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| 8-K - FORM 8-K TRACTOR SUPPLY COMPANY - TRACTOR SUPPLY CO /DE/ | q220188kearningsrelease.htm |
www.TractorSupply.com
TRACTOR SUPPLY COMPANY REPORTS SECOND QUARTER 2018 FINANCIAL RESULTS
• | Net Sales Increased 9.7%; Comparable Store Sales Increased 5.6% |
• | Diluted Earnings Per Share Increased 35.2% to $1.69 |
• | $324 Million of Capital Returned to Shareholders Year to Date |
• | Company Raises Fiscal 2018 Financial Guidance |
Brentwood, TN, July 26, 2018 - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail chain in the United States, today announced financial results for its second quarter ended June 30, 2018.
“We delivered a solid second quarter with broad-based strength across our merchandise categories and geographies. Our 5.6% comparable store sales increase was driven by continued execution of our ONETractor strategy and merchandising initiatives that drove both average ticket and transaction count increases for the quarter. Even with a delayed start to the spring season, we were able to capitalize on the selling season for many spring products as we managed our inventories effectively. Given our performance year to date, we are raising our full year guidance for 2018,” said Greg Sandfort, Tractor Supply’s Chief Executive Officer.
Second Quarter 2018 Results
Net sales for the second quarter 2018 increased 9.7% to $2.21 billion from $2.02 billion in the second quarter of 2017. Comparable store sales increased 5.6% compared to an increase of 2.2% in the prior year’s second quarter. The comparable store sales results included increases in comparable average ticket of 3.7% and transaction count of 1.8%. The increase in comparable store sales was primarily driven by broad-based strength in everyday merchandise, along with robust growth across spring and summer seasonal categories. All merchandise categories delivered increased comparable store sales, as did all geographic regions.
Gross profit increased 9.2% to $769.4 million from $704.7 million in the prior year’s second quarter, and gross margin decreased 16 basis points to 34.8% from 34.9% in the prior year’s second quarter. The decline in gross margin resulted primarily from an increase in freight expense due to higher carrier rates and increased diesel fuel prices. Partially offsetting these items were the strength of the Company’s price management program and reduced promotional activity.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 11.0% to $496.0 million from $446.8 million in the prior year’s second quarter. As a percent of net sales, SG&A expenses increased 27 basis points to 22.4% from 22.1% in the second quarter of 2017. The increase in SG&A as a percent of net sales was primarily attributable to higher incentive compensation from the strong year-over-year growth in comparable store sales and investments in infrastructure and technology to support the Company’s strategic long-term growth initiatives. 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 22.8% compared to 37.0% in the prior year’s second quarter. The decrease in the effective income tax rate was primarily related to the U.S. Tax Cuts and Jobs Act that was signed into law in December 2017.
Net income increased 29.0% to $207.3 million from $160.6 million and diluted earnings per share increased 35.2% to $1.69 from $1.25 in the second quarter of 2017.
The Company opened 25 new Tractor Supply stores and three new Petsense stores and closed one Petsense store in the second quarter of 2018.
First Six Months of Fiscal 2018 Results
Net sales for the first six months of 2018 increased 8.8% to $3.90 billion from $3.58 billion in the first six months of 2017. Comparable store sales increased 4.7% versus a 0.2% increase in the first six months of 2017. Gross profit increased 9.0% to $1.33 billion from $1.22 billion and gross margin increased to 34.2% from 34.1% in the first six months of 2017.
SG&A expenses, including depreciation and amortization, increased 11.1% to $964.9 million and increased as a percent of net sales to 24.8% compared to 24.2% for the first six months of 2017.
The effective income tax rate was 22.3% compared to 36.6% in the first six months of 2017.
Net income increased 26.1% to $278.7 million from $221.0 million and diluted earnings per share increased 32.4% to $2.25 from $1.70 for the first six months of 2017.
Year to date through the second quarter, the Company has repurchased approximately 3.8 million shares of its common stock for $252.5 million and paid quarterly cash dividends totaling $71.4 million.
During the first six months of 2018, the Company opened 40 new Tractor Supply stores and seven new Petsense stores and closed one Petsense store.
