Tractor Supply Company Reports Second Quarter 2019 Financial Results
Source: Nasdaq GlobeNewswire / 25 Jul 2019 08:01:33 America/New_York
- Net Sales Increased 6.3%; Comparable Store Sales Increased 3.2%
- Diluted Earnings Per Share Increased 6.5% to $1.80
- $414 Million of Capital Returned to Shareholders Year to Date Through Share Repurchases and Quarterly Cash Dividends
- Company Updates 2019 Financial Guidance, Including Raising the Midpoint of Its Earnings Per Share Guidance Range for Fiscal 2019
BRENTWOOD, Tenn., July 25, 2019 (GLOBE NEWSWIRE) -- Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, today reported financial results for its second quarter ended June 29, 2019.
“For both the second quarter and first half of 2019, the Tractor Supply team delivered a very solid performance. For the quarter, comparable store sales growth of 3.2% was driven by improvements in our average ticket and positive comparable transaction counts, along with growth across all geographies. The team managed the business effectively to capture demand, and given our solid performance year to date and our expectations for the remainder of this year, we are raising the low end of our EPS guidance range by $0.05. We now expect EPS to be in the range of $4.65 to $4.75. We continue to demonstrate progress on our ONETractor strategy and remain committed to creating sustainable long-term shareholder value,” said Greg Sandfort, Tractor Supply’s Chief Executive Officer.
Second Quarter 2019 Results
Net sales for the second quarter 2019 increased 6.3% to $2.35 billion from $2.21 billion in the second quarter of 2018. Comparable store sales for the second quarter 2019 increased 3.2% driven by comparable average ticket and transaction count of 2.2% and 1.0%, respectively. All geographic regions of the Company had positive comparable store sales growth. The increase in comparable store sales was primarily driven by strength in everyday merchandise, including consumable, usable and edible products, along with solid demand for spring and summer seasonal categories.
Gross profit increased 6.7% to $820.7 million from $769.4 million in the second quarter of 2018, and gross margin increased 11 basis points to 34.9% from 34.8% in the prior year’s second quarter. The increase in gross margin was driven by product mix, along with the strength of the Company’s price management program. Freight expense did not have a significant impact on the quarter.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 7.5% to $533.2 million from $496.0 million in the second quarter of 2018. As a percent of net sales, SG&A expenses increased 24 basis points to 22.7% from 22.4% in the prior year’s second quarter. The increase in SG&A as a percent of net sales was primarily attributable to incremental costs associated with a new distribution facility in Frankfort, N.Y., and, to a lesser extent, investment in store team member wages. These SG&A increases were partially offset by leverage in occupancy and other costs from the increase in comparable store sales.
The effective income tax rate was 22.4% compared to 22.8% in the prior year’s second quarter.
Net income increased 5.8% to $219.2 million from $207.3 million in the second quarter of 2018, and diluted earnings per share increased 6.5% to $1.80 from $1.69 in the prior year’s second quarter.
During the second quarter of 2019, the Company opened 15 new Tractor Supply stores and one new Petsense store.
First Six Months of Fiscal 2019 Results
Net sales for the first six months of 2019 increased 7.2% to $4.18 billion from $3.90 billion in the first six months of 2018. Comparable store sales increased 4.0% as compared to an increase of 4.7% in the first six months of 2018.
Gross profit increased 7.7% to $1.44 billion from $1.33 billion in the first six months of 2018, and gross margin increased to 34.4% from 34.2% in the first six months of 2018.
SG&A expenses, including depreciation and amortization, increased 8.3% to $1.04 billion from $964.9 million in the first six months of 2018. As a percent of sales, SG&A expenses increased to 25.0% from 24.8% in the first six months of 2018.
The effective income tax rate was 22.3% in the first six months of both 2019 and 2018.
Net income increased 6.2% to $296.0 million from $278.7 million in the first six months of 2018, and diluted earnings per share increased 8.0% to $2.43 from $2.25 in the first six months of 2018.
Year to date through the second quarter, the Company repurchased approximately 3.5 million shares of its common stock for $334.2 million and paid quarterly cash dividends totaling $79.7 million.
During the first six months of 2019, the Company opened 25 new Tractor Supply stores and two new Petsense stores.
Fiscal 2019 Outlook
Based on year-to-date performance, the Company is providing the following updated guidance for the expected results of operations in fiscal 2019:
Updated Previous Net Sales $8.40 billion - $8.46 billion $8.31 billion - $8.46 billion Comparable Store Sales +3.0% - +4.0% +2.0% - +4.0% Operating Margin Rate 8.9% - 9.0% 8.9% - 9.0% Net Income $562 million - $575 million $555 million - $575 million Earnings per Diluted Share $4.65 - $4.75 $4.60 - $4.75
The Company continues to forecast capital expenditures in the range of $225 million to $250 million for fiscal 2019. For fiscal 2019, the Company reiterates its plans to open 80 new Tractor Supply stores and 10 to 15 new Petsense locations.
