SOURCE: Tractor Supply Company

Tractor Supply Company

February 01, 2017 16:01 ET

Tractor Supply Company Reports Fourth Quarter and Full Year 2016 Results

Fourth Quarter Comparable Store Sales Increased 3.1%; Fourth Quarter Earnings per Share Increased 14.6% to $0.94; Full Year Earnings per Share Increased 9.0% to $3.27

BRENTWOOD, TN--(Marketwired - February 01, 2017) - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail store chain in the United States, today announced financial results for its fourth quarter and fiscal year ended December 31, 2016. Additionally, the Company provided its initial outlook for fiscal 2017.

Fourth Quarter Results
Net sales for the fourth quarter 2016 increased 16.4% to $1.92 billion from $1.65 billion in the fourth quarter of 2015. The fourth quarter included an extra sales week as part of the Company's 53-week calendar in 2016, which represented 6.2 percentage points of the overall 16.4% sales increase. Comparable store sales increased 3.1% versus a decrease of 1.4% in the prior year's fourth quarter. The 3.1% increase includes an estimated 60 basis point benefit from one additional comparable sales day in the fourth quarter of 2016 versus the prior year. Comparable store transaction count increased 4.0% and average ticket decreased 0.9%. This represents the 35th consecutive quarter of comparable transaction count growth. Comparable store sales were driven by strong performance in everyday basic items across a number of consumable, usable and edible (C.U.E.) and hardline related areas such as livestock and pet, bird and wildlife, trailers and accessories, hand tools and livestock equipment.

Gross profit increased 15.2% to $646.3 million from $561.0 million and gross margin rate decreased to 33.7% from 34.1% in the prior year's fourth quarter. The decline in gross margin was primarily driven by a higher mix of C.U.E. products, which generally carry below chain average gross margin, and a slightly higher level of promotional activity. Freight expense did not have a significant impact on the quarter.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 16.5% to $451.6 million from $387.7 million in the prior year period. As a percent of net sales, SG&A expenses remained flat at 23.6% compared to the fourth quarter of 2015. SG&A expenses as a percent of net sales benefited from leverage of occupancy costs resulting from the 53rd week of sales and the 3.1% increase in comparable store sales. These benefits were primarily offset by higher store personnel and advertising costs, related primarily to sales driving initiatives, as well as the incremental acquisition and operating expenses associated with the Petsense acquisition.

Net income increased 10.6% to $123.6 million from $111.7 million, and diluted earnings per share increased 14.6% to $0.94 from $0.82 in the fourth quarter of the prior year. The Company estimates that the 53rd week in 2016 represented a benefit of approximately $0.055 per diluted share.

The Company opened 21 new stores and closed one Del's store in the fourth quarter of 2016 compared to 26 new store openings and three store closures, two of which were Del's stores, in the prior year period. Additionally in the fourth quarter of 2016, the Company acquired Petsense LLC. At the end of the fourth quarter, there were 143 Petsense stores, which included eight store openings and one store closure during the quarter.

Greg Sandfort, Chief Executive Officer, stated, "While it was obviously a challenging retail environment, our Tractor Supply team managed the business well and drove strong comparable store sales and earnings per share growth. Throughout the quarter, the team worked hard to take advantage of weather trends, localize assortments, manage inventory and shorten the supply chain. Our focus was on driving sales in key categories and keeping our inventory current in others. On a market-by-market basis, we aligned our business from all sides -- merchandise, pricing, promotion and inventory. We did this by communicating regularly with our field managers and customers, analyzing sales and product data, and regularly reviewing pricing and promotional strategies. While we never have all the answers, we believe we were successful at driving growth in the fourth quarter through careful planning and execution of our business."

Fiscal 2016 Results
Net sales increased 8.9% to $6.78 billion from $6.23 billion in fiscal 2015. Comparable store sales increased 1.6% versus a 3.1% increase in fiscal 2015. Gross profit increased 8.5% to $2.33 billion from $2.14 billion, and gross margin decreased to 34.3% from 34.4% in fiscal 2015.

SG&A expenses, including depreciation and amortization, increased 9.3% to $1.63 billion, and as a percent of sales, SG&A expenses increased to 24.1% compared to 24.0% in fiscal 2015.

