In This Article:
Tractor Supply Company TSCO is focused on integrating its physical and digital operations to offer consumers a seamless shopping experience, given the evolving consumer trends. The company’s omnichannel investments bode well. Tractor Supply is reaping the benefits from its Life Out Here Strategy and the Neighbor’s Club membership program.
TSCO’s Growth Strategies Bode Well
The major initiatives in the Life Out Here strategy will be TSCO’s Project Fusion and Garden Center rollouts. Such projects are progressing well and hence generating compelling returns through enhanced space productivity. These efforts will be complemented by improved localization capabilities. Moving forward, all the new stores and the fusion remodels will have localized space allocation and assortment depending on their respective archetypes.
TSCO is significantly enhancing its Neighbor's Club offering. As the company continues to make investments in the program, it has been seeing strong growth in customer counts and customer retention. Overall, the membership program surpassed 38 million and, as a percentage of sales, touched a record 80%.
Tractor Supply’s omnichannel investments include curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app. Management aims at leveraging AI technologies to boost search, redesign checkout and add a new, refreshed homepage on personalization. It has been accelerating its digital capabilities.
Tractor Supply has concluded its buyout of Allivet, a privately held online pet pharmacy. The transaction marks a significant strategic move as it expands the company’s footprint in the growing pet wellness and animal health sector.
Management has also announced a multiyear strategic licensing partnership with Field &Stream. This June, customers can get various hunting and outdoor Field & Stream branded products. All the aforesaid efforts are likely to tap higher sales and boost profitability.
Hurdles in TSCO’s Growth Path
Despite such growth catalysts, Tractor Supply has been witnessing higher selling, general and administrative (SG&A) expenses, including depreciation and amortization, along with the costs related to the opening of distribution centers. Also, cost inflation and a tepid retail sales environment are concerning.
In the most recent quarter, SG&A expenses, including depreciation and amortization, rose 5.5% year over year to $1.01 billion. SG&A costs, including depreciation and amortization, as a percentage of sales, expanded 60 bps year over year to 26.8%.
The higher SG&A expense has resulted from growth investments, which comprised the increased depreciation, the onboarding of a new distribution center and modest deleveraged fixed costs. Such costs might weigh upon the company’s profitability. TSCO anticipates deflation to be a modest headwind in the first half of 2025.