- Earnings per share increased 9.2% to $0.95 vs. $0.87
- Sales increased 8.8% to $1.58 billion
- Comparable store sales increased 1.9%
Tractor Supply Co. (NASDAQ: TSCO), the largest rural lifestyle retail store chain in the United States, today announced financial results for its second fiscal quarter ended June 28, 2014.
Second Quarter Results
Net sales for the second quarter of 2014 increased 8.8% to $1.58 billion from $1.46 billion in the second quarter of 2013. Comparable store sales increased 1.9% versus a 7.2% increase in the prior year's second quarter. Comparable store sales were driven by continued strength of consumable, usable and edible products (C.U.E.) and solid traffic counts. This was partially offset by deflation, continued softness in our safe category and weaker than expected sales of certain seasonal products primarily in the Northern regions. As the quarter progressed, sales trends accelerated and weather became less of a factor. The softness in sales was principally in the first half of the quarter with the second half being consistent with the company's expectations.
Gross profit increased 8.8% to $550.5 million from $506.1 million in the prior year's second quarter. As a percent of sales, gross margin was flat to prior year quarter at 34.8% as increased transportation costs, mix of products, and the impact of slightly more sales-driving promotions offset the favorable impact of our key gross margin enhancing initiatives and the impact of deflation.
Selling, general and administrative expenses, including depreciation and amortization, increased to 21.5% of sales compared to 21.2% of sales in the prior year's second quarter. The increase as a percent of sales was primarily attributable to lower comparable store sales and higher employee benefit expenses, partially offset by lower incentive compensation expense.
Net income for the quarter increased 8.0% to $133.4 million from $123.6 million and diluted earnings per share increased 9.2% to $0.95 from $0.87 in the second quarter of the prior year.
The company opened 23 new stores in the second quarter compared to 26 new store openings in the prior year's second quarter.
Greg Sandfort, president and chief executive officer, stated, "Sales in our everyday core C.U.E. offerings were strong throughout the second quarter. However, unseasonably cool weather in the early part of the quarter negatively impacted sales of spring seasonal merchandise. As the weather improved midway through the quarter, sales of spring seasonal products improved and have continued to meet our expectations in July. I am proud of how our team responded resulting in our 25th consecutive quarter of increased comparable transaction count. Despite some of the early headwinds, we successfully delivered positive comparable store sales in each month of the quarter while minimizing the impact to merchandise margins. We ended the quarter in great shape from an inventory position and a go-forward merchandise perspective, and feel good about our ability to continue driving sales and earnings growth in the back half of the year."
First Six Months Results
Net sales increased 8.9% to $2.77 billion from $2.54 billion in the first six months of 2013. Comparable store sales increased 2.0% versus a 4.2% increase in the first six months of 2013. Gross profit increased 10.3% to $946.8 million from $858.2 million and gross margin increased 40 basis points to 34.2% of sales from 33.8% of sales in the first six months of 2013.
Selling, general and administrative expenses, including depreciation and amortization, increased 10.9% to $657.0 million, and increased as a percent of sales to 23.7% compared to 23.4% for the first six months of 2013.
Net income increased 8.7% to $182.2 million from $167.6 million and net income per diluted share increased 10.2% to $1.30 from $1.18 for the first six months of 2013.
The company opened 55 new stores in the first six months of 2014 compared to 48 new store openings during the first six months of 2013.
Based upon the second quarter results, the company anticipates its fiscal year 2014 results will be at the low end of the previously provided ranges of $5.62 billion to $5.70 billion in net sales, 2.5% to 4.0% in comparable store sales and $2.54 to $2.62 in diluted earnings per share. For the full year, the Company now expects capital expenditures to range between $220 million and $230 million compared to its previous guidance of $240 million to $250 million, including spending to support 102 to 106 new store openings and completion of the new Store Support Center.
About Tractor Supply
As of June 28, 2014, Tractor Supply operated 1,331 stores in 48 states. The company's stores are focused on supplying the lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located primarily in towns outlying major metropolitan markets and in rural communities. The company offers the following comprehensive selection of merchandise: (1) equine, livestock, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware, truck, towing and tool products; (3) seasonal products, including lawn and garden items, power equipment, gifts and toys; (4) work/recreational clothing and footwear; and (5) maintenance products for agricultural and rural use.
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, estimated results of operations, capital expenditures and new store openings 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, general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold, 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 and execute our 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 our business, competition, weather conditions, the seasonal nature of our business, 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 customer data, ongoing and potential future legal or regulatory proceedings, management of our information systems, failure to secure or 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 and results of examination by taxing authorities, the ability to maintain an effective system of internal control over financial reporting, 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.