Net income increased 6.5% to $437.1 million from $410.4 million, and diluted earnings per share increased 9.0% to $3.27 from $3.00 in fiscal 2015.

The Company opened 113 new stores and closed six stores, all of which were Del's stores, in fiscal 2016 compared to 114 new store openings and eight store closures, five of which were Del's stores, during fiscal 2015. The Company also acquired Petsense LLC, which operated 143 stores at the end of fiscal 2016.

Fiscal 2017 Outlook
The Company is providing the following initial guidance for the results of operations expected for fiscal 2017:

Net Sales  $7.22 billion - $7.29 billion
Comparable Store Sales  2.0% - 3.0%
Net Income  $445 million - $457 million
Earnings per Diluted Share  $3.44 - $3.52
Capital Expenditures  $270 million - $290 million

Anticipated capital expenditures include spending to support approximately 100 new Tractor Supply and 25 to 30 new Petsense store openings.

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
Founded in 1938, Tractor Supply Company is the largest rural lifestyle retail store chain in the United States. At December 31, 2016, the Company operated 1,595 Tractor Supply stores in 49 states and an e-commerce website at www.tractorsupply.com. Tractor Supply 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.

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 December 31, 2016, the Company operated 143 Petsense stores in 26 states. For more information on Petsense, visit www.petsense.com.

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.

 
(Financial tables to follow)
 

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

       
   FOURTH QUARTER ENDED  YEAR ENDED
   December 31, 2016  December 26, 2015  December 31, 2016  December 26, 2015
   (14 weeks)  (13 weeks)  (53 weeks)  (52 weeks)
                         
      % of     % of     % of     % of
      Sales     Sales     Sales     Sales
Net sales  $1,916,542  100.0 % $1,646,610  100.0 % $6,779,579  100.0 % $6,226,507  100.0 %
Cost of merchandise sold   1,270,280  66.3    1,085,609  65.9    4,454,377  65.7    4,083,333  65.6  
Gross profit   646,262  33.7    561,001  34.1    2,325,202  34.3    2,143,174  34.4  
                                  
Selling, general and administrative expenses   411,984  21.5    354,888  21.6    1,488,164  22.0    1,369,097  22.0  
Depreciation and amortization   39,662  2.1    32,825  2.0    142,958  2.1    123,569  2.0  
                                  
Operating income   194,616  10.1    173,288  10.5    694,080  10.2    650,508  10.4  
Interest expense, net   1,665  0.1    411  -    5,810  0.1    2,891  -  
                                  
Income before income taxes   192,951  10.0    172,877  10.5    688,270  10.1    647,617  10.4  
Income tax expense   69,368  3.6    61,165  3.7    251,150  3.7    237,222  3.8  
Net income  $123,583  6.4 % $111,712  6.8 % $437,120  6.4 % $410,395  6.6 %
                                  
Net income per share:                                 
 Basic  $0.94      $0.83      $3.29      $3.03     
 Diluted  $0.94      $0.82      $3.27      $3.00     
                                  
Weighted average shares outstanding:                                 
 Basic   131,169       134,338       132,905       135,582     
 Diluted   131,858       135,506       133,813       136,845     
                                  
Dividends declared per common share outstanding  $0.24      $0.20      $0.92      $0.76     
                         

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

 
   FOURTH QUARTER ENDED  YEAR ENDED
   December 31, 2016  December 26, 2015  December 31, 2016  December 26, 2015
   (14 weeks)  (13 weeks)  (53 weeks)  (52 weeks)
Net income  $123,583  $111,712  $437,120  $410,395
                 
Other comprehensive income:                
 Change in fair value of interest rate swap, net of taxes   2,503   -   1,392   -
Total other comprehensive income   2,503   -   1,392   -
Total comprehensive income  $126,086  $111,712  $438,512  $410,395
             

Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

 
   December 31, 2016  December 26, 2015
ASSETS      
Current assets:      
 Cash and cash equivalents  $53,916   $63,813  
 Inventories   1,369,656    1,284,375  
 Prepaid expenses and other current assets   90,557    87,510  
 Income taxes receivable   3,680    3,763  
  Total current assets   1,517,809    1,439,461  
            
