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Shares of Tractor Supply Company TSCO have jumped more than 5% before the trading session on Jan 27, following the impressive fourth-quarter 2021 results. Both top and bottom lines improved year over year and surpassed the Zacks Consensus Estimate. Results gained from strength in the Life Out Here Strategy and healthy customer trends. The company delivered the seventh straight quarter of more than 10% increase in comparable store sales (comps). Encouragingly, management issued an upbeat view for 2022.

Tractor Supply’s earnings of $1.93 per share improved 17.7% year over year, surpassing the Zacks Consensus Estimate of $1.84.

Net sales jumped 15.3% year over year to $3,319 million and beat the Zacks Consensus Estimate of $3,241 million. The improvement was driven by an increase of 12.7% in comps, led by growth of 10.3% in comparable average ticket and a 2.4% rise in comparable average transaction count.

Also, sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as robust summer seasonal categories, contributed to comps growth. The company witnessed comps growth in all geographic regions and key merchandising categories. Tractor Supply witnessed solid double-digit sales growth in the e-commerce business, delivering the 38th consecutive quarter of an increase.

Shares of the Zacks Rank #3 (Hold) company have rallied 40% in the past year against the industry’s 24.4% decline.

Image Source: Zacks Investment Research

Margins & Costs

The gross profit rose 12.6% year over year to $1,120.6 million, while the gross margin contracted 83 basis points (bps) to 33.8%. Pricing efforts and other initiatives to drive margins partly offset cost inflation, higher transportation costs and unfavorable product mix.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, improved 325 bps to 24.9%. In dollar terms, adjusted SG&A expenses, including depreciation and amortization, rose 12.3% year over year. Leveraged occupancy and other fixed expenses, lower COVID-19 pandemic response costs, and reduced incentive compensation aided the metric. This was somewhat offset by increased wage rates, additional store labor hours and investments in strategic efforts.

Adjusted operating income advanced 13.4% year over year, while operating income jumped 58.9% to $293.1 million in the fourth quarter. The operating margin expanded 242 bps to 8.8%.

Financial Position

Tractor Supply ended the fourth quarter with cash and cash equivalents of $878 million, long-term debt of $986.4 million, and total stockholders’ equity of $2,002.7 million. It also has no amount drawn from its $500-million revolving credit facility as of Dec 25, 2021.

In 2021, the company incurred a capital expenditure of $628.4 million and generated cash flow from operating activities of $1,138.7 million.

Tractor Supply returned $260.1 million to its shareholders in the fourth quarter, including $200.9 million to repurchase 0.9 million shares and $59.2 million for quarterly cash dividends. Notably, the company hiked its quarterly dividend by 77% to 92 cents, marking the 13th successive quarter of a dividend hike. The dividend will be paid out on Mar 22, 2022, of shareholders’ record as of Feb 21.

Going ahead, management anticipates $700-$800 million of share repurchases in 2022. The company also extended its existing share repurchase program by $2 billion, bringing the total share repurchase authorization to date to $6.5 billion.

For 2022, Tractor Supply expects to incur a capital expenditure of $625-$675 million.