Tractor Supply Co. (TSCO) doesn't seem to be able to pull its own weight, with shares down falling more than 8% Wednesday after the company pre-announced disappointing first-quarter results after the bell on Tuesday. I was bullish on the company back in January, but I'm moving to the sidelines now.
I acknowledged in January that the company faced tough first-quarter comps, and management said Tuesday that it expects same-store sales to fall 2.2% for the period vs. a 4.9% gain in first-quarter 2016. All told, the company said that while revenue should come in essentially in-line with Wall Street's $1.56 billion estimate, TSCO expects $0.45 to $0.46 in earnings per share vs. analysts' $0.53 consensus forecast.
Tractor Supply Co. will report full quarterly results on April 26. But Tuesday, the company said the number of customer transactions dropped 1.4% during the period, while the average ticket fell 0.9%. Management said the decreases stemmed in a large part from price deflation, coupled with lower sales of seasonal merchandise. (Sales of pet livestock products partly offset that.) The company also said weather contributed to weakness in the northern part of TSCO's territory.
Now, the company pre-announced a disappointing third quarter back in September, blaming weakness in America's agricultural and energy-producing areas. Management said then that it expected weakness in those region for 18 months, and approximately 25% of the company's stores are in the Oil Patch.
But then TSCO blew out fourth-quarter results on Feb. 1, reporting that revenues rose 16.4% to $1.92 billion, same-store sales gained 3.1% and earnings per share beat estimates by $0.03. And now, management says it can't make first-quarter estimates. Talk about inconsistency!
Personally, I had been banking on a few things to get the stock higher:
- I hoped oil prices would stabilize. After all, management had previously said there was a 400- to 500-basis-point spread between its performance at stores in oil-producing states and those in the rest of America.
- I thought management would support the stock with an existing $3 billion share-buyback plan.
- I believed that improving sentiment in the Farm Belt following November's presidential election would give consumers there more confidence to spend.
But I guess that isn't happening. I also think investors are also going to have to update their earnings models since TSCO's fiscal 2017 year has 53 weeks instead of 52 weeks. Management said the entire calendar is shifting one week later than the same quarter last year, which means same-store sales estimates for 2017's remainder are probably too high. For example, Easter was in the company's fiscal first quarter last year, but is in the second period this year. This makes it more difficult to estimate the quarterly results.
Now, I still think that Tractor Supply Co. has an amazing expansion opportunity ahead. The company expects to add about 120 new stores in fiscal 2017 on its march toward 2,500 stores.
But while I was looking for TSCO to earn $3.52 in fiscal 2017 and for the stock to trade as high as 24x estimates, that doesn't look very realistic now. The stock is trading sharply lower following Tuesday's downbeat news, and investors will probably give shares a lower multiple because of the hit-or-miss nature to TSCO's quarterly results.
The bottom line: I'm very concerned about TSCO's inability to execute quarter to quarter. So for the time being, I think I'll stay on the sidelines.