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Tractor Supply Company Reports Third Quarter 2018 Financial Results

  • Net Sales Increased 9.3%; Comparable Store Sales Increased 5.1%
  • Diluted Earnings Per Share Increased 31.9% to $0.95
  • $398.4 Million of Capital Returned to Shareholders Year to Date
  • Company Raises Fiscal 2018 Financial Guidance

/EIN News/ -- BRENTWOOD, Tenn., Oct. 25, 2018 (GLOBE NEWSWIRE) -- Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail chain in the United States, today announced financial results for its third quarter ended September 29, 2018.

“We are delighted with Tractor Supply’s third quarter results and are on track to deliver a strong year in 2018.  Our 5.1% comparable store sales growth increase in the quarter was driven by continued execution of our ONETractor strategy that drove both average ticket and transaction count increases for the quarter.  The team did a great job managing our product assortment, marketing events and store experience as we cycled a strong comparable store sales increase of 6.6% in the prior year’s third quarter.  We have raised our full year outlook to reflect the strength of our business and the positive macro economic factors,” said Greg Sandfort, Tractor Supply’s Chief Executive Officer.

Third Quarter 2018 Results
Net sales for the third quarter 2018 increased 9.3% to $1.88 billion from $1.72 billion in the third quarter of 2017.  Comparable store sales increased 5.1%, as compared to an increase of 6.6% in the prior year’s third quarter.  The comparable store sales results included increases in comparable average ticket of 3.6% and comparable transaction count of 1.4%.  The increase in comparable store sales was primarily driven by broad-based strength in everyday merchandise, along with robust growth across spring and summer seasonal categories.  All merchandise categories delivered increased comparable store sales, as did all geographic regions. 

Gross profit increased 8.8% to $653.1 million from $600.5 million in the prior year’s third quarter, and gross margin decreased 16 basis points to 34.7% from 34.9% in the prior year’s third quarter.  The slight decline in gross margin resulted primarily from an increase in freight expense due to higher carrier rates and increased diesel fuel prices, partially offset by the strength of the Company’s price management program.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 10.6% to $500.0 million from $452.2 million in the prior year’s third quarter.  As a percent of net sales, SG&A expenses increased 31 basis points to 26.6% from 26.3% in the third quarter of 2017.  The increase in SG&A as a percent of net sales was primarily attributable to higher incentive compensation from the strong year-over-year growth in comparable store sales, along with planned investments across infrastructure, labor wages and technology to support the Company’s strategic long-term growth initiatives.  These SG&A increases were partially offset by leverage in occupancy and other costs from the increase in comparable store sales. 

The effective income tax rate was 21.5% compared to 36.4% in the prior year’s third 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 and, to a lesser extent, an incremental tax benefit associated with share-based compensation compared to the third quarter of 2017.

Net income increased 27.1% to $116.8 million from $91.9 million and diluted earnings per share increased 31.9% to $0.95 from $0.72 in the third quarter of 2017.

The Company opened 23 new Tractor Supply stores and seven new Petsense stores in the third quarter of 2018.

First Nine Months of Fiscal 2018 Results
Net sales for the first nine months of 2018 increased 8.9% to $5.78 billion from $5.30 billion in the first nine months of 2017.  Comparable store sales increased 4.9% versus a 2.2% increase in the first nine months of 2017.  Gross profit increased 8.9% to $1.99 billion from $1.82 billion and gross margin was 34.4%, consistent with the first nine months of 2017.

SG&A expenses, including depreciation and amortization, increased 10.9% to $1.46 billion and increased as a percent of net sales to 25.4% compared to 24.9% for the first nine months of 2017.

The effective income tax rate was 22.1% compared to 36.5% in the first nine months of 2017.    

Net income increased 26.4% to $395.5 million from $312.9 million and diluted earnings per share increased 31.7% to $3.20 from $2.43 for the first nine months of 2017.

Year to date through the third quarter, the Company has repurchased approximately 4.3 million shares of its common stock for $289.2 million and paid quarterly cash dividends totaling $109.2 million. 

During the first nine months of 2018, the Company opened 63 new Tractor Supply stores and 14 new Petsense stores and closed one Petsense store.

Fiscal 2018 Outlook
Based upon the results of the first nine months of fiscal 2018, the Company is providing the following updated guidance for the expected results of operations in fiscal 2018:

    Updated Previous  
  Net Sales $7.84 billion - $7.87 billion $7.77 billion - $7.80 billion  
  Comparable Store Sales +4.0% - +4.5% +3.0% - +3.5%  
  Net Income $522 million - $528 million $505 million - $517 million  
  Earnings per Diluted Share $4.23 - $4.27 $4.10 - $4.20  
         

The Company now forecasts capital expenditures in the range of $260 million to $280 million for fiscal 2018 and an effective tax rate of approximately 22.3% to 22.5%. 

