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Tractor Supply Company Reports Third Quarter Results

/EINPresswire.com/ -- Earnings per Share Increased 4.7% to $0.67; Sales Increased 4.5% to $1.54 Billion; Comparable Store Sales Decreased 0.6%

BRENTWOOD, TN--(Marketwired - October 19, 2016) - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail store chain in the United States, today announced financial results for its third quarter ended September 24, 2016.

Third Quarter Results
Net sales for the third quarter 2016 increased 4.5% to $1.54 billion from $1.48 billion in the third quarter of 2015. Comparable store sales decreased 0.6% versus a 2.9% increase in the prior year's third quarter. Comparable average ticket decreased 1.1% while comparable store transaction counts remained positive with an increase of 0.5%, representing the 34th consecutive quarter of transaction count growth. Comparable store sales were strongest in the West and Southeast regions and weakest in Midwest, South Central and Northeast regions.

As previously reported in the Company's Business Update press release on September 7, 2016, the Company believes that economic conditions in the energy producing and agricultural markets negatively impacted consumer spending primarily in the Midwest and South Central regions. Additionally, lower demand for pre-season cold weather and heating related products negatively impacted sales primarily in the Northeast region. On a category basis, the Company continued to see strong demand for many everyday basic items, with the Livestock and Pet category generating a mid-single digit comparable store sales increase.

Gross profit increased 4.5% to $535.3 million from $512.2 million in the prior year's third quarter, and gross margin remained flat to prior year at 34.7%. The Company's ongoing margin initiatives offset a negative shift in the mix of products sold and the impact of incremental sales driving initiatives. Freight expense did not have a significant impact on the quarter. Lower diesel fuel prices and container costs as well as a reduction in outbound stem miles were offset by higher inbound and outbound costs related to mix and higher lane costs.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 5.4% to $393.3 million from $373.0 million in the prior year period. As a percent of net sales, SG&A increased to 25.5% compared to 25.3% in the third 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 as a percentage of net sales.

Net income increased 2.4% to $89.4 million from $87.3 million, and diluted earnings per share increased 4.7% to $0.67 from $0.64 in the third quarter of the prior year.

The Company opened 34 new stores and closed one store, a Del's store, in the third quarter of 2016 compared to 30 new store openings and three store closures, two of which were Del's stores, in the prior year period.

Greg Sandfort, Chief Executive Officer, stated, "Our third quarter sales performance was significantly influenced by economic headwinds in our energy and agricultural markets and lower pre-season demand for cold weather and heating products. We do not believe the current trends are the result of significant changes in the competitive landscape or market share. During this more challenging environment, our teams are focused on driving sales and managing controllable items such as inventory and expenses. Over the long-term, we remain focused on enhancing our merchandise offerings, systems, people and processes to better meet the evolving needs of our customers, drive profitable growth and return value to our shareholders."

First Nine Months Results
Net sales increased 6.2% to $4.86 billion from $4.58 billion in the first nine months of 2015. Comparable store sales increased 1.1% versus a 4.7% increase in the first nine months of 2015. Gross profit increased 6.1% to $1.68 billion from $1.58 billion, and gross margin remained flat to prior year at 34.5%.

Selling, general and administrative expenses, including depreciation and amortization, increased 6.7% to $1.2 billion and increased as a percent of sales to 24.3% compared to 24.1% for the first nine months of 2015.

Net income increased 5.0% to $313.5 million from $298.7 million, and diluted earnings per share increased 6.9% to $2.33 from $2.18 for the first nine months of 2015.

The Company opened 92 new stores and closed five stores, all of which were Del's stores, in the first nine months of 2016 compared to 88 new store openings and five store closures, three of which were Del's stores during the first nine months of 2015.

Fiscal 2016 Outlook
As previously stated in the Company's Business Update press release dated September 7, 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   $6.70 billion - $6.75 billion  
  Comparable Store Sales   1.0% - 1.7%  
  Net Income   $432 million - $438 million  
  Earnings per Diluted Share   $3.22 - $3.26  
  Capital Expenditures   $235 million - $245 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 53rd week in fiscal 2016. Anticipated capital expenditures include spending to support 113 new store openings. The Company is not adjusting its outlook for fiscal 2016 as a result of the Petsense acquisition as the impact of the transaction, including Petsense's results of operations and acquisition and integration costs, is not expected to have a material impact on operating results for the year.

