EX-99.1 2 q22014earningsrelease.htm PRESS RELEASE DATED JULY 23, 2014 Q2 2014 Earnings Release


www.TractorSupply.com

TRACTOR SUPPLY COMPANY REPORTS SECOND QUARTER RESULTS
~ Earnings per Share Increased 9.2% to $0.95 vs. $0.87 ~
~ Sales Increased 8.8% to $1.58 Billion ~
~ Comparable Store Sales Increased 1.9% ~

Brentwood, Tennessee, July 23, 2014 - Tractor Supply Company (NASDAQ: TSCO), the largest rural lifestyle retail store chain in the United States, today announced financial results for its second fiscal quarter ended June 28, 2014.

Second Quarter Results
Net sales for the second quarter of 2014 increased 8.8% to $1.58 billion from $1.46 billion in the second quarter of 2013. Comparable store sales increased 1.9% versus a 7.2% increase in the prior year’s second quarter. Comparable store sales were driven by continued strength of consumable, usable and edible products (C.U.E.) and solid traffic counts. This was partially offset by deflation, continued softness in our safe category and weaker than expected sales of certain seasonal products primarily in the Northern regions. As the quarter progressed, sales trends accelerated and weather became less of a factor. The softness in sales was principally in the first half of the quarter with the second half being consistent with the Company’s expectations.

Gross profit increased 8.8% to $550.5 million from $506.1 million in the prior year’s second quarter. As a percent of sales, gross margin was flat to prior year quarter at 34.8% as increased transportation costs, mix of products, and the impact of slightly more sales-driving promotions offset the favorable impact of our key gross margin enhancing initiatives and the impact of deflation.

Selling, general and administrative expenses, including depreciation and amortization, increased to 21.5% of sales compared to 21.2% of sales in the prior year’s second quarter. The increase as a percent of sales was primarily attributable to lower comparable store sales and higher employee benefit expenses, partially offset by lower incentive compensation expense.

Net income for the quarter increased 8.0% to $133.4 million from $123.6 million and diluted earnings per share increased 9.2% to $0.95 from $0.87 in the second quarter of the prior year.

The Company opened 23 new stores in the second quarter compared to 26 new store openings in the prior year’s second quarter.

Greg Sandfort, President and Chief Executive Officer, stated, “Sales in our everyday core C.U.E. offerings were strong throughout the second quarter. However, unseasonably cool weather in the early part of the quarter negatively impacted sales of spring seasonal merchandise. As the weather improved midway through the quarter, sales of spring seasonal products improved and have continued to meet our expectations in July. I am proud of how our team responded resulting in our 25th consecutive quarter of increased comparable transaction count. Despite some of the early headwinds, we successfully delivered positive comparable store sales in each month of the quarter while minimizing the impact to merchandise margins. We ended the quarter in great shape from an inventory position and a go-forward merchandise perspective, and feel good about our ability to continue driving sales and earnings growth in the back half of the year.”




First Six Months Results
Net sales increased 8.9% to $2.77 billion from $2.54 billion in the first six months of 2013. Comparable store sales increased 2.0% versus a 4.2% increase in the first six months of 2013. Gross profit increased 10.3% to $946.8 million from $858.2 million and gross margin increased 40 basis points to 34.2% of sales from 33.8% of sales in the first six months of 2013.

Selling, general and administrative expenses, including depreciation and amortization, increased 10.9% to $657.0 million, and increased as a percent of sales to 23.7% compared to 23.4% for the first six months of 2013.

Net income increased 8.7% to $182.2 million from $167.6 million and net income per diluted share increased 10.2% to $1.30 from $1.18 for the first six months of 2013.

The Company opened 55 new stores in the first six months of 2014 compared to 48 new store openings during the first six months of 2013.

Company Outlook
Based upon the second quarter results, the Company anticipates its fiscal year 2014 results will be at the low end of the previously provided ranges of $5.62 billion to $5.70 billion in net sales, 2.5% to 4.0% in comparable store sales and $2.54 to $2.62 in diluted earnings per share. For the full year, the Company now expects capital expenditures to range between $220 million and $230 million compared to its previous guidance of $240 million to $250 million, including spending to support 102 to 106 new store openings and completion of the new Store Support Center.

Conference Call Information
Tractor Supply Company will be hosting a conference call at 5:00 p.m. Eastern Time today to discuss the quarterly results. The call will be broadcast simultaneously over the Internet on the Company’s website at TractorSupply.com and can be accessed under the link “Investor Relations.” The webcast will be archived shortly after the conference call concludes and will be available through August 6, 2014.

Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast.

About Tractor Supply Company
At June 28, 2014, Tractor Supply Company operated 1,331 stores in 48 states. The Company’s stores are focused on supplying the lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, livestock, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware, truck, towing and tool products; (3) seasonal products, including lawn and garden items, power equipment, gifts and toys; (4) work/recreational clothing and footwear; and (5) maintenance products for agricultural and rural use.