Fiscal 2018 Outlook
Based upon the results of the first six months of fiscal 2018, the Company is providing the following updated guidance for the expected results of operations in fiscal 2018:
Updated | Previous | |
Net Sales | $7.77 billion - $7.80 billion | $7.69 billion - $7.77 billion |
Comparable Store Sales | +3.0% - + 3.5% | +2.0% - +3.0% |
Net Income | $505 million - $517 million | $490 million - $515 million |
Earnings per Diluted Share | $4.10 - $4.20 | $3.95 - $4.15 |
The Company continues to forecast capital expenditures in the range of $260 million to $300 million for fiscal 2018.
Conference Call Information
Tractor Supply Company will be hosting a conference call today, Thursday, July 26, 2018 at 9:00 a.m. CT / 10:00 a.m. ET, hosted by Greg Sandfort, Chief Executive Officer; Steve Barbarick, President and Chief Merchandising Officer; and Kurt Barton, Chief Financial Officer. The call will be webcast live at IR.TractorSupply.com.
The call will be broadcast simultaneously over the Internet on the Company’s website 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 Internet broadcast. 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) is in its 80th year of operation and, since being founded in 1938, has grown to become the largest rural lifestyle retailer in the United States. With over 28,000 team members, more than 1,700 stores in 49 states and an e-commerce website, Tractor Supply is passionate about serving its unique niche, as a one-stop shop for recreational farmers, ranchers and all those who enjoy living the rural lifestyle. 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. 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 prices they deserve. At June 30, 2018, the Company operated 1,725 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 30, 2018, the Company operated 174 Petsense stores in 27 states. For more information on Petsense, visit www.petsense.com.
Forward-Looking Statements
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 and estimated results of operations, including, but not limited to, net sales and comparable store sales, net income, earnings per share and capital expenditures. 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, the amount and timing of any share repurchases, capital market conditions in general, the ability to open new stores and distribution centers 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.
(Financial tables to follow)
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
SECOND QUARTER ENDED | SIX MONTHS ENDED | ||||||||||||||||||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | ||||||||||||||||||||||||
% of | % of | % of | % of | ||||||||||||||||||||||||
Sales | Sales | Sales | Sales | ||||||||||||||||||||||||
Net sales | $ | 2,213,249 | 100.0 | % | $ | 2,017,762 | 100.0 | % | $ | 3,896,150 | 100.0 | % | $ | 3,581,840 | 100.0 | % | |||||||||||
Cost of merchandise sold | 1,443,835 | 65.2 | 1,313,054 | 65.1 | 2,563,087 | 65.8 | 2,358,929 | 65.9 | |||||||||||||||||||
Gross profit | 769,414 | 34.8 | 704,708 | 34.9 | 1,333,063 | 34.2 | 1,222,911 | 34.1 | |||||||||||||||||||
Selling, general and administrative expenses | 452,346 | 20.4 | 405,736 | 20.1 | 878,459 | 22.6 | 787,850 | 22.0 | |||||||||||||||||||
Depreciation and amortization | 43,610 | 2.0 | 41,047 | 2.0 | 86,397 | 2.2 | 80,774 | 2.2 | |||||||||||||||||||
Operating income | 273,458 | 12.4 | 257,925 | 12.8 | 368,207 | 9.4 | 354,287 | 9.9 | |||||||||||||||||||
Interest expense, net | 4,978 | 0.2 | 3,092 | 0.2 | 9,446 | 0.2 | 5,869 | 0.2 | |||||||||||||||||||
Income before income taxes | 268,480 | 12.2 | 254,833 | 12.6 | 358,761 | 9.2 | 348,418 | 9.7 | |||||||||||||||||||
Income tax expense | 61,191 | 2.8 | 94,184 | 4.6 | 80,039 | 2.0 | 127,458 | 3.5 | |||||||||||||||||||
Net income | $ | 207,289 | 9.4 | % | $ | 160,649 | 8.0 | % | $ | 278,722 | 7.2 | % | $ | 220,960 | 6.2 | % | |||||||||||
Net income per share: | |||||||||||||||||||||||||||
Basic | $ | 1.70 | $ | 1.25 | $ | 2.26 | $ | 1.71 | |||||||||||||||||||
