Dollar stores get a lot of the credit for negatively impacting Walmart’s U.S. sales the past few years and it’s no wonder. The big three – Dollar General, Family Dollar and Dollar Tree – have grown rapidly and collectively operate more than 20,000 conveniently located units that offer sharp prices on an expanding assortment of food and consumables.
However, competition can take many forms and one retailer often overlooked is Tractor Supply Company. It has been on fire lately and just reported a 43 % increase in profits and an 11.5% comp increase for the third quarter ended Sept. 24 on top of a prior year gain of 5%. The company now operates more than 1,000 stores, including a unit a few miles south of Walmart’s home office on Walton Boulevard, in 44 states, and there is considerable overlap in product assortment and the type of customer served.
For example, Tractor Supply stores are focused on supplying the lifestyle needs of recreational farmers and ranchers in addition to the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities where the offering of merchandise includes such things as equine, pet and small animal products, hardware, truck, towing and tool products, seasonal goods including lawn and garden items, power equipment, gifts and toys, maintenance products, and work and recreational clothing and footwear.
It’s been a good strategy as was again evidenced by the third-quarter performance.
“We generated double-digit increases in both sales and earnings on top of last year’s record results while improving gross margin and leveraging (selling, general and administrative expenses), said Jim Wright, Tractor Supply’s chairman and CEO. “This strong performance, which also included positive ticket and traffic, reflects the impact of our strategic initiatives and our ability to respond to our customers’ everyday rural lifestyle needs. Additionally, we executed exceptionally well and successfully managed through the inflationary environment. We are delighted that we continue to experience broad-based strength across the business.”
For the period ended Sept. 24, the company’s sales increased 17.9% to $978 billion and net income increased 43% to $42.7 million. Earnings per share of 58 cents were six cents better than analysts’ consensus estimate of 52 cents and 45 percent higher than the prior year third quarter profit of 40 cents a share.
The earnings beat and momentum in the company’s business prompted it to raise its full year sales and profit forecast. Guidance now calls for annual sales in the range of $4.15 billion to $4.17 billion compared with the company’s prior expectation of sales between $4.1 billion and $4.14 billion. Same-store sales for the year are now expected to increase between 6.5% and 7% compared with a prior expectation for an increase of 5% to 6%. Tractor Supply is leveraging its sales growth to produce higher gross margins and reduced expenses as a percent of sales and now expects full year profits to range from $2.85 to $2.89 a share compared to a previous estimate of $2.75 to $2.82 a share.
“As we look ahead, we are well prepared for the upcoming fall, winter and holiday selling season and believe that our merchandising and marketing initiatives will allow us to gain market share,” Wright said. “With the right strategies, capital structure and team in place, we are confident in our outlook for 2011 and our ability to continue to build on our momentum for the long-term.”