Conference Call Information
Tractor Supply Company will hold a conference call today, Thursday, July 25, 2019 at 9:00 a.m. CT / 10:00 a.m. ET, hosted by Greg Sandfort, Chief Executive Officer; Steve Barbarick, President and Chief Operating Officer; and Kurt Barton, Chief Financial Officer. The call will be webcast live 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 webcast.
A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.
About Tractor Supply Company
Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retailer in the United States, has been passionate about serving its unique niche, as a one-stop shop for recreational farmers, ranchers and all those who enjoy living the rural lifestyle, for more than 80 years. Tractor Supply offers an extensive mix of products necessary to care for home, land, pets and animals with a focus on product localization, exclusive brands and legendary customer service that addresses the needs of the Out Here lifestyle. With nearly 30,000 team members, the Company leverages its physical store assets with digital capabilities to offer customers the convenience of purchasing products they need anytime, anywhere and any way they choose at the everyday low prices they deserve. At June 29, 2019, the Company operated 1,790 Tractor Supply stores in 49 states and an e-commerce website at www.TractorSupply.com.
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 June 29, 2019, the Company operated 177 Petsense stores in 26 states. For more information on Petsense, visit www.Petsense.com.
Tractor Supply Company
Mary Winn Pilkington (615) 440-4212
Marianne Denenberg (615) 440-4345
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, including, but not limited to, operating margins, net income and comparable store sales, and capital expenditures. Other factors affecting future results include the amount of share repurchases, 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, weather conditions, the seasonal nature of the business, transportation costs, including but not limited to, carrier rates and fuel costs, 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, including but not limited to, increases in wages, 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, including competition from online retailers, 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, including expected effects of the Tax Cuts and Jobs Act, and results of examination by taxing authorities, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, 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
(in thousands, except per share amounts)
SECOND QUARTER ENDED SIX MONTHS ENDED June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018 % of % of % of % of Sales Sales Sales Sales Net sales $ 2,353,782 100.00 % $ 2,213,249 100.00 % $ 4,176,002 100.00 % $ 3,896,150 100.00 % Cost of merchandise sold 1,533,037 65.13 1,443,835 65.24 2,740,273 65.62 2,563,087 65.79 Gross profit 820,745 34.87 769,414 34.76 1,435,729 34.38 1,333,063 34.21 Selling, general and administrative expenses 484,190 20.57 452,346 20.44 949,999 22.75 878,459 22.55 Depreciation and amortization 48,998 2.08 43,610 1.97 94,765 2.27 86,397 2.22 Operating income 287,557 12.22 273,458 12.35 390,965 9.36 368,207 9.44 Interest expense, net 5,176 0.22 4,978 0.22 10,106 0.24 9,446 0.24 Income before income taxes 282,381 12.00 268,480 12.13 380,859 9.12 358,761 9.20 Income tax expense 63,171 2.69 61,191 2.76 84,817 2.03 80,039 2.05 Net income $ 219,210 9.31 % $ 207,289 9.37 % $ 296,042 7.09 % $ 278,722 7.15 % Net income per share: Basic $ 1.82 $ 1.70 $ 2.45 $ 2.26 Diluted $ 1.80 $ 1.69 $ 2.43 $ 2.25 Weighted average shares outstanding: Basic 120,371 122,100 120,791 123,288 Diluted 121,508 122,775 121,830 123,975 Dividends declared per common share outstanding $ 0.35 $ 0.31 $ 0.66 $ 0.58
Condensed Consolidated Statements of Comprehensive Income
SECOND QUARTER ENDED SIX MONTHS ENDED June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018 Net income $ 219,210 $ 207,289 $ 296,042 $ 278,722 Other comprehensive (loss)/income: Change in fair value of interest rate swaps, net of taxes (2,185 ) 552 (3,649 ) 2,384 Total other comprehensive (loss)/income (2,185 ) 552 (3,649 ) 2,384 Total comprehensive income $ 217,025 $ 207,841 $ 292,393 $ 281,106
Condensed Consolidated Balance Sheets