Diluted | $ | 1.69 | $ | 1.25 | $ | 2.25 | $ | 1.70 | |||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||
Basic | 122,100 | 128,186 | 123,288 | 129,231 | |||||||||||||||||||||||
Diluted | 122,775 | 128,722 | 123,975 | 129,906 | |||||||||||||||||||||||
Dividends declared per common share outstanding | $ | 0.31 | $ | 0.27 | $ | 0.58 | $ | 0.51 | |||||||||||||||||||
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
SECOND QUARTER ENDED | SIX MONTHS ENDED | ||||||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | ||||||||||||
Net income | $ | 207,289 | $ | 160,649 | $ | 278,722 | $ | 220,960 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Change in fair value of interest rate swaps, net of taxes | 552 | (152 | ) | 2,384 | 129 | ||||||||||
Total other comprehensive income (loss) | 552 | (152 | ) | 2,384 | 129 | ||||||||||
Total comprehensive income | $ | 207,841 | $ | 160,497 | $ | 281,106 | $ | 221,089 | |||||||
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, 2018 | July 1, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 69,954 | $ | 67,793 | |||
Inventories | 1,632,280 | 1,468,254 | |||||
Prepaid expenses and other current assets | 103,379 | 90,409 | |||||
Income taxes receivable | 5,115 | 4,066 | |||||
Total current assets | 1,810,728 | 1,630,522 | |||||
Property and equipment: | |||||||
Land | 100,564 | 99,267 | |||||
Buildings and improvements | 1,072,866 | 995,716 | |||||
Furniture, fixtures and equipment | 619,284 | 584,275 | |||||
Computer software and hardware | 290,599 | 243,577 | |||||
Construction in progress | 125,945 | 48,521 | |||||
Property and equipment, gross | 2,209,258 | 1,971,356 | |||||
Accumulated depreciation and amortization | (1,127,715 | ) | (988,998 | ) | |||
Property and equipment, net | 1,081,543 | 982,358 | |||||
Goodwill and other intangible assets | 124,492 | 125,717 | |||||
Deferred income taxes | 20,741 | 52,960 | |||||
Other assets | 29,902 | 24,015 | |||||
Total assets | $ | 3,067,406 | $ | 2,815,572 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 649,665 | $ | 510,820 | |||
Accrued employee compensation | 22,758 | 14,264 | |||||
Other accrued expenses | 205,352 | 184,829 | |||||
Current portion of long-term debt | 25,000 | 20,000 | |||||
Current portion of capital lease obligations | 3,714 | 3,418 | |||||
Income taxes payable | 34,997 | 73,157 | |||||
Total current liabilities | 941,486 | 806,488 | |||||
Long-term debt | 516,410 | 433,676 | |||||
Capital lease obligations, less current maturities | 30,639 | 33,860 | |||||
Deferred rent | 107,827 | 102,525 | |||||
Other long-term liabilities | 65,002 | 56,457 | |||||
Total liabilities | 1,661,364 | 1,433,006 | |||||
Stockholders’ equity: | |||||||
Common stock | 1,366 | 1,361 | |||||
Additional paid-in capital | 746,410 | 693,775 | |||||
Treasury stock | (2,383,446 | ) | (2,009,645 | ) | |||
Accumulated other comprehensive income | 5,742 | 1,521 | |||||
Retained earnings | 3,035,970 | 2,695,554 | |||||
Total stockholders’ equity | 1,406,042 | 1,382,566 | |||||
Total liabilities and stockholders’ equity | $ | 3,067,406 | $ | 2,815,572 | |||
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
SIX MONTHS ENDED | |||||||
June 30, 2018 | July 1, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 278,722 | $ | 220,960 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 86,397 | 80,774 | |||||
Loss on disposition of property and equipment | 623 | 198 | |||||
Share-based compensation expense | 16,409 | 15,079 | |||||
Deferred income taxes | (2,247 | ) | (7,742 | ) | |||
Change in assets and liabilities: | |||||||
Inventories | (179,072 | ) | (98,598 | ) | |||
Prepaid expenses and other current assets | (15,127 | ) | 148 | ||||
Accounts payable | 73,097 | (8,702 | ) | ||||
Accrued employee compensation | (8,915 | ) | (10,982 | ) | |||
Other accrued expenses | (3,884 | ) | (33,895 | ) | |||
Income taxes | 23,870 | 67,289 | |||||
Other | 4,141 | 2,979 | |||||
Net cash provided by operating activities | 274,014 | 227,508 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (116,695 | ) | (96,610 | ) | |||