Conference Call Information
Tractor Supply Company will be hosting a conference call at 5:00 p.m. Eastern Time today to discuss the quarterly 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 September 24, 2016, Tractor Supply Company operated 1,575 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, 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, 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 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, weather conditions, the seasonal nature of the 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 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 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.

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

         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 24, 2016   September 26, 2015   September 24, 2016   September 26, 2015
                                 
        % of       % of       % of       % of
        Sales       Sales       Sales       Sales
Net sales   $ 1,542,706   100.0 %   $ 1,475,645   100.0 %   $ 4,863,037   100.0 %   $ 4,579,897   100.0 %
Cost of merchandise sold     1,007,432   65.3       963,397   65.3       3,184,097   65.5       2,997,724   65.5  
Gross profit     535,274   34.7       512,248   34.7       1,678,940   34.5       1,582,173   34.5  
                                         
Selling, general and administrative expenses     357,592   23.2       342,891   23.2       1,076,180   22.1       1,014,209   22.1  
Depreciation and amortization     35,662   2.3       30,149   2.1       103,296   2.1       90,744   2.0  
                                         
Operating income     142,020   9.2       139,208   9.4       499,464   10.3       477,220   10.4  
Interest expense, net     1,110   0.1       782   -       4,145   0.1       2,480   -  
                                         
Income before income taxes     140,910   9.1       138,426   9.4       495,319   10.2       474,740   10.4  
Income tax expense     51,466   3.3       51,114   3.5       181,782   3.7       176,057   3.9  
Net income   $ 89,444   5.8 %   $ 87,312   5.9 %   $ 313,537   6.5 %   $ 298,683   6.5 %
                                         
Net income per share:                                        
  Basic   $ 0.67       $ 0.64       $ 2.35       $ 2.20    
  Diluted   $ 0.67       $ 0.64       $ 2.33       $ 2.18    
                                         
Weighted average shares outstanding:                                        
  Basic     133,392         135,525         133,529         135,997    
  Diluted     134,256         136,741         134,509         137,292    
                                         
Dividends declared per common share outstanding   $ 0.24       $ 0.20       $ 0.68       $ 0.56    
                                         
                                         

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

         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 24, 2016   September 26, 2015   September 24, 2016   September 26, 2015
         
Net income   $ 89,444   $ 87,312   $ 313,537     $ 298,683
                         
Other comprehensive income (loss):                        
  Change in fair value of interest rate swap, net of taxes     251     -     (1,111 )     -
Total other comprehensive income (loss)     251     -     (1,111 )     -
Total comprehensive income   $ 89,695   $ 87,312   $ 312,426     $ 298,683
                           
                           

Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

       
  September 24, 2016   September 26, 2015
ASSETS      
Current assets:          
  Cash and cash equivalents $ 55,507     $ 51,352  
  Inventories   1,489,934       1,414,562  
  Prepaid expenses and other current assets   67,980       64,822  
  Income taxes receivable   16,335       -  
    Total current assets   1,629,756       1,530,736  
           
Property and equipment:          
  Land   94,362       86,197  
  Buildings and improvements   906,624       750,170  
  Furniture, fixtures and equipment   556,276       489,088  
  Computer software and hardware   209,218       172,443  
  Construction in progress   50,173       85,531  
    Property and equipment, gross   1,816,653       1,583,429  
  Accumulated depreciation and amortization   (893,488 )     (774,772 )
    Property and equipment, net   923,165       808,657  
           
Goodwill   10,258       10,258  
Deferred income taxes   53,192       72,543  
Other assets   19,362       18,392  
           
    Total assets $ 2,635,733     $ 2,440,586  
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
  Accounts payable $ 484,014     $ 527,143  
  Accrued employee compensation   17,625       27,449  
  Other accrued expenses   199,327       192,335  
  Current portion of long-term debt   10,000       -  
  Current portion of capital lease obligations   1,294       540  
  Income taxes payable   -       18,255  
    Total current liabilities   712,260       765,722  
           
Long-term debt   283,781       190,000  
Capital lease obligations, less current maturities   26,246       10,746  
Deferred rent   91,681       82,905  
Other long-term liabilities   57,025       53,953  
    Total liabilities   1,170,993       1,103,326  
           
Stockholders' equity:          
  Common stock   1,359       1,351  
  Additional paid-in capital   661,665       576,175  
  Treasury stock   (1,645,482 )     (1,381,041 )
  Accumulated other comprehensive loss   (1,111 )     -  
  Retained earnings   2,448,309       2,140,775  
    Total stockholders' equity   1,464,740       1,337,260  
               
