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Tractor Supply (TSCO) Gains on Online Strength & Growth Plans

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Tractor Supply Company (TSCO - Free Report) has been gaining from robust demand for seasonal categories and everyday merchandise, including consumable, usable and edible products. The company is also banking on its solid online show, driven by digital capabilities. Some other growth plans, including store initiatives, Life Out Here Strategy and ONETractor strategy, bode well.

Solid E-commerce Efforts

Tractor Supply’s omni-channel capabilities, including curbside pickup, same-day, next-day delivery, a re-launched website, and new mobile app, have been aiding digital sales growth, with the largest-ever quarterly sales recorded in second-quarter 2021. The rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores as well as enhancing of the Tractor Supply credit card offering, and investments in its supply chain has been contributing to results. In second-quarter 2021, its newly launched mobile app as well as the Neighbor's Club loyalty program remained key growth drivers.

The company launched the Field Activity Support Team and is implementing various technology and service improvement across the enterprise. It has been enhancing its supply chain and boosting digital commerce to drive growth for the long term.

Other retail players like DICK'S Sporting Goods (DKS - Free Report) , American Eagle Outfitters (AEO - Free Report) and Gap (GPS - Free Report) witnessed persistent online strength in the second quarter of fiscal 2021. On a two-year basis, e-commerce sales surged 111% for DICK'S Sporting, 66% for American Eagle and 65% for Gap in the last reported quarter.

Initiatives to Aid Growth

Tractor Supply’s ONETractor strategy aims at connecting store and online shopping in a bid to offer a seamless shopping experience. Backed by the initiative, it continues to drive growth, build customer-centric engagement, offer suitable products and services, and reinforce core infrastructure capabilities. The company is benefiting from the rollout of capabilities like stockyard in-store kiosk and mobile point-of-sale (PoS) in all its stores as well as enhancing the Tractor Supply credit card offering and investments in its supply chain.

It is also progressing well with its Life Out Here Strategy, which is based on five key pillars, including customers, digitization, execution, team members and total shareholder return. Some of the key initiatives undertaken to support the strategy are boosting space productivity, enhancing omni-channel initiatives, the evolution of the Neighbor’s Club loyalty program and augmenting in-store merchandising execution.

As part of its Life Out Here Strategy, management is on track with Project Fusion remodels and Side Lot transformation. The company has completed 60 side lot transformations, with more than 150 to be completed by the end of 2021. Tractor Supply currently boasts 160 Project Fusion stores, which have been performing well with positive customer feedback.

The company also remains focused on its store expansion plans and the incorporation of technological advancements to induce traffic and drive the top line. Its sales and comps have been considerably gaining from the addition of stores every quarter. In the second quarter, it opened 11 Tractor Supply stores and one Petsense store. It plans to open 80 Tractor Supply stores and 10 Petsense stores in 2021.

Headwinds to Overcome

The company is grappling with headwinds such as higher wages, increased investments in strategic initiatives, including the relaunch of the Neighbor’s Club loyalty program and product mix shift. This along with higher transportation costs and strength in consumable, usable and edible products is likely to weigh on margins in the second half of 2021. Elevated imports, freight, wages, and commodity costs also remain concerning.

Bottom Line

Although cost woes are concerning, we believe that strategic initiatives, a solid online show and high demand are likely to craft Tractor Supply’s growth story. Management, on its last reported quarter’s earnings call, raised its view for 2021. It anticipates net sales of $12.1-$12.3 billion, up from the previously mentioned $11.4-$11.7 billion. Comps are likely to increase 11-13%, up from 5-8% mentioned earlier. The operating margin is anticipated to be 9.7-9.9% versus 9.4-9.7% stated earlier. Earnings per share are envisioned to be $7.70-$8.00, indicating a rise from $7.05-$7.40 mentioned earlier.