Forward Looking Statements
As with any business, all phases of the Company’s operations are subject to influences outside its control. This information contains certain forward-looking statements, including statements regarding sales and earnings growth, estimated results of operations, capital expenditures and new store openings in future periods. These forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company’s quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company’s operations. These factors include, without limitation, general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold,  purchase price volatility (including inflationary and deflationary pressures), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses and execute our key gross margin enhancing initiatives, the availability of favorable credit sources, capital market conditions in general, the ability to open new stores in the manner and number currently contemplated, the impact of new stores on our business, competition, weather conditions, the seasonal nature of our business, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified employees, product liability and other claims, changes in federal, state or local regulations, potential judgments, fines, legal fees and other costs, breach of information systems or theft of customer data, ongoing and potential future legal or regulatory proceedings, management of our information systems, failure to secure or develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes and results of examination by taxing authorities, the ability to maintain an effective system of internal control over financial reporting, changes in accounting standards, assumptions and estimates. Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

(Financial tables to follow)





Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)

 
SECOND QUARTER ENDED
 
SIX MONTHS ENDED
 
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of
 
 
 
% of
 
 
 
% of
 
 
 
% of
 
 
 
Sales
 
 
 
Sales
 
 
 
Sales
 
 
 
Sales
Net sales
$
1,583,831

 
100.0
%
 
$
1,455,767

 
100.0
%
 
$
2,767,511

 
100.0
%
 
$
2,541,605

 
100.0
%
Cost of merchandise sold
1,033,299

 
65.2

 
949,627

 
65.2

 
1,820,760

 
65.8

 
1,683,374

 
66.2

Gross profit
550,532

 
34.8

 
506,140

 
34.8

 
946,751

 
34.2

 
858,231

 
33.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
311,589

 
19.7

 
283,941

 
19.5

 
601,859

 
21.7

 
545,410

 
21.5

Depreciation and amortization
27,914

 
1.8

 
24,220

 
1.7

 
55,134

 
2.0

 
46,919

 
1.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
211,029

 
13.3

 
197,979

 
13.6

 
289,758

 
10.5

 
265,902

 
10.4

Interest expense, net
308

 
—

 
556

 
—

 
762

 
—

 
735

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
210,721

 
13.3

 
197,423

 
13.6

 
288,996

 
10.5

 
265,167

 
10.4

Income tax expense
77,310

 
4.9

 
73,843

 
5.1

 
106,776

 
3.9

 
97,581

 
3.8

Net income
$
133,411

 
8.4
%
 
$
123,580

 
8.5
%
 
$
182,220

 
6.6
%
 
$
167,586

 
6.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.96

 
 
 
$
0.89

 
 
 
$
1.31

 
 
 
$
1.21

 
 
Diluted
$
0.95

 
 
 
$
0.87

 
 
 
$
1.30

 
 
 
$
1.18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
138,394

 
 
 
139,344

 
 
 
138,756

 
 
 
139,074

 
 
Diluted
140,110

 
 
 
141,580

 
 
 
140,571

 
 
 
141,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share outstanding
$
0.16

 
 
 
$
0.13

 
 
 
$
0.29

 
 
 
$
0.23

 
 









Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

 
June 28, 2014

 
June 29, 2013

ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
55,965

 
$
55,698

Inventories
1,154,585

 
1,082,861

Prepaid expenses and other current assets
48,120

 
52,676

Deferred income taxes
25,515

 
14,446

Total current assets
1,284,185

 
1,205,681

 
 
 
 
Property and equipment:
 
 
 
Land
75,843

 
65,290

Buildings and improvements
607,030

 
531,142

Furniture, fixtures and equipment
427,024

 
371,565

Computer software and hardware
156,674

 
132,875

Construction in progress
84,049

 
74,393

 
1,350,620

 
1,175,265

Accumulated depreciation and amortization
(657,233
)
 
(563,789
)
Property and equipment, net
693,387

 
611,476

 
 
 
 
Goodwill
10,258

 
10,258

Deferred income taxes
17,395

 
2,646

Other assets
20,303

 
16,363

 
 
 
 
Total assets
$
2,025,528

 
$
1,846,424

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
390,170

 
$
360,811

Accrued employee compensation
21,158

 
26,783

Other accrued expenses
144,360

 
138,417

Current portion of capital lease obligations
125

 
39

Income taxes payable
73,174

 
53,482

Total current liabilities
628,987

 
579,532

 
 
 
 
Capital lease obligations, less current maturities
3,078

 
1,224

Deferred rent
77,864

 
76,474

Other long-term liabilities
49,674

 
45,447

Total liabilities
759,603

 
702,677

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock
1,335

 
1,322

Additional paid-in capital
476,742

 
413,695

Treasury stock
(985,585
)
 
(778,476
)
Retained earnings
1,773,433

 
1,507,206

Total stockholders’ equity
1,265,925

 
1,143,747

 
 
 
 
Total liabilities and stockholders’ equity
$
2,025,528

 
$
1,846,424








Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
SIX MONTHS ENDED
 
June 28, 2014
 
June 29, 2013
Cash flows from operating activities:
 
