Ticker:
(TSCO)
Year Founded:
1938
Headquarters
Brentwood, Tennessee
Tractor Supply
Tractor Supply is the largest farm and ranch retailer in the United States, operating over 2,000 stores in 49 states. The company has a unique niche in specialty retailing focused on serving rural lifestyle consumers, tradesmen, and small businesses. Tractor Supply tends to focus on markets that are typically overlooked by “big box“ competitors with a product assortment geared towards traditional and hobby farmers.
Know What You Own
We added Tractor Supply to the Jensen Quality Value Strategy in August 2017 due to its valuation and durable business model. Competitive advantages include a differentiated product assortment, loyal customer base and scale benefits over competing “mom-and-pop” retailers. Importantly, the company generates about half its revenue from the sale of “Consumable, Usable and Edible” products such as livestock feed and pest control. This non-discretionary product assortment provides stability during economic downturns and insulation from larger e-commerce threats due to the immediate need and cost to ship.
Tractor Supply has produced positive sales and earnings growth for over ten consecutive years while maintaining returns on invested capital above cost of capital as of the time of publication. Recently, the business demonstrated resiliency during COVID-19 related disruptions as it was deemed an essential retailer during lockdowns, and it capitalized on consumer home improvement trends.
Tractor Supply has a track record of delivering sustainable growth in a highly fragmented market. Over the past few years, the company has benefitted from omnichannel investments and e-commerce initiatives (ex. launched a mobile app, buy online/pick up in store, same/next day delivery), which have increased store traffic and online sales. We expect this trend to continue in the future as the company’s growth strategy has been revitalized under a new CEO, with a focus on digitizing the business, new store expansion and space productivity.
Outlook
Tractor Supply has a track record of consistent business performance. From the date of publication, we forecast mid-single-digit sales growth, double-digit earnings growth and margin expansion driven by improvements in productivity, customer retention and acquisition, and increased market share. We acknowledge near-term headwinds including product cost inflation, higher labor costs and executive management turnover, but our long-term outlook for the business remains favorable.
Strategy holdings are subject to change and should not be considered recommendations to buy or sell any security. For a listing of this Strategy’s current holdings, please click the link below.
The discussion of the specific security identified in this article is solely intended to illustrate the application of our investment approach. Our views expressed herein are subject to change and should not be construed as investment advice and are not designed or intended as a basis or determination for making any investment decision for any security. The specific security identified is taken from a representative account of the Jensen Quality Value Composite and does not represent all of the securities purchased and sold for the Strategy. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein. This information is current as of the date of this material and is subject to change at any time, based on the market and other conditions. Past performance is no guarantee of future results.
Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements.
Jensen Investment Management, Inc., is an investment adviser registered under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training.
© 2022 Jensen Investment Management.
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