BRENTWOOD, Tenn. – Tractor Supply Co. (NASDAQ:TSCO), the largest rural lifestyle retail store chain in the U.S., announces financial results for its second quarter ended July 1, 2017.
Second Quarter Results
Net sales for the second quarter 2017 increased 8.9% to $2.02 billion from $1.85 billion in the second quarter of 2016. Comparable store sales increased 2.2% versus a decrease of 0.5% in the prior year’s second quarter. Each quarter of fiscal 2017 starts one week later than the same quarter of fiscal 2016 due to the Company’s 2016 fiscal year having 53 weeks versus the normal 52 weeks. Adjusting for the week shift, last year’s comparable store sales increase would have been 1.0%. The 2017 second quarter had one less sales day compared to the second quarter of 2016. We estimate the one less sales day impacted comparable store sales by approximately 60 basis points, and the increase in the quarter would have been approximately 2.8% on an equivalent quarter basis. The comparable store sales results included an increase in comparable transaction count of 2.2% while average ticket remained flat to prior year’s second quarter. The increase in comparable store sales was driven by broad growth across a number of product categories and geographic regions. Continued strength in year-round products helped drive the comparable stores sales result, with the Livestock and Pet category leading the performance.
Gross profit increased 8.5% to $704.7 million from $649.2 million in the prior year’s second quarter and gross margin decreased ten basis points to 34.9% from 35.0% in the prior year period. The slight decline in gross margin resulted primarily from higher freight expense from increased diesel fuel prices and a mix shift to more freight intensive products.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 11.7% to $446.8 million from $400.0 million in the prior year period. As a percent of net sales, SG&A expenses increased 50 basis points to 22.1% from 21.6% in the second quarter of 2016. The increase in SG&A as a percent of net sales was primarily attributable to higher store payroll costs to enhance customer service, investments in infrastructure and technology to drive growth and the integration of Petsense expenses.
Net income increased 2.7% to $160.6 million from $156.4 million and diluted earnings per share increased 7.8% to $1.25 from $1.16 in the second quarter of the prior year.
The Company opened 14 new Tractor Supply stores and closed one store, a Del’s store, in the second quarter of 2017 compared to 22 new store openings and one store closure, a Del’s store, in the prior year period. The Company also opened eight new Petsense stores during the quarter and had no Petsense store closures.
Greg Sandfort, Chief Executive Officer, stated, “We experienced broad based positive sales trends across our business and were pleased to see improved performance across many of our major departments in the second quarter. With favorable weather conditions, we have seen continued strong demand for spring seasonal products into the early weeks of the third quarter, and we believe we are positioned to take advantage of an extended spring selling season. Further, as the connection between our stores and online presence strengthens, we see evidence that our initiatives to provide our customers one seamless shopping experience are contributing to our top line results. With this in mind, we continue to execute against the strategic initiatives that we believe will drive sales and customer service as well as maintain our competitive positioning.”
First Six Months Results
Net sales increased 7.9% to $3.58 billion from $3.32 billion in the first six months of 2016. Comparable store sales increased 0.2% versus a 1.9% increase in the first six months of 2016. Gross profit increased 6.9% to $1.22 billion from $1.14 billion and gross margin decreased to 34.1% from 34.4% in the first six months of 2016.
Selling, general and administrative expenses, including depreciation and amortization, increased 10.5% to $868.6 million and increased as a percent of net sales to 24.2% compared to 23.7% for the first six months of 2016. Net income decreased 1.4% to $221.0 million from $224.1 million and net income per diluted share increased 2.4% to $1.70 from $1.66 for the first six months of 2016.
The Company opened 38 new Tractor Supply stores, converted its two Hometown Pet stores to Petsense stores, and closed one store, a Del’s store, in the first six months of 2017 compared to 58 new store openings and four store closures during the first six months of 2016. The Company also opened 17 new Petsense stores (including the conversion of the Hometown Pet stores) during the first six months and had no Petsense store closures.
Fiscal 2017 Outlook
Based upon the results of the first six months of fiscal 2017, the Company is providing the following updated guidance for the expected results of operations in fiscal 2017:
Net Sales $7.13 billion - $7.19 billion $7.22 billion - $7.29 billion
Comparable Store Sales 1.1% - 1.7% 2.0% - 3.0%
Net Income $413 million - $419 million $445 million - $457 million
Earnings per Diluted Share $3.22 - $3.27 $3.44 - $3.52
Capital Expenditures $250 million - $270 million $270 million - $290 million
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