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Tractor Supply Company (TSCO), a leading retail firm and ranch store brand, is scheduled to report its first-quarter 2012 financial results after the market closes on April 25, 2012. The current Zacks Consensus Estimate for the quarter is 54 cents per share. For the quarter under review, revenue is expected to be $1,002 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2011, a Synopsis

Tractor Supply's fourth-quarter 2011 earnings came in at 96 cents, breezing past the Zacks Consensus Estimate of 92 cents as well as the prior-year earnings of 67 cents per share.

Tractor Supply has been witnessing increasing trends in same-store sales. The reported quarter was no exception as robust performance in core consumable, usable and edible products − for instance, pet food and animal feed − acted as a catalyst for an increase of 7.6% in same-store sales.

During the recession, Tractor Supply had suffered setbacks as buyers avoided big-ticket purchases, such as mowers, but recent quarters have seen an uptick in results. The company’s impressive merchandising improvement strategy and solid same-store sales trend resulted in double-digit top-line growth for the company. Net sales in the quarter surged 20.1% to $1,240.0 million from $1,032.6 million in the prior-year quarter. The percentage growth includes a 6.6% benefit from an extra week during the quarter. Moreover, total revenue surpassed the Zacks Consensus Estimate of $1,220.0 million.

Guidance for Fiscal 2012

Tractor is well positioned to capitalize on positive long-term trends. Recently, Tractor Supply provided a sneak preview of its first-quarter 2012 results while citing a robust sales performance during the quarter, which raised its fiscal 2012 profit forecast. Tractor Supply raised its earnings expectation for fiscal 2012 between $3.52 and $3.60 per share from $3.38 to $3.46 per share. Moreover, the company anticipates earnings in the range of 53 cents to 55 cents per share, during first-quarter 2012.

The company’s net sales during the first quarter surged 22% to $1.02 billion from $836.6 million in the prior-year quarter. An early spring in 2012 boosted same store sales, which rose 11.5% in the first quarter. Further, the company indicated that each quarter of 2012 will have a delayed start by one week, compared to fiscal 2011, due to the inclusion of 53rd week in fiscal 2011. Mitigating the effect of the week shift, first quarter 2012 same store sales registered an increase of 7.6%.

Zacks Consensus

The analyst covered by Zacks expects Tractor Supply to post first-quarter 2012 earnings of 54 cents a share, higher than 24 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 54 cents and 55 cents a share.

For fiscal 2012, the Zacks Consensus Estimate stood at $3.64 per share, higher than its previous fiscal earnings of $3.01. The current Zacks estimate ranges between $3.51 and $3.77 per share.

Agreement of Estimates

For the first quarter of fiscal 2012, of the 16 analysts covering the stock, all revised their estimates in the upward direction in the last 30 days. For full fiscal 2012, 16 out of 19 analysts revised their estimates in positive direction, while none revised in the opposite direction, in the last 30 days.

In the last 7 days, no movement in estimates has been noticed in either direction either for first-quarter 2012 or fiscal 2012.

Magnitude of Estimate Revisions

With heavy positive affect from earnings revisions by analysts in the last 30 days, the Zacks Consensus Estimates for first-quarter 2012 has been increased by 23 cents to 54 cents per share while for fiscal 2012 it increased by 14 cents to $3.64 per share.

We believe that such a heavy upward movement in estimates resulted from the company’s better-than-expected preliminary sales result and increased earnings guidance range.

Surprise History

With respect to earnings surprises, Tractor Supply has topped the Zacks Consensus Estimate over the last four quarters in the range of 2.5% to 50.0%. The average remained at positive 17.1%. This suggests that Tractor Supply has surpassed the Zacks Consensus Estimate by an average of 17.1% in the trailing four quarters.

Our View

Tractor Supply is the largest operator of farm and ranch stores in the U.S., a unique market niche that serves the lifestyle needs of recreational farmers and ranchers. The company's stores are strategically located in small towns, close to its target customers, providing it with a competitive edge over its rivals.

We believe that Tractor Supply has successfully tweaked merchandise assortment across its stores, which is in line with the prolonged economic downturn. The company has increased the proportion of less discretionary items such as animal and pet-related products, while reducing shelf space for certain big-ticket merchandise such as outdoor power equipment.

Moreover, in an effort to boost margins, Tractor Supply is expanding its portfolio of private label brands and is also focusing on direct sourcing. The company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing. This provides a strong upside potential to the company.

However, the company operates in a highly fragmented industry and faces intense competition from larger retailers, such as The Home Depot Inc. (HD) and Lowe’s Companies Inc. (LOW) as well as from independently-owned retail farm and ranch stores, privately-held regional farm store chains as well as cooperatives. Being in such a high competitive industry, Tractor Supply may find it difficult to execute and implement new business strategies, which in turn, may impact its operations adversely.

Currently, we are maintaining a long-term ‘Outperform’ recommendation on Tractor Supply.Our long-term recommendation on the stock is supported by a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.

Source: Tractor Supply Co. Earnings Preview