Property and equipment:           
 Land   94,940    86,991  
 Buildings and improvements   965,582    814,802  
 Furniture, fixtures and equipment   567,653    523,383  
 Computer software and hardware   224,370    180,020  
 Construction in progress   21,320    38,720  
  Property and equipment, gross   1,873,865    1,643,916  
 Accumulated depreciation and amortization   (911,557 )  (796,340 )
  Property and equipment, net   962,308    847,576  
            
Goodwill and other intangible assets   125,717    10,258  
Deferred income taxes   45,218    55,194  
Other assets   23,890    18,337  
            
  Total assets  $2,674,942   $2,370,826  
            
LIABILITIES AND STOCKHOLDERS' EQUITY           
Current liabilities:           
 Accounts payable  $519,522   $427,249  
 Accrued employee compensation   25,246    42,684  
 Other accrued expenses   215,650    195,024  
 Current portion of long-term debt   10,000    -  
 Current portion of capital lease obligations   1,294    878  
 Income taxes payable   5,482    5,449  
  Total current liabilities   777,194    671,284  
            
Long-term debt   263,850    150,000  
Capital lease obligations, less current maturities   25,919    16,992  
Deferred rent   100,078    84,793  
Other long-term liabilities   54,683    54,463  
  Total liabilities   1,221,724    977,532  
            
Stockholders' equity:           
 Common stock   1,360    1,352  
 Additional paid-in capital   671,515    596,131  
 Treasury stock   (1,761,498 )  (1,429,790 )
 Accumulated other comprehensive income   1,392    -  
 Retained earnings   2,540,449    2,225,601  
  Total stockholders' equity   1,453,218    1,393,294  
            
  Total liabilities and stockholders' equity  $2,674,942   $2,370,826  
           

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

 
   YEAR ENDED
   December 31, 2016  December 26, 2015
   (53 weeks)  (52 weeks)
Cash flows from operating activities:      
Net income  $437,120   $410,395  
Adjustments to reconcile net income to net cash provided by operating activities:           
 Depreciation and amortization   142,958    123,569  
 Loss on disposition of property and equipment   579    315  
 Share-based compensation expense   23,554    19,420  
 Excess tax benefit of stock options exercised   (11,671 )  (27,032 )
 Deferred income taxes   9,976    (5,450 )
 Change in assets and liabilities:           
  Inventories   (67,650 )  (168,925 )
  Prepaid expenses and other current assets   1,782    (21,066 )
  Accounts payable   82,477    56,426  
  Accrued employee compensation   (18,237 )  5,628  
  Other accrued expenses   20,368    11,252  
  Income taxes   11,787    16,282  
  Other   5,997    8,366  
  Net cash provided by operating activities   639,040    429,180  
Cash flows from investing activities:           
 Capital expenditures   (226,017 )  (236,496 )
 Proceeds from sale of property and equipment   362    584  
 Acquisition of Petsense, net of cash acquired   (143,610 )  -  
  Net cash used in investing activities   (369,265 )  (235,912 )
Cash flows from financing activities:           
 Borrowings under senior credit facility   945,000    680,000  
 Repayments under senior credit facility   (820,000 )  (530,000 )
 Debt issuance costs   (1,380 )  -  
 Excess tax benefit of stock options exercised   11,671    27,032  
 Principal payments under capital lease obligations   (1,150 )  (507 )
 Repurchase of shares to satisfy tax obligations   (843 )  (2,997 )
 Repurchase of common stock   (331,708 )  (292,705 )
 Net proceeds from issuance of common stock   41,010    41,689  
 Cash dividends paid to stockholders   (122,272 )  (103,101 )
  Net cash used in financing activities   (279,672 )  (180,589 )
Net change in cash and cash equivalents   (9,897 )  12,679  
Cash and cash equivalents at beginning of period   63,813    51,134  
Cash and cash equivalents at end of period  $53,916   $63,813  
            
Supplemental disclosures of cash flow information:           
Cash paid during the period for:           
 Interest  $6,124   $2,283  
 Income taxes   232,258    226,968  
            
