Tractor Supply, The Quiet Retail Giant
Your Top Stocks Picks, Market Insights, How-To Guides And More
Glad You Are Here, Returners!
Welcome to today’s fundamental stock analysis. Return is your place to get the latest insights and analysis on value stocks.
By signing up you will also get exclusive access to our TOP-10 investments lists, market news, how-to guides and pre-IPO reviews.
INTRO
Founded back in 1938 by Charles E. Schmidt Sr., Tractor Supply Co. has grown from a simple mail-order tractor parts business, run from a kitchen table, to a multi-million-dollar retailer selling farm tools, home improvement products, maintenance items and animal supplies. In 2020, it brought in $749 million in net income.
It is referred to as the largest rural lifestyle retailer in the United States, and has over 1,923 stores in 49 states across the United States
Tractor Supply acquired Petsense in 2016, a small-box pet specialty supply retailer with a focus on pet owners in small and mid-size communities. So far, Petsense has over 182 stores in 25 states within the United States
In 2019, Tractor Supply Co. acquired Orscheln Farm and Home, one of its regional competitor which, at the time of acquisition, had 167 stores in 11 states across the United States
DO IT YOURSELF
Tractor Supply Co. is a retail chain whose primary focus is on rural and lifestyle products. Its offering focuses on home improvement, agriculture, lawn and garden maintenance, livestock, equine and pet care.
With these offerings, its customers can do anything from repairing wells, welding gates, building fences, building hauling trailers, and everything in between
The company equips its customers with the tools and knowhow that they need to get things done at home without hiring a professional
CUSTOMER FOCUS
Tractor Supply Co.’s main competitors include The Home Depot, Ace Hardware, Harbor Freight Tools, Lowe’s Home Improvement and Lumber Liquidators. At a first glance, nothing sets the Tractor Supply Co. apart from competition.
Yet, in terms of brand recognition and brand loyalty, the company is way ahead of its competition. When asked why and how that’s the case, Steve Barbarick, the former president of Tractor Supply Co., noted that the enterprise strongly emphasizes customer service
He further stated that many customers go to the company’s stores simply to consult with its employees on various topics such as how to care for their animals or how to repair their equipment. They find this particularly useful since the company hires workers with ranching and farming backgrounds, meaning that these employees know how to help customers
In an interview with retired Tractor Supply Co. CEO, Greg Sandfort, noted that the company’s overall achievement with regards to winning over its customers’ trust is by hiring customers, in the first place. These employees then know the value of recommending, and understand the specific needs of the customers, something that makes their entire shopping experience worthwhile.
THE MARKET
The global home improvement market is set to grow by 4.5% year-on-year, fuelled by increasing disposable income while the agriculture equipment market rises by 8.9% a year over the 2019 - 2025 period. Tractor Supply Co. is also exposed to the fast-growing pet car market.
According to Global Market Insights, the global home improvement market is set to reach $ 1,120B by 2025, up from $ 800B in 2018
Representing a CAGR of 4.5% over the 2019 - 2025 period and driven by higher household spending, green regulations and relatively lower lending rates combined with increasing land costs
“DIY home improvement market is forecast to register over USD 680 billion in 2025. Developed regions including North America and Europe accounted for around 85% of the segment revenue in 2017. […] Furthermore, presence of large DIY stores along with penetration of ecommerce sales channel will create long-term positive impact.” Global Market Insights
According to Grand View Research, the agriculture equipment market is set to grow by 8.9% over the 2019 - 2025 period, while standing at $ 139B in 2018
Adoption of modern technologies by farmers and the need for more efficient farming is driving demand
“For instance, various farm machinery manufacturers are concentrating on integrating technologies such as Google Earth, GPS, and robotic systems into present equipment to improve productivity.” Grand View Research
According to Infinium Global Research, the pet care market is set to reach $ 242B by 2025, up from $ 166B in 2019 and growing with a CAGR of 6.6%
The market is driven by a higher adoption rate of pets around the world, rising disposable income, growing awareness regarding pet health
“Last year, 3.3 million new pets found homes as the pandemic made people long for a furry friend to keep them company during Covid lockdowns.” Katie Tsai for CNBC
TIER-1 MANAGEMENT
Tractor Supply Co is led by Hal Lawton, who was an associate principal at McKinsey & Co., worked at The Home Depot and was president at Macy’s. Kurt Barton is the CFO, joined the company in 1999 and is a Certified Public Accountant.
