Tractor Supply Company Reports Third Quarter 2010 Results

~ Third Quarter Earnings per Share Increase 43.3% to $0.43 vs. $0.30 ~

~ Third Quarter Same-Store Sales Increase 5.0% ~

~ Raises Full Year 2010 Net Sales and EPS Guidance ~

Oct 20, 2010, 16:01 ET from Tractor Supply Company

BRENTWOOD, Tenn., Oct. 20 /PRNewswire-FirstCall/ -- Tractor Supply Company (Nasdaq: TSCO), the largest retail farm and ranch store chain in the United States, today announced financial results for its third fiscal quarter ended September 25, 2010.  

Third Quarter Results

Net sales increased 10.9% to $829.1 million from $747.7 million in the prior year's third quarter.  Same-store sales increased 5.0% compared with a 5.1% decrease in the prior-year period.  This same-store sales increase was broad-based and driven by continued strength in consumable, usable and edible (CUE) products, principally animal and pet-related merchandise.  Seasonal warm-weather items and apparel also performed well during the quarter.

Gross margin increased 13.5% to $279.1 million, or 33.7% of sales, compared to $246.0 million, or 32.9% of sales, in the prior year's third quarter.  The improvement in gross margin is primarily due to expanded direct product margin and a decrease in the LIFO provision partially offset by increased transportation costs. The direct product margin improvement resulted from strategic sourcing, markdown management and more effective pricing.

Selling, general and administrative expenses, including depreciation and amortization, improved to 27.5% of sales for the third quarter compared to 28.1% of sales in the prior year's third quarter.  This improvement was primarily due to sales growth and expense management.  

Net income for the quarter was $32.0 million, or $0.43 per diluted share, compared to $22.0 million, or $0.30 per diluted share, in the prior year's third quarter.  All references to per-share amounts reflect a two-for-one stock split that was effective on September 2, 2010.

The Company opened nine new stores in the quarter compared to 17 new store openings and one relocation in the prior year's third quarter.

Jim Wright, Chairman and Chief Executive Officer, stated, "We are pleased that our results for the quarter reflect broad-based strength across the business and high store traffic in all markets.  We maintained solid in-stock positions and served our customers' rural lifestyle needs as the team continued to enhance execution in merchandising, inventory management, and marketing.  As a result, we exceeded our expectations for the top- and bottom-line while achieving gross margin expansion and SG&A leverage." 

First Nine Months Results

For the first nine months of 2010, net sales increased 11.1% to $2.61 billion.  Same-store sales increased 4.8% compared with a 1.7% decrease in the first nine months of 2009.  Gross margin increased 15.7% to $866.8 million in comparison to the first nine months of 2009.  As a percent of sales, gross margin was 33.3% of sales compared to 32.0% of sales for the first nine months of 2009.  

Selling, general and administrative expenses, including depreciation and amortization, improved to 26.1% of sales compared to 26.6% of sales for the first nine months of 2009.  

Net income for the first nine months of 2010 was $117.8 million, or $1.58 per diluted share, compared to net income of $77.2 million, or $1.06 per diluted share, for the first nine months of 2009.

During the first nine months of 2010, the Company opened 47 new stores and closed one store compared to 58 new store openings, two relocations and one closure during the first nine months of 2009.

Company Outlook

The Company raised its expectation for net sales for fiscal 2010 to a range of $3.53 billion to $3.55 billion compared to its previously expected range of $3.49 billion to $3.53 billion.  For the year, the Company anticipates same-store sales will increase 4.0% to 4.5% compared to its previous expectation of an increase of 2.5% to 3.5%.  The Company now anticipates annual net income to range from $2.09 to $2.13 per diluted share compared to its previous guidance of $2.00 to $2.05, which reflects a two-for-one stock split.

Mr. Wright concluded, "In 2010, we have demonstrated our ability to grow and improve the business while driving shareholder value.  With the right strategies, capital structure and talent in place, we are increasingly confident in our outlook for fiscal 2010 and continuing to build on our momentum for the long-term."

Conference Call Information

Tractor Supply Company will be hosting a conference call at 5:00 p.m. Eastern Time today to discuss the quarterly results.  The call will be broadcast simultaneously over the Internet on the Company's homepage at TractorSupply.com and can be accessed under the link "Investor Relations."  The webcast will be archived shortly after the conference call concludes through November 3, 2010.