Proceeds from sale of property and equipment | 288 | 10,781 | |||||
Net cash used in investing activities | (116,407 | ) | (85,829 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings under debt facilities | 673,000 | 578,000 | |||||
Repayments under debt facilities | (557,500 | ) | (398,000 | ) | |||
Debt issuance costs | (346 | ) | (313 | ) | |||
Principal payments under capital lease obligations | (1,809 | ) | (669 | ) | |||
Repurchase of shares to satisfy tax obligations | (569 | ) | (653 | ) | |||
Repurchase of common stock | (252,545 | ) | (248,147 | ) | |||
Net proceeds from issuance of common stock | 14,345 | 7,835 | |||||
Cash dividends paid to stockholders | (71,377 | ) | (65,855 | ) | |||
Net cash used in financing activities | (196,801 | ) | (127,802 | ) | |||
Net change in cash and cash equivalents | (39,194 | ) | 13,877 | ||||
Cash and cash equivalents at beginning of period | 109,148 | 53,916 | |||||
Cash and cash equivalents at end of period | $ | 69,954 | $ | 67,793 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 6,337 | $ | 5,218 | |||
Income taxes | 58,949 | 67,752 | |||||
Supplemental disclosures of non-cash activities: | |||||||
Property and equipment acquired through capital lease | $ | — | $ | 10,734 | |||
Non-cash accruals for construction in progress | 16,227 | 15,377 | |||||
Selected Financial and Operating Information (a)
(Unaudited)
SECOND QUARTER ENDED | SIX MONTHS ENDED | |||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | |||||||||
Sales Information: | ||||||||||||
Comparable store sales increase | 5.6 | % | 2.2 | % | 4.7 | % | 0.2 | % | ||||
New store sales (% of total sales) | 3.9 | % | 5.9 | % | 3.9 | % | 6.2 | % | ||||
Average transaction value | $48.23 | $46.48 | $45.65 | $44.64 | ||||||||
Comparable store average transaction value increase (decrease) | 3.7 | % | 0.0 | % | 2.2 | % | (0.3 | )% | ||||
Comparable store average transaction count increase | 1.8 | % | 2.2 | % | 2.4 | % | 0.5 | % | ||||
Total selling square footage (000’s) | 28,916 | 27,188 | 28,916 | 27,188 | ||||||||
Exclusive brands (% of total sales) | 30.4 | % | 31.3 | % | 31.4 | % | 31.9 | % | ||||
Imports (% of total sales) | 11.8 | % | 12.0 | % | 11.8 | % | 11.8 | % | ||||
Store Count Information: | ||||||||||||
Tractor Supply | ||||||||||||
Beginning of period | 1,700 | 1,617 | 1,685 | 1,595 | ||||||||
New stores opened | 25 | 14 | 40 | 38 | ||||||||
Stores closed | — | (1 | ) | — | (3 | ) | ||||||
End of period | 1,725 | 1,630 | 1,725 | 1,630 | ||||||||
Petsense | ||||||||||||
Beginning of period | 172 | 152 | 168 | 143 | ||||||||
New stores opened | 3 | 8 | 7 | 17 | ||||||||
Stores closed | (1 | ) | — | (1 | ) | — | ||||||
End of period | 174 | 160 | 174 | 160 | ||||||||
Consolidated end of period | 1,899 | 1,790 | 1,899 | 1,790 | ||||||||
Pre-opening costs (000’s) | $2,541 | $2,052 | $4,208 | $4,656 | ||||||||
Balance Sheet Information: | ||||||||||||
Average inventory per store (000’s) (b) | $798.1 | $771.2 | $798.1 | $771.2 | ||||||||
Inventory turns (annualized) | 3.49 | 3.43 | 3.23 | 3.19 | ||||||||
Share repurchase program: | ||||||||||||
Cost (000’s) | $95,082 | $133,601 | $252,545 | $248,147 | ||||||||
Average purchase price per share | $64.37 | $60.47 | $65.70 | $65.20 | ||||||||
Capital Expenditures (in millions): | ||||||||||||
New and relocated stores and stores not yet opened | $22.3 | $18.1 | $32.8 | $35.2 | ||||||||
Distribution center capacity and improvements | 21.4 | 5.3 | 33.8 | 6.3 | ||||||||
Information technology | 20.7 | 26.1 | 38.5 | 34.3 | ||||||||
Existing stores | 7.2 | 12.1 | 11.5 | 20.7 | ||||||||
Corporate and other | — | 0.1 | 0.1 | 0.1 | ||||||||
Total | $71.6 | $61.7 | $116.7 | $96.6 | ||||||||
(a) Beginning in the fourth quarter ended December 31, 2016, selected financial and operating information includes the consolidation of Petsense unless otherwise noted. Petsense stores are not considered comparable stores until 12 months after the date of acquisition.
(b) Assumes average inventory cost, excluding inventory in transit.