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Morningstar's Tractor Supply Co Stock Analysis

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Narrow-Moat Tractor Supply Continues to Farm Profits; Shares Remain Rich

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan to make any material adjustments to our $168 fair value estimate for narrow-moat Tractor Supply after incorporating first-quarter results that were largely in line with our pre-print forecast. In the period, comparable store sales rose 5.2%, well ahead of our 1% estimate, supporting sales growth of 8.3% to $3 billion (around our $2.9 billion sales forecast). Notably, retail price inflation contributed around 10 points to comparable store sales, a figure that remained impressive given that the two-year comp stack (43.8%) remained higher than any time since the pandemic began. Retail inflation was also seen in average ticket, which rose 6.7%, however, transactions fell 1.4%, implying trip consolidation from customers. Despite the inflationary environment, Tractor Supply managed costs well, as evidenced by a mere 20-basis-point contraction in operating margin, to 8.1%, helped by lower COVID-19-related costs and employee incentive compensation.

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Tractor Supply Co's Company Profile

Business Description

Tractor Supply is the largest operator of retail farm and ranch stores in the United States. The company targets recreational farmers and ranchers and has little exposure to commercial and industrial farm operations. Currently, the company operates 2,003 of its namesake banners in 49 states and 178 Petsense stores. Stores are typically located in towns outside of urban areas and in rural communities. In fiscal 2021, revenue consisted primarily of livestock and pet (47%), hardware, tools, and truck (21%), and seasonal gift and toy (21%).

5401 Virginia Way
Brentwood, TN, 37027
T +1 615 440-4000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Mar 31, 2022
Fiscal Year End Dec 24, 2022
Stock Type Cyclical
Employees 46,000

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