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WIKI ANALYSIS
Tractor Supply Company (TSCO) operates retail farm and ranch stores in the United States; its $2.7 billion in sales revenue in 2007 were more than any other company in its market.[1] TSCO stores are located in rural communities and suburbs outside metropolitan areas.[2] Despite its name, Tractor Supply Company does not sell large-scale farming equipment. Instead the retailer offers a comprehensive selection of farm and ranch-related merchandise and supplies, including livestock and pet products, tools, lawn and garden equipment, and work apparel. In addition to branded merchandise made by other manufacturers, Tractor Supply Company also sells its own private label products under 15 different brands.[3]
Tractor Supply Company earned a 31.5% gross margin and 5.9% operating margin on its $2.7 billion of sales in 2007, as same store sales grew 3.4%.[4] Tractor Supply Company operated 764 store locations at the end of 2007 and added 50 new stores in the first half of 2008 to bring its total store count to 814.[5][6] To complement its expanding base of brick-and-mortar stores, Tractor Supply Company has also spread its operations into e-commerce as it launched its online store in late 2007.[7] One major factor in the retailer's revenue growth is the unpredictable weather patterns associated with each season. The spending habits and budgets of Tractor Supply's customers vary with the success of their farms, which is often dictated by the weather.
Business Overview
Founded as a single store in Minot, North Dakota in 1939, Tractor Supply Company has grown into a major retailer of farm and ranch merchandise in the United States, receiving over $2.7 billion of sales in 2007.[9] Through the first two fiscal quarters of 2008, Tractor Supply Company opened 50 new store locations, operating 914 total stores at the mid-point of the year.[10] In addition to Tractor Supply-branded stores, the company owns and operates Del's Farm Supply, a 23 store chain based in the Pacific Northwest selling merchandise comparable to Tractor Supply's product mix.[11] Tractor Supply Company's stores are generally located in rural and suburban areas outside of metropolitan areas, where the retailer targets recreational farmers and ranchers as opposed to commercial and industrial farm operations.[12] Because Tractor Supply Company targets recreational farmers and consumers inclined to the farming and ranching lifestyle, rather than commercial farmers, it doesn't sell heavy farm equipment like tractors and combines; the retailer does sell parts for tractors and trucks, but the majority of its product mix is composed of livestock and pet supplies and equipment (33% of 2007 sales), as well as lawn and garden power equipment (26%).[13]
TSCO has a five-year CAGR of 12.9% as total revenue has increased by over $1 billion from $1.4 billion in 2003 to $2.7 billion in 2007.[14] In 2007 total sales increased 14.1%, driven largely by nearly 100 new store openings (TSCO's store count grew from 676 in 2006 to 764 in 2007), as same store sales grew 3.4%.[15] Tractor Supply Company earned a 31.5% gross margin and a 5.9% operating margin on its $2.7 billion of sales in 2007.[16] Through the first two quarters of 2008 sales have increased 9.2%, compared with the first half of 2007, to $1.4 billion as same store sales have fallen 0.7%.[17] During the same time period, TSCO opened 50 new stores to end the first half of 2008 with 814 store locations in the United States.[18]
Trends and Forces
Seasonality of Sales and Fluctuation with Weather Patterns
As a seller of farming and ranching equipment and supplies, Tractor Supply Co.'s revenues are dependent upon local weather patterns, especially in the second and fourth quarter when its customers are preparing for planting and harvest.[20] Whether raising livestock or growing crops, the weather (particularly rainfall and temperatures) is paramount to farmers and ranchers. Droughts or heat waves can ruin a farmer or rancher's crop or herd, eliminating that farmer's need to continue purchasing farm supplies for that season, and sometimes failed seasons can result in financial burdens significant enough to cause a farmer to exit the practice. Since the company's sales peak in the second and fourth quarter, coinciding with farming schedules, any severe weather patterns occurring before or during these periods can seriously detract from TSCO's sales.
Entrance into E-commerce Widens TSCO's Reach
In the fourth quarter of 2007 Tractor Supply Company launched an e-commerce store on their website, making their merchandise available to customers in markets without TSCO store locations.[21] Although the company operates over 800 stores throughout rural parts of the U.S., TSCO can reach areas that aren't already serviced by TSCO retail locations by offering their merchandise online. Opening an e-commerce sales channel has been a successful business strategy for many apparel retailers thanks to the wide net cast by online direct-to-customer operations. For example, Gap (GPS) saw a 24% increase in online sales to $903 million (~6% of total sales) in 2007 as its online business grew.[22] In 2007 the apparel category accounted for only 10% of TSCO's total sales, but online shopping could increase apparel as a proportion of TSCO's total sales as a result of its e-commerce launch.
Expansion of Private Labels Could Grow Profit Margins
In addition to carrying branded merchandise from nationwide manufacturers, Tractor Supply Company's product mix includes fifteen of its own private label brands and two brands that TSCO controls but does not wholly own. These brands cover all of the retailer's product categories, with each of its private brands specializing in individual areas such as livestock feed, garden tools, and apparel. TSCO does not release sales information for its private brands but most retailers earn significantly (approximately two-three times as large) larger gross and operating margins on private label products. The continued growth of TSCO's private label portfolio through acquiring and creating new brands could lead to greater profitability for the company.
Competition
Tractor Supply Company is the largest retailer specializing in equipment and accessories for the farming and ranching lifestyles, with $2.7 billion in 2007 sales and 814 stores at the end of Q2 FY08.[23][24] Due to the variety of merchandise sold in TSCO's stores, it competes with a number of retailers and other companies of different specialties:
Home Improvement and Building Supply Retailers: These stores sell similar assortments of tools, lawn and garden power equipment, and gardening and landscaping supplies.
- Home Depot (HD)
- Lowe's Companies (LOW)
- Menard, Inc.
- True Value
- Ace Hardware
Department Stores and Mass Merchandisers: These stores' vast product portfolios include gardening and lawn supplies and equipment.
Farming Co-Ops: These cooperative ventures supply farmers with seed, grain, livestock feed and farming equipment.
- CHS (CHSCP)
- Southern States Cooperative
- Tennessee Farmers Cooperative
References
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, About Tractor Supply Company, pg. 2
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Merchandising, pg. 16
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Financial Highlights, pg. 2
- ↑ Tractor Supply Company (TSCO) Press Release, Second Quarter 2008 Results
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Driving Success in 2007, pg. 3
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Merchandising, pg. 17
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Finanical Highlights, pg. 2
- ↑ Tractor Supply Company (TSCO) Press Release, Second Quarter 2008 Results
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Overview, pg. 15
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, About Tractor Supply Company, pg. 2
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Merchandising, pg. 17
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Press Release, Second Quarter 2008 Results
- ↑ Tractor Supply Company (TSCO) Press Release, Second Quarter 2008 Results
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Five Year Selected Financial and Operating Highlights, pg. 28
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Seasonality and Weather, pg. 15
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Driving Success in 2007, pg. 3
- ↑ Gap (GPS) Annual Report 2007, Management's Discussion and Analysis of Financial Condition and Results of Operations, pg. 17
- ↑ Tractor Supply Company (TSCO) Annual Report 2007, Financial Highlights, pg. 2
- ↑ Tractor Supply Company (TSCO) Press Release, First Quarter 2008 Results
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