Supplemental disclosures of non-cash activities:           
 Property and equipment acquired through capital lease  $10,493   $13,207  
 Non-cash accruals for construction in progress   12,303    16,050  
          

Selected Financial and Operating Information (a)
(Unaudited)

 
   FOURTH QUARTER ENDED  YEAR ENDED
   December 31,
2016
(b)
 December 26,
2015
(b)
 December 31,
2016
(b)
 December 26,
2015
(b)
   (14 weeks)  (13 weeks)  (53 weeks)  (52 weeks)
Sales Information:            
Comparable store sales increase  3.1%  (1.4)%  1.6%  3.1%
New store sales (% of total sales)  6.5%  5.4%  5.6%  5.6%
Average transaction value  $44.96  $45.86  $44.42  $44.87
             
Comparable store average transaction value increase  (0.9)%  (1.9)%  (0.9)%  (0.2)%
Comparable store average transaction count increase  4.0%  0.6%  2.6%  3.3%
Total selling square footage (000's)  26,511  23,938  26,511  23,938
Exclusive brands (% of total sales)  30.8%  31.2%  32.1%  32.1%
Imports (% of total sales)  14.9%  15.5%  12.6%  12.5%
             
Store Count Information:            
Tractor Supply            
 Beginning of period  1,575  1,465  1,488  1,382
  New stores opened  21  26  113  114
  Stores closed  (1)  (3)  (6)  (8)
 End of period  1,595  1,488  1,595  1,488
Petsense            
 Beginning of period  -  -  -  -
  Stores acquired  136  -  136  -
  New stores opened  8  -  8  -
  Stores closed  (1)  -  (1)  -
 End of period  143  -  143  -
Consolidated end of period  1,738  1,488  1,738  1,488
             
Pre-opening costs (000's)  $2,202  $1,986  $9,868  $9,571
             
Balance Sheet Information:            
Average inventory per store (000's) (c)  $741.7  $820.1  $741.7  $820.1
Inventory turns (annualized)  3.31  3.23  3.19  3.23
Share repurchase program:            
  Cost (000's)  $116,017  $48,749  $331,709  $292,705
  Average purchase price per share  $67.56  $86.34  $75.43  $85.70
             
Capital Expenditures (millions):            
New and relocated stores and stores not yet opened  $23.2  $29.8  $111.2  $96.7
Existing stores  15.7  9.3  53.1  23.1
Distribution center capacity and improvements  10.1  18.9  21.0  80.2
Information technology  9.8  15.0  40.5  35.8
Corporate and other  -  -  0.2  0.7
Total  $58.8  $73.0  $226.0  $236.5
(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)Fourth quarter 2016 and fiscal 2016 are calculated based on a 14-week quarter and 53-week year, respectively. Comparable store calculations have been adjusted to reflect the corresponding comparable period. Fourth quarter 2015 and fiscal 2015 are calculated based on a 13-week quarter and 52-week year, respectively. The additional week in 2016 does not have a significant impact on comparability for those calculations that have not been adjusted for comparable purposes.
(c)Assumes average inventory cost, excluding inventory in transit.
  

2016 Comparable Store Sales: Originally Reported and Adjusted for Week Shift (a)
(Unaudited)

 
   FISCAL 2016
   First
Quarter
 Second
Quarter
 Third
Quarter
 Fourth
Quarter
 Full Year
Comparable store sales increase (originally reported)  4.9 % (0.5 )% (0.6 )% 3.1 % 1.6 %
Comparable store sales increase (adjusted for week shift)  2.6 % 1.0 % (1.1 )% 3.8 % 1.6 %
Impact of week shift  (2.3 )% 1.5 % (0.5 )% 0.7 % - %
(a)Due to the 53-week fiscal 2016, each quarter of fiscal 2017 starts one week later than the same quarter of fiscal 2016. The chart above represents comparable store sales for 2016 as originally reported and as adjusted to represent the same 13-week period as the 2017 fiscal quarters. The adjusted 13-week periods end on April 2, 2016, July 2, 2016, October 1, 2016 and December 31, 2016, respectively.

Contact Information

  • 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