 
 
Net income
$
182,220

 
$
167,586

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation and amortization
55,134

 
46,919

Gain on disposition of property and equipment
(68
)
 
(178
)
Stock compensation expense
8,118

 
6,934

Excess tax benefit of stock options exercised
(4,171
)
 
(24,804
)
Deferred income taxes
(12,980
)
 
4,529

Change in assets and liabilities:
 

 
 

Inventories
(175,277
)
 
(174,745
)
Prepaid expenses and other current assets
9,239

 
(868
)
Accounts payable
73,683

 
40,419

Accrued employee compensation
(29,415
)
 
(21,617
)
Other accrued expenses
(10,742
)
 
(19,639
)
Income taxes payable
67,921

 
34,927

Other
2,842

 
3,360

Net cash provided by operating activities
166,504

 
62,823

Cash flows from investing activities:
 
 
 
Capital expenditures
(82,114
)
 
(98,626
)
Proceeds from sale of property and equipment
166

 
235

Decrease in restricted cash
—

 
8,400

Net cash used in investing activities
(81,948
)
 
(89,991
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving credit agreement
110,000

 
135,000

Repayments under revolving credit agreement
(110,000
)
 
(135,000
)
Excess tax benefit of stock options exercised
4,171

 
24,804

Principal payments under capital lease obligations
(27
)
 
(17
)
Repurchase of shares to satisfy tax obligations
(1,211
)
 
(3,942
)
Repurchase of common stock
(146,997
)
 
(69,304
)
Net proceeds from issuance of common stock
13,000

 
24,808

Cash dividends paid to stockholders
(40,270
)
 
(32,113
)
Net cash used in financing activities
(171,334
)
 
(55,764
)
Net decrease in cash and cash equivalents
(86,778
)
 
(82,932
)
Cash and cash equivalents at beginning of period
142,743

 
138,630

Cash and cash equivalents at end of period
$
55,965

 
$
55,698

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest                                                                        
$
360

 
$
276

Income taxes
51,306

 
59,003

 
 
 
 
Supplemental disclosures of non-cash activities:
 
 
 
Property acquired through capital lease
$
1,988

 
$
—

Non-cash accruals for construction in progress
7,745

 
20,637





Selected Financial and Operating Information
(Unaudited)

 
 
SECOND QUARTER ENDED
 
SIX MONTHS ENDED
 
 
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
Sales Information:
 
 
 
 
 
 
 
 
Comparable store sales increase
 
1.9
 %
 
7.2
%
 
2.0
 %
 
4.2
%
New store sales (% of total sales)
 
6.3
 %
 
5.0
%
 
6.3
 %
 
5.3
%
Average transaction value
 
$46.79
 
$46.81
 
$44.42
 
$44.82
 
 
 
 
 
 
 
 
 
Comparable store average transaction value (decrease) increase
 
(0.3
)%
 
2.3
%
 
(1.2
)%
 
0.6
%
Comparable store average transaction count increase
 
2.3
 %
 
4.8
%
 
3.2
 %
 
3.6
%
Total selling square footage (000’s)
 
21,346
 
19,602
 
21,346
 
19,602
 
 
 
 
 
 
 
 
 
Store Count Information:
 
 
 
 
 
 
 
 
Beginning of period
 
1,308
 
1,197
 
1,276
 
1,176
New stores opened
 
23
 
26
 
55
 
48
Stores closed
 
—
 
—
 
—
 
(1)
End of period
 
1,331
 
1,223
 
1,331
 
1,223
 
 
 
 
 
 
 
 
 
Pre-opening costs (000’s)
 
$1,998
 
$1,835
 
$4,268
 
$3,358
 
 
 
 
 
 
 
 
 
Balance Sheet Information:
 
 
 
 
 
 
 
 
Average inventory per store (000’s) (a)
 
$802.4
 
$830.3
 
$802.4
 
$830.3
Inventory turns (annualized)
 
3.55
 
3.52
 
3.33
 
3.30
Share repurchase program:
 
 
 
 
 
 
 
 
Cost (000’s)
 
$62,542
 
$19,441
 
$146,997
 
$69,304
Average purchase price per share
 
$65.09
 
$54.97
 
$66.13
 
$49.55
 
 
 
 
 
 
 
 
 
Capital Expenditures (millions):
 
 
 
 
 
 
 
 
New and relocated stores and stores not yet opened
 
$19.6
 
$17.6
 
$39.6
 
$29.9
Corporate and other
 
10.7
 
11.1
 
20.8
 
12.1
Information technology
 
5.6
 
3.7
 
12.1
 
14.7
Existing stores
 
4.3
 
3.2
 
8.7
 
5.5
Distribution center capacity and improvements
 
—
 
13.7
 
0.9
 
33.1
Purchase of previously leased stores
 
—
 
—
 
—
 
3.3
Total
 
$40.2
 
$49.3
 
$82.1
 
$98.6

(a) Assumes average inventory cost, excluding inventory in transit.