Tractor supply evolution is paying off for investors – tractor supply company (nasdaq tsco) seeking alpha gas you up

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Tractor Supply ( TSCO) is breaking out higher following stronger comp sales due to its evolving operations. Comp sales continue to grow as management utilizes its online capabilities, as well as uses data analytics to better target its customer experience. Its share price is similarly breaking out higher as its fundamental strength fuels investor optimism. I am buying stock in the name as operational efficiency is driving its price action higher. Fundamental Narrative

The company operates rural lifestyle retail stores in the United States. It offers a selection of merchandise, including equine, livestock, pet, and small animal products necessary for their health, care, growth, and containment; hardware, truck, towing, and tool products; seasonal products, such as heating products, lawn and garden items, power equipment, gifts, and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use.

TSCO’s results in the most recent quarter were driven by broad-based strength across all geographic regions as well as increases in both comparable store transactions and average ticket, according to its earnings call. All four merchandising divisions achieved positive comp sales in the quarter, with comp store sales running above a 3% rate. This quarter marks 39 out of 40 quarters that its customer traffic count has been positive. Net sales increased 7.6% to $1.68 billion for the quarter as management continues its strategy to open new stores at both Tractor Supply and Petsense. In addition, the company achieved these sales results despite less than ideal conditions over the course of the first quarter given the late arrival of the spring season across many of its markets, according to its earnings call.

The company continues to experience strong sales in its C.U.E, consumable, usable, and edible products. During the quarter, TSCO had strong sales dollars and unit growth across categories such as pet food and treats, livestock feed and forage, as well as bird feeding and small animal products, according to its earnings call. These are stable categories that its customers depend on and drive repeat traffic to its stores. TSCO’s continued strong performance across its entire operations reflect its commitment to being the most dependable supplier of basic maintenance needs for those customers that live the Out Here lifestyle.

TSCO opened 15 new Tractor Supply stores and four Petsense locations, including Petsense’s first entry into Florida this quarter. They also increased their Neighbor’s Club loyalty program to now over 7.6 million members, an increase of more than 400% since the national launch in April of last year. This signals the continued expansion of the company, growing both its physical storefronts, while also keeping customers in its ecosystem using the rewards program.

Its online presence is also expanding, with this quarter marking its 23rd consecutive quarter of strong double-digit sales growth in its e-commerce business. During the quarter, the company continued to experience exceptional growth with its Buy Online, Pickup in Store program exceeding its expectations, according to its earnings call. Between the combination of its Buy Online, Pickup in Store and direct delivery to stores, nearly 70% of its e-commerce orders are being fulfilled at its stores, and its stores continue to play a key role in the fulfillment of its e-commerce business, making expansion of its physical presence a key in many markets.

Management believes that its new capabilities of Buy Online, Pickup in Store, mobile POS, Neighbor’s Club, and stockyard ordering position it uniquely to serve its customer base better within a fragmented market, with significant opportunities to broaden its customer base and increase its market share as its store base and digital capabilities expand over time.

Its progress is resonating with its customers as evidenced by its sales growth, as well as its strong ranking in a new ForeSee survey, according to management. Based on data from more than 40,000 shoppers across store, web, and mobile experiences assessing how likely they are to recommend a given retailer, its website ranked number one out of 50 retail websites included in the survey, signaling the company is evolving to the unique preferences its customers have for demand-driven, immediate-need products in an easy and seamless shopping experience.

The company continues to see strong traffic and sales from its website. Management is expanding its online assortments with existing and new vendors that can drop-ship merchandise. Its online assortments are now up to over 100,000 SKUs that can be purchased, according to management.

Moreover, using data analytics, the company is able to provide increased convenience for its customers, better understanding their expectations. The company is coming up on the one-year anniversary of its Neighbor’s Club, now having a year of data to gain insights to allow for a more personalized shopping experience for its customers. The new Vice President of CRM is now on board at TSCO, allowing the company to continue to build out the analytics team and accelerate its capabilities. Using this approach, TSCO has a greater opportunity to identify its most engaged customers and reinforce their loyalty to the Tractor Supply brand.

In the coming year, its capital spending is prioritized towards new stores with an increase of capital dedicated to its customer insight and store-level service initiatives as well as its supply chain, according to management. Its real estate modeling process continues to support the potential for upwards of 2,500 Tractor Supply locations over time, with the company being on track to open 80 new Tractor stores and 20 new Petsense store locations in the coming year.

Below is a chart of the company’s revenue and earnings per share. Since the financial crisis, its operations have greatly improved, with both revenue and EPS trending strongly higher. Management is clearly ahead of the curve as consumer demand remains elevated. Its share price should continue higher as the company is showing no signs of relenting its aggressive growth.

The company’s share price correlates to the retail sector, as well as general equity market volatility. While equity markets have been racing higher the last few years, TSCO is actually down due to the relative weakness of the retail sector. The company has nonetheless cut out a strong niche market for itself, as well as it’s investing in its online presence.

Its share price is breaking out higher above $70, which has acted as strong resistance the past few months. With a more favorable market for both equities, as well as the retail sector currently, TSCO’s share price should resume its trend higher over coming quarters.

TSCO is breaking out higher following stronger comp sales due to its evolving operations. Comp sales continue to grow as management utilizes its online capabilities, as well as uses data analytics to better target its customer experience. It share price is similarly breaking out higher as its fundamental strength fuels investor optimism. I am buying stock in the name as operational efficiency is driving its price action higher.

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