SOURCE: Tractor Supply Company

Tractor Supply Company

October 19, 2016 16:01 ET

Tractor Supply Company Reports Third Quarter Results

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.

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