Tractor Supply Earnings: Plan to Expand Footprint Offsets Near-Term Consumer Spending Woes

Weakening discretionary spending and unseasonal weather pinched wide-moat Tractor Supply’s second-quarter results, which were a touch behind our expectations. Comparable store sales rose 2.5%, shy of our 5% estimate, but sales growth of 7.2% to $4.2 billion was near our $4.3 billion estimate. Declines in big ticket and impulse purchases fueled lighter performance, as wallet-stretched consumers continue to combat diminishing savings and persistent inflation. That said, Tractor Supply’s needs-based consumable, usable, and edible (C.U.E.) category outpaced the firm’s average and contributed to a 1.8% bump in comparable store transactions. Even with the mix shift away from higher-margin big-ticket items, gross margin rose 69 basis points to 36.2%, near our 35.9% assumption, thanks to lower transportation costs. Despite heightened integration costs around Orscheln, a 13.4% operating margin was in line with our 13.3% estimate.