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Tractor Supply Company (TSCO) |
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WIKI ANALYSIS
Tractor Supply Company (NASDAQ:TSCO) operates retail farm and ranch stores in the United States and is the largest company in terms of revenue in its market. TSCO stores are located in rural communities and suburbs outside metropolitan areas. 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. The company earned $3.2 billion in revenue and $155 million in net income in 2009.[1]
Tractor Supply Company operates more than 900 store locations. 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. 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.
Company 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. In addition to Tractor Supply-branded stores, the company owns and operates Del's Farm Supply, a 27 store chain based in the Pacific Northwest selling merchandise comparable to Tractor Supply's product mix. 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. 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, as well as lawn and garden power equipment.
Product segments[2]
- Livestock and Pet - 39% of net sales
- Hardware and Seasonal
23% of net sales
- Truck and Tool - 18% of net sales
- Clothing and Footwear - 10% of net sales
- Agriculture - 6% of net sales
- Gift and Recreation - 4% of net sales
Business Growth
FY 2009 (ended December 26, 2009)[1]
- Net sales increased 6.6% to $3.2 billion. The increase was primarily from the opening of 75 net new stores. Comparable store sales during the period decreased 1.1%. The decline in comparable store sales was due to declines in sales of big ticket and discretionary items.
- Net income increased 41% to $155 million.
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. 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.[3]
Entrance into E-commerce Widens TSCO's Reach
Tractor Supply Company operates an e-commerce store on their website, making their merchandise available to customers in markets without TSCO store locations. Although the company operates over 900 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.
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.[4]
Competition
Tractor Supply Company is the largest retailer specializing in equipment and accessories for the farming and ranching lifestyles. 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
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