Tractor Supply Company TSCO reported below-expectations 2Q16 results and guidance. BTIG’s Alan Rifkin maintained a Buy rating on the company, while reducing the price target from $115 to $105. The analyst commented that the weakness was weather-related and “does not impact the company’s long-term fundamentals.”
Weather Impact
Tractor Supply reported a 0.5 percent decline in comps, versus the BTIG estimate of 4.5 percent, due to cooler weather in April and May. Sales of big ticket seasonal items declined 8.5 percent.
“Big ticket items already faced a difficult comparison as comp sales last year were well above TSCO’s overall 5.6% comp. Sales trends did normalize in June as the weather became warmer,” analyst Alan Rifkin noted. He added that the geographies that had more normal weather outperformed those that experienced cooler weather.
Bright Spots
Tractor Supply’s largest product category - Livestock & Pet – reported comp sales up mid-single digits. Transaction counts also rose 1.5 percent. The company did not witness any shift in credit usage, nor a shift to lower cost products that would have indicated “a more fundamental change in consumer behavior,” Rifkin mentioned.
Although Tractor Supply’s results and revised guidance are disappointing, shares appear attractive, “given the company’s strong organic growth, a rarity in hardlines; attractive and growing ROIC profile; and a disciplined capital return policy more characteristic of a mature company,” the analyst stated.
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