One of my favorite retail stocks is Tennessee-based Tractor Supply Co. (Nasdaq:TSCO). It sells almost everything country dwellers can use except tractors, which given its name is an oddity. Last July, I wrote an article welcoming it back from retail oblivion. Once a high-growth business, its sales were sputtering. Sure, the economy had something to do with it, but mostly I think it had gotten away from what it does best, which is offer the widest array of products not available anywhere else. It's a niche successfully served for a very long time. At the time of the article, it had just reported excellent second-quarter numbers. I concluded by suggesting its stock should revisit $60, where it traded in its ultra-growth years between 2003 and 2006, if it could meet its internal goal of 16.4% annual growth in sales through the year 2012. (Read Welcome Back, Tractor Supply Company for more on what happened.)

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An Awesome Third Quarter

You couldn't ask for better results. At the top of the list of impressive numbers were same-store sales, which were up 6.2% compared to a 1.9% increase in the same quarter in 2007. It opened 20 stores in the quarter, leading to a 16.6% overall sales increase with earnings per share up 20.5% to 53 cents. Most of the growth was attributed to pet-related products. At the end of September, it had 834 stores open in 44 states and expected to open 91 more in 2008, which it did to the number.

The Year Paled In Comparison
Next to the Q3 results, the year-end numbers are downright bland. Same-store sales grew 1.4%, revenues were up 11.3% to $3 billion and net income dropped 14.9% to $81.9 million or $2.19 a share from $96.2 million or $2.40 a share in 2007. While same-store sales were 1.3% in the final quarter, profits suffered greatly, down 17.7% from $30 million or 77 cents a share in Q4 2007 to $24.7 million or 67 cents a share. The recession clearly affected its business toward the end of the year.

Guidance Is Up
Despite this, its guidance for 2009 was for revenues of at least $3.2 billion, same-store sales growth between 1.5% on the downside and 1.5% on the upside and earnings per share of at least $2.58. Tractor Supply has always been conservative in its reporting, so I'm quite upbeat about this year. More impressive than its guidance was the mid-December hiring of John Wendler as senior vice president of marketing. Wendler comes from Express, a division of the Limited (NYSE:LTD), where he was in charge of marketing. With more than 30 years of experience at Saks (NYSE:SKS), Fruit of the Loom and other consumer companies, Wendler's ability to build brands will no doubt help Tractor Supply as it expands its lifestyle concept across the country. I'm confident he'll be very successful selling Tractor's unique story.

Another Beauty In The First Quarter
Tractor Supply reported Q1 earnings April 23, and growth was back. Revenues were up 13% to $650.2 million, $18 million better than analyst estimates, and same-store sales were up 4.2%, far better than the 6.5% decline in the same quarter last March. It was another great display of staying power. Analysts expected a 4-cent loss. Instead, it squeaked out a 1-cent profit due to gross margins improving for the first time in awhile. Pet-related products again were the big winner. The key news: It announced it was upping store growth to 1,800. A great start to the year.

Bottom Line
Tractor Supply's stock has done better in the past year than all of its peers. I believe it will hit $60 in the next 18 months as it continues to reap rewards despite a terrible economy.




52-Week Return

Tractor Supply (Nasdaq:TSCO)




Home Depot (NYSE:HD)




Wal-Mart (NYSE:WMT)




Sears Holdings (Nasdaq:SHLD)




Target (NYSE:TGT)




Data as of 04/24/2009

Find out which catalysts can turn struggling stocks around to create a tidy profit in our related article Turnaround Stocks: U-Turn To High Returns.

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Tickers in this Article: TSCO, SKS, LTD, HD, WMT, SHLD, TGT

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