Tractor Supply Co.’s stock rose 2% Thursday after the retailer of farm and ranch products unveiled plans to open more stores in the U.S., offsetting weaker-than-expected second-quarter earnings and lowered guidance.
The shortfall in earnings had been flagged by BofA on Tuesday, when it downgraded the stock to neutral after holding at buy for 13 months. Analyst Jason Haas warned investors that the numbers would be disappointing and guidance would be cut as he lowered his price target by 16% to $226.
For more, see: Don’t buy Tractor Supply’s stock ahead of likely earnings miss, BofA warns
Brentwood, Tenn.-based Tractor Supply
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said it’s now aiming to have 3,000 stores in the U.S., or 200 locations more than was captured in prior guidance.
The company will accelerate its new-store growth to about 90 stores a year starting in 2025 and will aim for 80 in 2024.
“Tractor Supply is also updating its real-estate development and portfolio management strategy for its store real estate to include owned development and sale-leaseback capability,” the company said in a statement.
The company is planning to periodically enter sale-leaseback deals with some of its 117 existing stores over the next eight to 10 years to fund the new development.
It expects a 20-cent after-tax benefit in 2023 from the sale-leaseback of 10 to 15 stores. “A similar benefit is anticipated to be achieved each year over the near term,” the statement said.
The news came as the company posted net income of $421.2 million, or $3.83 a share, for the quarter, up from $396.5 million, or $3.53 a share, in the year-earlier period. Sales rose 7.2% to $4.18 billion.
The FactSet consensus was for earnings per share of $3.92 and sales of $4.26 billion.
Same-store sales rose 2.5%, while FactSet analysts were expecting a 3.8% rise.
“As has been well documented, U.S. consumer spending on goods is moderating,” Chief Executive Hal Lawton said in a statement. “Additionally, our business was further impacted by seasonal underperformance, particularly in June.”
On a call with analysts, Lawton said the environment was tougher than the company expected at the start of the quarter and at the beginning of the year.
“Consumer spending continues to shift in favor of services,” he said, according to a FactSet transcript. “Shoppers that are tired of inflation are being judicious on their baskets.”
See also: Petco heads to rural communities with concept store for pets and farm animals
June was “one of the most topsy-turvy months that I’ve seen,” said Lawton, citing smoke, drought, storms and heat as headwinds. But the company is still seeing active customer counts and positive customer-satisfaction scores, he said, and its loyalty program, Neighbors Club, is growing.
Customers are increasing their use of credit, but they are still shopping around for value and buying a little more often but spending less per trip, he said.
The company’s companion-animal, or pets, business grew sales in the double digits, while in livestock, the company’s spring Chick Days event was one of its biggest ever.
But the company’s zero-turn lawnmower business did poorly, as did generators and recreational vehicles, Lawton said.
By geography, the company’s strongest-performing regions were the far West, the South Atlantic and Texas and Oklahoma.
“The strength of these regions was offset by pressure in the Northeast and Midwest regions, where seasonal trends added incremental pressure on consumer demand,” Chief Financial Officer Kurt Barton said on the call.
The company lowered its full-year guidance and said it now expects sales to range from $14.8 billion to $14.9 billion, down from prior guidance of $15 billion to $15.3 billion. It expects EPS of $10.20 to $10.40, down from prior guidance of $10.30 to $10.60.
The stock has fallen 1% in the year to date, while the S&P 500
SPX,
has gained 19%.
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