Hal Lawton is the current President and CEO of Tractor Supply Co., a position he has held since January of 2020, taking over from Steve Barbarick. Mr. Lawton is also a member of the company’s Board of directors
Previously, Hal served as President of Macy’s from September 2017 to December 2019. As President, he had responsibility for all aspects of the Macy’s brand, including merchandising, marketing, stores, operations, technology and consumer insights and analytics. Prior to that, Hal was Senior Vice President, eBay North America from August 2015 to September 2017. Before joining eBay, Hal spent 10 years in various leadership roles at Home Depot. Prior to that, Hal was an associate principal at McKinsey & Co., providing strategic advice to executive teams in consumer-packaged goods and manufacturing industries
Holds dual bachelor’s degrees in Chemical Engineering and Pulp and Paper Science Technology from North Carolina State University and a Master of Business Administration from the University of Virginia
Kurt Barton served as Executive Vice President, Chief Financial Officer and Treasurer of Tractor Supply Company since February 2019 and is a member of the Company’s Executive Committee
Previously served as Senior Vice President, Chief Financial Officer and Treasurer since March 2017 and as Vice President, Controller and Assistant Corporate Secretary from February 2009 to January 2016. Kurt joined Tractor Supply Company in August 1999 and held various other leadership roles in both accounting and internal audit from 1999 through 2009. Prior to joining Tractor Supply Company, Kurt, a Certified Public Accountant, began his career in public accounting in 1993, spending six years at Ernst & Young
Holds a Bachelor of Science in accounting from Bob Jones University
Christi Korzekwa has served as Senior Vice President, Marketing of Tractor Supply Company since February 2015 and is a member of the Company's Executive Committee
Joined Tractor Supply in 2012 as Vice President, Marketing. Prior to Tractor Supply, Christi served as Director of Client Services for Blue Sky Agency from 2011 to 2012. Christi worked for The Home Depot from 2004 to 2011 in roles of increasing importance, most recently as Senior Director, Marketing. Before joining The Home Depot, Christi spent 17 years with TM Advertising working in partnership with American Airlines as their SVP, Global Media Director
Holds a Bachelor of Science in advertising from The University of Texas at Austin
RED FLAGS / FRAUD
Back in 2017, Tractor Supply Co. was ordered by Yolo County Superior Court Judge Samuel McAdam to pay $485,400 as part of a settlement of a civil environmental prosecution.
Tractor Supply Co. was found guilty of having unlawfully handled and disposed of various hazardous wastes and materials throughout the state for over five years. Such wastes included pesticides, ignitable liquids, medications, and other toxic materials
Since then, however, Tractor Supply Co. has practiced safe disposal of its waste and has, so far, maintained good standing with the state, along with proper and transparent running of its operations across the country
FINANCIAL REVIEW
Net sales increased 31.3% to $2.88 billion in the fourth quarter of 2020 from $2.19 billion in the fourth quarter of 2019
The COVID-19 pandemic continued to have a significant, positive impact on consumer demand in the fourth quarter of 2020 across all of the Company’s major product categories as customers focused on the care of their homes, land and animals
The company’s e-commerce sales experienced triple-digit percentage growth for the third consecutive quarter
Gross profit increased 34.2% to $995.5 million from $741.8 million in the fourth quarter of 2019, and gross margin rate increased 75 basis points to 34.6% from 33.8% in the prior year’s fourth quarter
The increase in gross margin was primarily attributable to a lower depth and frequency of sales promotions and less clearance activity, partially offset by higher transportation costs as a percent of net sales
Selling, general and administrative (SG&A) expenses, including depreciation and amortization and asset impairment, increased 47.1% to $811.1 million from $551.4 million in the fourth quarter of 2019
THE TAKE
What we like: Tractor Supply Co. is a fairly-valued and growing retail chain lead by tier-1 management (ex-Macy’s, The Home Depot and McKinsey). The company enjoyed a COVID-related boost and could now benefit from rising home sales and increasing spend on pet care.
What we don’t like: Customers were lured to home improvement stores during lockdowns and may now shift a part of their spend to leisure. Home sales could be negatively impacted would the economy overheat and rates rise.
OUR TOP INVESTMENTS
We review and analyse companies so you can speed up your research. Want to know what we have on our BUY-list?
Disclaimer: Return is not an investment advisor, we have no access to non-public information about publicly traded companies, and this is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. We are not regulated by the Financial Services Authority. Investors should conduct their own analysis before making any investment. The value of shares, assets and investments and the income derived from them can decrease as well as increase. Investors may not get back the amount they invested - there is a real risk of partial or total loss. Past performance is not a guide to future performance.
Disclosures: The author has a position in Tractor Supply Company. The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article.
Picture: Courtesy of Tractor Supply Co.