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How to Play Tractor Supply Stock After 18% Drop in 6 Months?
Zacks Equity Research
5 min read

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Tractor Supply Company TSCO has seen its shares decline 17.8% over the past six months, underperforming the industry, the broader Zacks Retail – Wholesale sector and the S&P 500's declines of 16.6%, 3.8% and 9.6%, respectively. This pullback reflects a combination of challenging macroeconomic conditions and company-specific headwinds.

TSCO Stock's Price Performance

 

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Zacks Investment Research


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Closing the trading session at $51.32 yesterday, TSCO remains below its 200-day and 50-day SMAs of $54.52 and $54.17, respectively, indicating a possible sustained downward trend.

TSCO Stock Trades Below 50 & 200-Day SMAs

 

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Zacks Investment Research


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Investors remain divided on whether Tractor Supply is headed for further downside or nearing a potential rebound.

What’s Affecting Tractor Supply’s Growth?

Tractor Supply faces headwinds as it navigates a challenging retail environment marked by shifting consumer behavior and macroeconomic pressures. In the fourth quarter of 2024, the company reported a modest 0.6% increase in comparable store sales, primarily fueled by a 2.3% rise in transaction count. However, this growth was partially offset by a 1.7% decline in average ticket size, suggesting consumers are spending less per visit.

Tractor Supply faces headwinds as mounting cost pressures and a subdued retail landscape weigh on its near-term outlook. The company is reeling under the burden of higher depreciation and amortization expenses, largely stemming from growth initiatives such as the opening of a new distribution center. These investments, while aimed at long-term efficiency, have pushed up selling, general and administrative (SG&A) expenses, including depreciation and amortization, by 5.5% year over year. As a percentage of sales, SG&A expanded 60 basis points (bps) to 26.8% in the fourth quarter.

This increase reflects not only the elevated depreciation and fixed costs but also modest deleverage, all of which outpaced the offsetting impact of Tractor Supply's ongoing productivity and cost control measures, including gains from its sale-leaseback strategy. The strain on expenses led to a 4.8% decline in operating income and a 69-bps drop in operating margin to 8.44%, signaling potential pressure on profitability.

The company expects SG&A costs to rise another 6.7% in 2025, with SG&A as a percentage of sales forecasted to increase by 30 bps. Compounding these cost concerns is a tough retail sales environment and the anticipation of deflation becoming a modest headwind in the first half of 2025.

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