About Tractor Supply Company

At September 25, 2010, Tractor Supply Company operated 976 stores in 44 states.  The Company's stores are focused on supplying the lifestyle needs of recreational farmers and ranchers.  The Company also serves the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses.  Stores are located in towns outlying major metropolitan markets and in rural communities.  The Company offers the following comprehensive selection of merchandise: (1) equine, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware and seasonal products, including lawn and garden power equipment; (3) truck, towing and tool products; (4) work/recreational clothing and footwear for the entire family; (5) maintenance products for agricultural and rural use; and (6) home décor, candy, snack food and toys.

Forward Looking Statements:

As with any business, all phases of the Company's operations are subject to influences outside its control.  This information contains certain forward-looking statements, including statements regarding estimated results of operations in future periods.  These forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company's quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company's operations.  These factors include general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the mix of goods sold,  purchase price volatility (including inflationary and deflationary pressures), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations and negotiate favorable lease agreements on new and relocated stores, the ability to manage expenses, the availability of favorable credit sources, capital market conditions in general, failure to open new stores in the manner currently contemplated, the impact of new stores on our business, competition, weather conditions, the seasonal nature of our business, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified employees, product liability and other claims, on-going and potential legal or regulatory proceedings, management of our information systems, effective tax rate changes and results of examination by taxing authorities and the ability to maintain an effective system of internal control over financial reporting.  Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements.  Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.  There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

(Financial tables to follow)

Consolidated Statements of Income

(Unaudited)

(in thousands, except per share amounts)

THIRD QUARTER ENDED

NINE MONTHS ENDED

September 25, 2010

September 26, 2009

September 25, 2010

September 26, 2009

% of

% of

% of

% of

Sales

Sales

Sales

Sales

Net sales

$  829,114

100.0%

$  747,730

100.0%

$ 2,605,687

100.0%

$ 2,344,405

100.0%

Cost of merchandise sold

549,975

66.3

501,692

67.1

1,738,861

66.7

1,595,133

68.0

   Gross margin

279,139

33.7

246,038

32.9

866,826

33.3

749,272

32.0

Selling, general and administrative expenses

210,779

25.4

193,820

25.9

627,913

24.1

575,239

24.5

Depreciation and amortization

17,502

2.1

16,421

2.2

51,313

2.0

48,757

2.1

Income from operations

50,858

6.2

35,797

4.8

187,600

7.2

125,276

5.4

Interest expense, net

38

0.0

461

0.1

597

0.0

1,139

0.1

Income before income taxes

50,820

6.2

35,336

4.7

187,003

7.2

124,137

5.3

Income tax expense

18,803

2.3

13,357

1.8

69,191

2.7

46,924

2.0

Net income

32,017

3.9%

21,979

2.9%

117,812

4.5%

77,213

3.3%

Net income per share:

   Basic

$  0.44

$  0.30

$  1.62

$  1.07

   Diluted

$  0.43

$  0.30

$  1.58

$  1.06

Weighted average shares outstanding (000's):

   Basic

72,600

72,068

72,525

71,909

   Diluted

74,932

73,422

74,536

73,181

Consolidated Balance Sheets

(Unaudited)

(in thousands)

September 25,

2010

September 26,

2009*

ASSETS

Current assets:

   Cash and cash equivalents

$    170,920

$      94,871

   Short-term investments

15,913

--

   Inventories

758,683

703,989

   Prepaid expenses and other current assets

50,570

40,433

   Deferred income taxes

15,584

11,361

       Total current assets

1,011,670

850,654

Property and equipment, net

385,223

362,741

Goodwill

10,258

10,258

Deferred income taxes

13,210

13,185

Other assets

7,697

5,259

TOTAL ASSETS

$  1,428,058

$  1,242,097

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

   Accounts payable

$  348,610

$  356,822

   Accrued employee compensation

30,041

21,138

   Other accrued expenses

104,164

84,664

   Current portion of capital lease obligations

344

414

       Total current liabilities

483,159

463,038

Revolving credit loan

--

--

Capital lease obligations

1,151

1,534

Deferred rent

67,567

60,832

Other long-term liabilities

29,838

23,152

   Total liabilities

581,715

548,556

Stockholders' equity:

   Common stock

628

618

   Additional paid-in capital

224,113

184,727

   Treasury stock

(242,096)

(214,690)

   Retained earnings

863,698

722,886

       Total stockholders' equity

846,343

693,541

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$  1,428,058

$  1,242,097

* Accrued employee compensation, other accrued expenses, deferred rent, other long-term liabilities, common stock and additional paid-in capital have been reclassified to conform to the current period presentation.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

NINE MONTHS ENDED

September 25,

2010

September 26,

2009*

Cash flows from operating activities:

 Net income

$     117,812

$    77,213

 Adjustments to reconcile net income to net cash provided by operating activities:

   Depreciation and amortization

51,313

48,757

   Loss on sale of property and equipment

632

165

   Stock compensation expense

8,754

9,159

   Deferred income taxes

206

(9,143)

   Change in assets and liabilities:

       Inventories

(157,434)

(100,554)

       Prepaid expenses and other current assets

(8,253)

3,029

       Accounts payable

75,402

69,994

       Accrued expenses

10,785

4,696

       Income taxes payable

(7,605)

(1,554)

       Other

2,905

9,262

       Net cash provided by operating activities

94,517

111,024

Cash flows from investing activities:

 Capital expenditures

(67,086)

(49,435)

 Proceeds from sale of property and equipment

292

44

 Purchases of short-term investments

(15,913)

--

       Net cash used in investing activities

(82,707)

(49,391)

Cash flows from financing activities:

 Borrowings under revolving credit agreement

--

274,033

 Repayments under revolving credit agreement

--

(274,033)

 Tax benefit of stock options exercised

6,993

2,924

 Principal payments under capital lease obligations

(304)

(399)

 Restricted stock units withheld to satisfy tax obligations

(657)

--

 Repurchase of common stock

(22,892)

(10,775)

 Net proceeds from issuance of common stock

18,372

4,499

 Cash dividends paid to stockholders

(15,253)

--

       Net cash used in financing activities

(13,741)

(3,751)

Net (decrease) increase in cash and equivalents

(1,931)

57,882

Cash and cash equivalents at beginning of period

172,851

36,989

Cash and cash equivalents at end of period

$  170,920

$  94,871

Supplemental disclosures of cash flow information:

Cash paid during the period for:

   Interest

$        128

$      776

   Income taxes

76,381

53,312

*  Reclassified to conform to the current period presentation.

Selected Financial and Operating Information

THIRD QUARTER

ENDED

NINE MONTHS

ENDED

September 25,

2010

September 26,

2009

September 25,

2010

September 26,

2009

(Unaudited)

(Unaudited)

Sales Information:

Same-store sales increase (decrease)

5.0%

(5.1)%

4.8%

(1.7)%

Non-comp sales (% of total sales)

5.3%

6.8%

5.7%

7.4%

Average transaction value

$    39.75

$   40.14

$    41.35

$    42.00

Comp average transaction value decrease

(1.3)%

(10.4)%

(1.9)%

(6.7)%

Comp average transaction count increase

6.3%

5.9%

6.8%

5.4%

Store Count Information:

 Beginning of period

967

895

930

855

   New stores opened

9

17

47

58

   Stores closed

--

--

(1)

(1)

End of period

976

912

976

912

   Relocated stores

--

1

--

2

Pre-opening costs (000's)

$    1,551

$   1,873

$    5,220

$    6,246

LIFO provision (000's) (a)

$  (3,451)

$   1,896

$       (78)

$    8,433

Balance Sheet Information:

Average inventory per store (000's) (b)

$    795.9

$   820.1

$    795.9

$    820.1

Inventory turns (annualized)

2.82

2.70

2.98

2.82

Financed inventory (b)

38.6%

44.9%

38.6%

44.9%

Share repurchase program:

 Cost (000's)

$    9,196

$      915

$  22,892

$  10,775

  Average purchase price per share (c)

$    33.64

$   23.57

$    31.87

$    16.78

(a) The 2010 LIFO credit is based on a projected annual provision of approximately $(189,000) for fiscal 2010.

(b) Assumes average inventory cost, excluding inventory in transit.

(c) Reflects a split effected purchase price.

SOURCE Tractor Supply Company



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