Conference Call Information
Tractor Supply Company will be hosting a conference call today, Thursday, October 25, 2018, at 9:00 a.m. CT / 10:00 a.m. ET, hosted by Greg Sandfort, Chief Executive Officer; Steve Barbarick, President and Chief Operating Officer; and Kurt Barton, Chief Financial Officer.  The call will be webcast live at IR.TractorSupply.com.

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
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 over 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 September 29, 2018, the Company operated 1,748 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 September 29, 2018, the Company operated 181 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

Media Contacts:
Alecia Pulman/Brittany 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 and estimated results of operations, including, but not limited to, net sales and comparable store sales, net income, earnings per share and capital expenditures.  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, the amount and timing of any share repurchases, capital market conditions in general, the ability to open new stores and distribution centers 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)
       
  THIRD QUARTER ENDED   NINE MONTHS ENDED
  September 29,
 2018
  September 30,
 2017
  September 29,
 2018
  September 30,
 2017
      % of       % of       % of       % of
      Sales       Sales       Sales       Sales
Net sales $ 1,881,625     100.0 %   $ 1,721,704     100.0 %   $ 5,777,775     100.0 %   $ 5,303,544     100.0 %
Cost of merchandise sold 1,228,493     65.3     1,121,248     65.1     3,791,580     65.6     3,480,177     65.6  
Gross profit 653,132     34.7     600,456     34.9     1,986,195     34.4     1,823,367     34.4  
                               
Selling, general and administrative expenses 454,998     24.2     410,276     23.8     1,333,457     23.1     1,198,126     22.6  
Depreciation and amortization 44,986     2.4     41,927     2.5     131,383     2.3     122,701     2.3  
                               
Operating income 153,148     8.1     148,253     8.6     521,355     9.0     502,540     9.5  
Interest expense, net 4,460     0.2     3,752     0.2     13,906     0.2     9,621     0.2  
                               
Income before income taxes 148,688     7.9     144,501     8.4     507,449     8.8     492,919     9.3  
Income tax expense 31,904     1.7     52,605     3.1     111,943     1.9     180,063     3.4  
Net income $ 116,784     6.2 %   $ 91,896     5.3 %   $ 395,506     6.9 %   $ 312,856     5.9 %
                               
Net income per share:                              
Basic $ 0.96         $ 0.73         $ 3.22         $ 2.44      
Diluted $ 0.95         $ 0.72         $ 3.20         $ 2.43      
                               
Weighted average shares outstanding:                              
Basic 121,876         126,416         122,818         128,293      
Diluted 122,761         126,919         123,570         128,910      
                               
Dividends declared per common share outstanding $ 0.31         $ 0.27         $ 0.89         $ 0.78      


 
 
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
       
  THIRD QUARTER ENDED   NINE MONTHS ENDED
  September 29, 2018   September 30, 2017   September 29, 2018   September 30, 2017
Net income $ 116,784     $ 91,896     $ 395,506     $ 312,856  
               
Other comprehensive income:              
Change in fair value of interest rate swaps, net of taxes 227     36     2,611     165  
Total other comprehensive income 227     36     2,611     165  
Total comprehensive income $ 117,011     $ 91,932     $ 398,117     $ 313,021  


 
 
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
       
  September 29,
 2018
  September 30,
 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 71,302     $ 70,046  
Inventories 1,737,273     1,591,555  
Prepaid expenses and other current assets 109,478     75,618  
Income taxes receivable 23,655     4,776  
Total current assets 1,941,708     1,741,995  
       
Property and equipment:      
Land 100,250     99,323  
Buildings and improvements 1,096,222     1,013,937  
Furniture, fixtures and equipment 632,985     593,329  
Computer software and hardware 334,497     259,508  
Construction in progress 117,454     56,006  
Property and equipment, gross 2,281,408     2,022,103  
Accumulated depreciation and amortization (1,169,359 )   (1,025,266 )
Property and equipment, net 1,112,049     996,837  
       
Goodwill and other intangible assets 124,492     124,492  
Deferred income taxes 13,485     40,592  
Other assets 29,200     24,435  
Total assets $ 3,220,934     $ 2,928,351  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 683,672     $ 609,883  
Accrued employee compensation 51,673     34,497  
Other accrued expenses 209,199     186,037  
Current portion of long-term debt 26,250     22,500  
Current portion of capital lease obligations 3,747     3,545  
Income taxes payable     15,732  
Total current liabilities 974,541     872,194  
       
Long-term debt 547,505     487,228  
Capital lease obligations, less current maturities 29,690     33,509  
Deferred rent 108,487     104,617  
Other long-term liabilities 65,414     59,402  
Total liabilities 1,725,637     1,556,950  
       