June 29, 2019 June 30, 2018 ASSETS Current assets: Cash and cash equivalents $ 104,018 $ 69,954 Inventories 1,733,150 1,632,280 Prepaid expenses and other current assets 95,051 103,379 Income taxes receivable 5,589 5,115 Total current assets 1,937,808 1,810,728 Property and equipment, net 1,135,310 1,081,543 Operating lease right-of-use assets 2,091,439 — Goodwill and other intangible assets 124,492 124,492 Deferred income taxes — 20,741 Other assets 23,670 29,902 Total assets $ 5,312,719 $ 3,067,406 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 681,529 $ 649,665 Accrued employee compensation 26,932 22,758 Other accrued expenses 222,919 205,352 Current portion of long-term debt 22,500 25,000 Current portion of finance lease liabilities 3,717 3,714 Current portion of operating lease liabilities 264,707 — Income taxes payable 49,082 34,997 Total current liabilities 1,271,386 941,486 Long-term debt 466,290 516,410 Finance lease liabilities, less current portion 27,394 30,639 Operating lease liabilities, less current portion 1,928,367 — Deferred income taxes 3,592 — Deferred rent — 107,827 Other long-term liabilities 70,748 65,002 Total liabilities 3,767,777 1,661,364 Stockholders’ equity: Common stock 1,386 1,366 Additional paid-in capital 928,094 746,410 Treasury stock (2,814,912 ) (2,383,446 ) Accumulated other comprehensive income 882 5,742 Retained earnings 3,429,492 3,035,970 Total stockholders’ equity 1,544,942 1,406,042 Total liabilities and stockholders’ equity $ 5,312,719 $ 3,067,406
Condensed Consolidated Statements of Cash Flows
SIX MONTHS ENDED June 29, 2019 June 30, 2018 Cash flows from operating activities: Net income $ 296,042 $ 278,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 94,765 86,397 (Gain) / loss on disposition of property and equipment (309 ) 623 Share-based compensation expense 18,400 16,409 Deferred income taxes 10,199 (2,247 ) Change in assets and liabilities: Inventories (143,608 ) (179,072 ) Prepaid expenses and other current assets 19,396 (15,127 ) Accounts payable 61,548 73,097 Accrued employee compensation (27,114 ) (8,915 ) Other accrued expenses (21,856 ) (3,884 ) Income taxes 45,836 23,870 Other (4,425 ) 4,141 Net cash provided by operating activities 348,874 274,014 Cash flows from investing activities: Capital expenditures (83,540 ) (116,695 ) Proceeds from sale of property and equipment 611 288 Net cash used in investing activities (82,929 ) (116,407 ) Cash flows from financing activities: Borrowings under debt facilities 567,000 673,000 Repayments under debt facilities (485,750 ) (557,500 ) Debt issuance costs — (346 ) Principal payments under finance lease liabilities (1,805 ) (1,809 ) Repurchase of shares to satisfy tax obligations (3,139 ) (569 ) Repurchase of common stock (334,235 ) (252,545 ) Net proceeds from issuance of common stock 89,431 14,345 Cash dividends paid to stockholders (79,728 ) (71,377 ) Net cash used in financing activities (248,226 ) (196,801 ) Net change in cash and cash equivalents 17,719 (39,194 ) Cash and cash equivalents at beginning of period 86,299 109,148 Cash and cash equivalents at end of period $ 104,018 $ 69,954 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 10,006 $ 6,337 Income taxes 27,196 58,949 Supplemental disclosures of non-cash activities: Non-cash accruals for construction in progress $ 15,360 $ 16,227 Operating lease assets and liabilities recognized upon adoption of ASC 842 2,084,880 — Increase of operating lease assets and liabilities from new or modified leases 133,044 —
Selected Financial and Operating Information
SECOND QUARTER ENDED SIX MONTHS ENDED June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018 Sales Information: Comparable store sales increase 3.2% 5.6% 4.0% 4.7% New store sales (% of total sales) 3.0% 3.9% 3.1% 3.9% Average transaction value $49.32 $48.23 $46.85 $45.65 Comparable store average transaction value increase 2.2% 3.7% 2.6% 2.2% Comparable store average transaction count increase 1.0% 1.8% 1.3% 2.4% Total selling square footage (000’s) 29,974 28,916 29,974 28,916 Exclusive brands (% of total sales) 30.0% 30.4% 31.2% 31.4% Imports (% of total sales) 11.2% 11.8% 11.5% 11.8% Store Count Information: Tractor Supply Beginning of period 1,775 1,700 1,765 1,685 New stores opened 15 25 25 40 Stores closed — — — — End of period 1,790 1,725 1,790 1,725 Petsense Beginning of period 176 172 175 168 New stores opened 1 3 2 7 Stores closed — (1) — (1) End of period 177 174 177 174 Consolidated end of period 1,967 1,899 1,967 1,899 Pre-opening costs (000’s) $1,701 $2,541 $2,644 $4,208 Balance Sheet Information: Average inventory per store (000’s) (a) $826.0 $798.1 $826.0 $798.1 Inventory turns (annualized) 3.45 3.49 3.22 3.23 Share repurchase program: Cost (000’s) $178,916 $95,082 $334,235 $252,545 Average purchase price per share $103.27 $64.37 $96.69 $65.70 Capital Expenditures (in millions): Information technology $25.9 $20.7 $35.6 $38.5 New and relocated stores and stores not yet opened 15.0 22.3 22.3 32.8 Distribution center capacity and improvements 7.6 21.4 11.8 33.8 Existing stores 5.5 7.2 13.0 11.5 Corporate and other 0.7 — 0.8 0.1 Total $54.7 $71.6 $83.5 $116.7
(a) Assumes average inventory cost, excluding inventory in transit.