    Total liabilities and stockholders' equity $ 2,635,733     $ 2,440,586  
               
               

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

   
  NINE MONTHS ENDED
  September 24, 2016   September 26, 2015
Cash flows from operating activities:          
Net income $ 313,537     $ 298,683  
Adjustments to reconcile net income to net cash provided by operating activities:          
  Depreciation and amortization   103,296       90,744  
  Loss on disposition of property and equipment   219       115  
  Share-based compensation expense   17,326       14,837  
  Excess tax benefit of stock options exercised   (11,637 )     (16,994 )
  Deferred income taxes   2,002       (22,799 )
  Change in assets and liabilities:          
    Inventories   (205,559 )     (299,112 )
    Prepaid expenses and other current assets   19,530       1,622  
    Accounts payable   56,765       156,320  
    Accrued employee compensation   (25,059 )     (9,607 )
    Other accrued expenses   2,626       882  
    Income taxes   (6,384 )     22,813  
    Other   7,336       5,950  
    Net cash provided by operating activities   273,998       243,454  
Cash flows from investing activities:          
  Capital expenditures   (167,161 )     (163,468 )
  Proceeds from sale of property and equipment   366       371  
    Net cash used in investing activities   (166,795 )     (163,097 )
Cash flows from financing activities:          
  Borrowings under senior credit facility   695,000       525,000  
  Repayments under senior credit facility   (550,000 )     (335,000 )
  Debt issuance costs   (1,380 )     -  
  Excess tax benefit of stock options exercised   11,637       16,994  
  Principal payments under capital lease obligations   (823 )     (318 )
  Repurchase of shares to satisfy tax obligations   (843 )     (2,998 )
  Repurchase of common stock   (215,692 )     (243,956 )
  Net proceeds from issuance of common stock   37,421       36,354  
  Cash dividends paid to stockholders   (90,829 )     (76,215 )
    Net cash used in financing activities   (115,509 )     (80,139 )
Net change in cash and cash equivalents   (8,306 )     218  
Cash and cash equivalents at beginning of period   63,813       51,134  
Cash and cash equivalents at end of period $ 55,507     $ 51,352  
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
  Interest $ 3,445     $ 1,694  
  Income taxes   184,817       175,485  
           
Supplemental disclosures of non-cash activities:          
  Property and equipment acquired through capital lease $ 10,493     $ 6,434  
  Non-cash accruals for construction in progress   17,727       23,731  
               
               

Selected Financial and Operating Information
(Unaudited)

         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 24, 2016   September 26, 2015   September 24, 2016   September 26, 2015
Sales Information:                
Comparable store sales increase   (0.6 )%   2.9 %   1.1 %   4.7%
New store sales (% of total sales)   5.3 %   5.3 %   5.2 %   5.7%
Average transaction value   $43.07   $43.48   $44.21   $44.53
                 
Comparable store average transaction value increase   (1.1 )%   (0.9 )%   (0.9 )%   0.5%
Comparable store average transaction count increase   0.5 %   3.8 %   2.0 %   4.3%
Total selling square footage (000's)   25,404   23,538   25,404   23,538
Exclusive brands (% of total sales)   32.3 %   32.0 %   32.3 %   32.4 %
Imports (% of total sales)   11.2 %   11.2 %   11.6 %   11.4 %
                 
Store Count Information:                
Beginning of period   1,542   1,438   1,488   1,382
  New stores opened   34   30   92   88
  Stores closed   (1)   (3)   (5)   (5)
End of period   1,575   1,465   1,575   1,465
                 
Pre-opening costs (000's)   $2,850   $3,027   $7,666   $7,585
                 
Balance Sheet Information:                
Average inventory per store (000's) (a)   $877.4   $893.7   $877.4   $893.7
Inventory turns (annualized)   3.01   3.04   3.13   3.23
Share repurchase program:                
  Cost (000's)   $108,786   $119,416   $215,692   $243,956
  Average purchase price per share   $77.17   $86.61   $80.47   $85.57
                 
Capital Expenditures (millions):                
New and relocated stores and stores not yet opened   $32.0   $30.2   $88.0   $66.9
Existing stores   15.6   6.4   37.4   13.8
Information technology   13.4   8.7   30.7   20.8
Distribution center capacity and improvements   5.1   21.1   10.9   61.3
Corporate and other   0.1   0.1   0.2   0.7
Total   $66.2   $66.5   $167.2   $163.5
                 

(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