Stockholders’ equity:      
Common stock 1,372     1,362  
Additional paid-in capital 793,090     703,292  
Treasury stock (2,420,106 )   (2,088,145 )
Accumulated other comprehensive income 5,969     1,557  
Retained earnings 3,114,972     2,753,335  
Total stockholders’ equity 1,495,297     1,371,401  
Total liabilities and stockholders’ equity $ 3,220,934     $ 2,928,351  


 
 
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
   
  NINE MONTHS ENDED
  September 29, 2018   September 30, 2017
Cash flows from operating activities:      
Net income $ 395,506     $ 312,856  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 131,383     122,701  
(Gain) / loss on disposition of property and equipment (285 )   509  
Share-based compensation expense 22,787     22,931  
Deferred income taxes 5,009     4,626  
Change in assets and liabilities:      
Inventories (284,065 )   (221,899 )
Prepaid expenses and other current assets (21,226 )   14,939  
Accounts payable 107,104     90,361  
Accrued employee compensation 20,000     9,251  
Other accrued expenses 667     (33,259 )
Income taxes (29,667 )   9,154  
Other 6,206     8,792  
Net cash provided by operating activities 353,419     340,962  
Cash flows from investing activities:      
Capital expenditures (193,693 )   (152,040 )
Proceeds from sale of property and equipment 2,029     10,880  
Net cash used in investing activities (191,664 )   (141,160 )
Cash flows from financing activities:      
Borrowings under debt facilities 968,500     1,010,000  
Repayments under debt facilities (820,750 )   (773,750 )
Debt issuance costs (346 )   (599 )
Principal payments under capital lease obligations (2,725 )   (1,554 )
Repurchase of shares to satisfy tax obligations (622 )   (771 )
Repurchase of common stock (289,205 )   (326,647 )
Net proceeds from issuance of common stock 54,706     9,619  
Cash dividends paid to stockholders (109,159 )   (99,970 )
Net cash used in financing activities (199,601 )   (183,672 )
Net change in cash and cash equivalents (37,846 )   16,130  
Cash and cash equivalents at beginning of period 109,148     53,916  
Cash and cash equivalents at end of period $ 71,302     $ 70,046  
       
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest $ 15,445     $ 8,010  
Income taxes 137,041     166,027  
       
Supplemental disclosures of non-cash activities:      
Property and equipment acquired through capital lease $     $ 11,395  
Non-cash accruals for construction in progress 15,521     15,949  


Selected Financial and Operating Information (a)
(Unaudited)
         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 29, 2018   September 30, 2017   September 29, 2018   September 30, 2017
Sales Information:                
Comparable store sales increase   5.1%   6.6%   4.9%   2.2%
New store sales (% of total sales)   4.0%   5.8%   4.0%   6.1%
Average transaction value   $44.96   $43.39   $45.43   $44.23
Comparable store average transaction value increase   3.6%   1.5%   2.7%   0.2%
Comparable store average transaction count increase   1.4%   5.0%   2.1%   2.0%
Total selling square footage (000’s)   29,333   27,762   29,333   27,762
Exclusive brands (% of total sales)   31.5%   31.6%   31.4%   31.8%
Imports (% of total sales)   11.0%   11.4%   11.5%   11.7%
                 
Store Count Information:                
Tractor Supply                
Beginning of period   1,725   1,630   1,685   1,595
New stores opened   23   36   63   74
Stores closed     —      (1)     —      (4)
End of period   1,748   1,665   1,748   1,665
Petsense                
Beginning of period   174   160   168   143
New stores opened   7   2   14   19
Stores closed    —     —     (1)    —
End of period   181   162   181   162
Consolidated end of period   1,929   1,827   1,929   1,827
                 
Pre-opening costs (000’s)   $2,826   $3,863   $7,034   $8,519
                 
Balance Sheet Information:                
Average inventory per store (000’s) (b)   $828.2   $796.5   $828.2   $796.5
Inventory turns (annualized)   3.12   3.11   3.19   3.15
Share repurchase program:                
Cost (000’s)   $36,660   $78,500   $289,205   $326,647
Average purchase price per share   $81.23   $55.07   $67.33   $62.44
                 
Capital Expenditures (in millions):                
Information technology   $23.9   $14.8   $62.4   $49.1
Distribution center capacity and improvements   19.4   6.3   53.2   12.6
New and relocated stores and stores not yet opened   19.3   24.3   52.1   59.5
Existing stores   14.3   10.0   25.8   30.7
Corporate and other   0.1   0.0   0.2   0.1
Total   $77.0   $55.4   $193.7   $152.0

(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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