FINANCE

Analysis: Tractor Supply turns in ‘exceptional’ performance

As a stand-alone set of results, today’s numbers from Tractor Supply Company are very strong. However, when set against the robust trading from last year – when net sales rose by 11.6% and comparables by 6.6% – this is an exceptional performance. The bottom line result was also pleasing, with net income rising by a very solid 27.1%.

There is no doubt that Tractor Supply is being aided by the stronger economy. Demand from outdoor hobbyists and consumers with smallholdings is up sharply, as is demand from the professional segment of the market. The weather also played ball with good summer conditions helping to fuel outdoor activity and therefore purchasing. However, in our view, it would be unfair to attribute the entirety of the firm’s success to prevailing macroeconomic or climatic conditions – Tractor Supply has done a lot to engineer good numbers.

One of the clear success stories has been the investment put into the online proposition and the supporting supply chain. With an easier to use website and mobile site, online has become a key channel for both research and placing orders – both things that help busy customers save on time. The addition of simple solutions, like being able to register to make tax-free purchases are smart functions that appeal to the outdoor business community.

Pleasingly, just over 70% of online orders are fulfilled in Tractor Supply stores. This is convenient for the customer, is cost effective for the company, and helps to drive incremental purchasing. It also demonstrates the importance of physical shops in the rural lifestyle segment – something that online-only competitors will struggle to imitate.

Tractor Supply has also used online functionality to increase the appeal of its stores by introducing kiosks which offer the full range of 100,000 products (the average store holds 15,000 to 20,000 items). This has helped to improve both conversion rates and customer satisfaction. It also allows Tractor Store to optimize ranges and better capitalize on sudden changes in weather – which often occur during the overlap between seasons.

Away from online and stores, Tractor Supply has been busy building up its Neighbor’s Club loyalty program. This is on track to reach some 10 million members by the end of this year. In our opinion, this is impressive growth given that the scheme is just over a year old. Significantly, spend among members is high and there is also a strong engagement rate. Again, this is something that allows Tractor Supply to forge close links with its customer base, making it the destination of choice for outdoor products.

Finally, it is worth noting some of the positive changes made on the merchandise front. Here, increased penetration of own label in feedstuffs has helped margins; selective expansion of popular lines like Wrangler work clothing has boosted sales; and, a strong assortment across areas like winter heating products shows a determined attempt to maximize seasonal opportunities.

In summary, we believe Tractor Supply is very much on the front foot and is increasing its appeal in the rural lifestyle niche.

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