BRENTWOOD, Tenn. — Tractor Supply Co., the largest rural lifestyle retail store chain in the U.S., announces financial results for its fourth quarter (13 weeks) and fiscal year (52 weeks) ended December 30, 2017.
- Fourth quarter Comparable Store Sales Increased 4.0%; Fourth Quarter Net Sales Increased 1.9%
- Fiscal Year Comparable Store Sales Increased 2.7%; Fiscal Year Net Sales Increased 7.0%
- Fourth Quarter Diluted EPS of $0.87 and Fiscal Year Diluted EPS of $3.30
- Adjusted Fourth Quarter Diluted EPS of $0.91 and Adjusted Fiscal Year Diluted EPS of $3.33, Excluding a One-Time, Non-Cash Charge Resulting from New Tax Legislation
- $503.2 Million of Capital Returned to Shareholders Through Share Repurchases and Quarterly Cash Dividends in Fiscal 2017
- Company Provides Fiscal 2018 Diluted EPS Outlook of $3.95 to $4.15
53rd Week Impact: As previously disclosed, the company’s fiscal calendar timing resulted in a 53-week year in 2016 which added an additional week in the fourth quarter and fiscal year of 2016. As a result, the fourth quarter and fiscal year of 2017 were negatively impacted by one week less of both sales and operating income versus the prior year. The 53rd week is estimated to have increased fourth quarter and fiscal year of 2016 diluted earnings per share (EPS) by approximately $0.055. By definition, the Company’s comparable store growth calculations adjust for the 53rd week and all references to comparable store sales growth in this release are to a comparable 52-week basis. Unless otherwise noted, all other metrics do not adjust for the extra week.
“Tractor Supply had a strong fourth quarter with comparable store sales growth of 4.0%, which included increases in both comparable store transaction count and average ticket. For the year, I am very pleased with the foundation we have established to build customer loyalty and to significantly enhance our digital capabilities. These initiatives were instrumental in driving traffic and sales,” said Greg Sandfort, Tractor Supply’s chief executive officer.
“Looking ahead, we believe Tractor Supply continues to have significant opportunities for growth. In 2018, we anticipate balancing investments between new store growth and our ONETractor strategic initiative, while also investing in the day-to-day business, to provide our customers with a seamless shopping experience anytime, anywhere and in any way they choose. We believe this balanced strategy positions us well to gain market share as we leverage our physical store assets and our growing digital capabilities. While these investments will partially offset the expected benefit from tax reform, we believe our strategic investments in the customer experience, stores, supply chain and most importantly, our store team members are the right steps to drive long-term sustainable growth and shareholder value.”
Fourth Quarter 2017 Highlights
Net sales increased 1.9% to $1.95 billion in the fourth quarter of 2017 from $1.92 billion in the fourth quarter of 2016. The prior year’s fourth quarter included an extra sales week as part of the Company’s 53-week calendar in 2016, which negatively impacted the overall sales increase by approximately 6.7 percentage points. In addition, due to the Company’s 2016 fiscal year having 53 weeks versus the normal 52 weeks, each quarter of fiscal 2017 started one week later than the same quarter of fiscal 2016. Comparable store sales increased 4.0% versus an increase of 3.1% in the prior year’s fourth quarter. Adjusting for the week shift, comparable store sales would have increased 3.8% in the fourth quarter of 2016. Comparable store transaction count increased 2.7% and average ticket increased 1.3%. All geographic regions of the Company and all major product categories had positive comparable store sales growth. Continued strength in everyday basic items across the consumable, usable and edible categories along with winter and other seasonal products helped drive the comparable stores sales result.
Gross profit increased 3.5% to $668.6 million from $646.3 million and gross margin rate increased 50 basis points to 34.2% from 33.7% in the prior year’s fourth quarter. The increase in gross margin was primarily attributable to less promotional activity and improved sell-through rates on seasonal products during the quarter. Partially offsetting these items was an increase in transportation costs driven by higher carrier rates and diesel fuel costs, coupled with an unfavorable mix of freight-intensive products.
Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 7.3% to $484.8 million from $451.6 million in the prior year’s fourth quarter. As a percent of net sales, SG&A expenses increased 120 basis points to 24.8% from 23.6% in the fourth quarter of 2016. The increase in SG&A as a percent of net sales was primarily attributable to deleverage of occupancy and other fixed costs resulting from the 53rd week of sales in the fourth quarter of 2016 that did not reoccur in the fourth quarter of 2017, higher store payroll from the Company’s continued effort to enhance customer service, increased incentive compensation from the strong year-over-year growth in comparable store sales and investments in infrastructure and technology to support its strategic long-term growth initiatives.
The effective income tax rate was 38.9% compared to a rate of 36.0% in the prior year’s fourth quarter. The effective income tax rate was higher in the fourth quarter of 2017 primarily due to new tax legislation that required the revaluation of the Company’s net deferred tax asset at a lower corporate statutory rate.
Net income was $109.7 million, or $0.87 per diluted share, compared to net income of $123.6 million, or $0.94 per diluted share, in the fourth quarter of 2016. Excluding the impact of the revaluation of the Company’s net deferred tax asset resulting in a one-time, non-cash charge of approximately $4.9 million, or $0.04 per diluted share, adjusted net income for the fourth quarter of 2017 was $114.6 million, or $0.91 per diluted share. The Company estimates that the 53rd week in 2016 represented a benefit of approximately $0.055 per diluted share, which did not reoccur in the fourth quarter of 2017 as previously discussed.
The Company opened 27 new Tractor Supply stores and closed seven Del’s stores in the fourth quarter of 2017 compared to 21 new store openings and one closure of a Del’s store in the prior year period. Additionally, in the fourth quarter of 2017, the Company opened six new Petsense stores and had no Petsense store closures compared to eight store openings and one store closure during the fourth quarter of 2016.
Fiscal 2017 Results
Net sales increased 7.0% to $7.26 billion from $6.78 billion in fiscal 2016. Comparable store sales increased 2.7% versus a 1.6% increase in fiscal 2016. Gross profit increased 7.2% to $2.49 billion from $2.33 billion, and gross margin remained flat at 34.3%.
SG&A expenses, including depreciation and amortization, increased 10.7% to $1.81 billion, and as a percent of net sales, SG&A expenses increased to 24.9% compared to 24.1% in fiscal 2016.
The effective income tax rate was 37.2% compared to a rate of 36.5% in fiscal 2016. The effective income tax rate was higher in fiscal 2017 due to new tax legislation that required the revaluation of the Company’s net deferred tax asset at a lower corporate statutory rate.
For fiscal 2017, net income was $422.6 million, or $3.30 per diluted share, compared to $437.1 million, or $3.27 per diluted share, in fiscal 2016. Excluding the impact of the revaluation of the Company’s net deferred tax asset resulting in a one-time, non-cash charge of approximately $4.9 million, or $0.03 per diluted share, adjusted net income for fiscal 2017 was $427.5 million, or $3.33 per diluted share. The Company estimates that the 53rd week in 2016 represented a benefit of approximately $0.055 per diluted share, which did not reoccur in fiscal 2017 as previously discussed.
The Company opened 101 new Tractor Supply stores, converted its two Hometown Pet stores to Petsense stores, and closed nine Del’s stores in fiscal 2017 as compared to 113 new store openings and six Del’s store closures during fiscal 2016. The Company also opened 25 new Petsense stores (including the conversion of two Hometown Pet stores) during fiscal 2017 and had no Petsense store closures.
Fiscal 2018 Outlook
The Company is providing the following initial guidance for the results of operations expected for fiscal 2018:
$7.69 billion - $7.77 billion
Comparable Store Sales
+2.0% - +3.0%
$490 million - $515 million
Earnings per Diluted Share
$3.95 - $4.15
$260 million - $300 million
Share repurchases for fiscal 2018 are expected to be at the high end of the Company’s target to reduce its weighted average shares outstanding by 2.5% to 3.5%. Anticipated capital expenditures include construction costs related to a new distribution center, ONETractor investments and new store growth of approximately 80 new Tractor Supply and 20 new Petsense store openings.
In December 2017, the Tax Cuts and Jobs Act was enacted which will have a positive impact on the Company’s effective tax rate in 2018 and subsequent years. The Tax Cuts and Jobs Act is expected to reduce the Company’s effective tax rate in 2018 from approximately 36.7% to approximately 23.0% to 23.5%.