.3% (0.8)% 1.1%
Comparable store average
transaction count increase 1.5% 4.2% 2.7% 4.5%
Total selling square footage
(000's) 24,864 23,086 24,864 23,086
Exclusive brands (% of total
sales) 31.0% 30.6% 31.8% 31.9%
Imports (% of total sales) 11.5% 11.4% 11.8% 11.5%
Store Count Information:
------------------------------
Beginning of period 1,521 1,422 1,488 1,382
New stores opened 22 17 58 58
Stores closed (1) (1) (4) (2)
----------- ---------- ----------- ----------
End of period 1,542 1,438 1,542 1,438
=========== ========== =========== ==========
Pre-opening costs (000's) $2,305 $1,791 $4,816 $4,558
Balance Sheet Information:
------------------------------
Average inventory per store
(000's) (a) $824.6 $834.9 $824.6 $834.9
Inventory turns (annualized) 3.43 3.55 3.21 3.33
Share repurchase program:
Cost (000's) $7,803 $76,595 $106,905 $124,540
Average purchase price per
share $89.90 $87.45 $84.12 $84.60
Capital Expenditures
(millions):
------------------------------
New and relocated stores and
stores not yet opened $33.5 $16.0 $56.0 $37.0
Existing stores 17.4 4.7 21.8 7.1
Information technology 10.5 5.6 17.3 12.1
Distribution center capacity
and improvements 2.8 21.8 5.8 40.2
Corporate and other 0.1 0.1 0.1 0.6
----------- ---------- ----------- ----------
Total $64.3 $48.2 $101.0 $97.0
------------------------------ =========== ========== =========== ==========
(a)Assumes average inventory cost, excluding inventory in transit.
Anthony F. Crudele
Chief Financial Officer
Christine Skold
Vice President, Investor Relations
(615) 440-4000
Investors:
John Rouleau/Rachel Schacter
ICR
Media:
Alecia Pulman/Brittany Rae Fraser
ICR
(203) 682-8200
