tractor supply sunset

A pair of analysts say investors should look to add to their Tractor Supply positions after the retailer’s leaders reported strong second-quarter results but also said gross margins will likely tick down in what remains of 2021.

Tractor Supply CEO Hal Lawton and CFO Kurt Barton on Monday said the Brentwood-based company produced net income of $370 million on sales of $3.60 billion — with comparable-store sales climbing 10.5 percent — in the three months ended June 30. Those numbers were 9 percent and 13 percent, respectively, higher than the marks of the same period of 2020. But Lawton and Barton said they are being somewhat cautious about the second half of the year, primarily because of higher transportation costs.

“We've taken a fairly prudent approach […] We've recognized supply chain disruptions, inflation factors, as well as the holiday season,” Lawton said — while leaving the door wide open to beating his team’s forecasts. “The business is structurally very sound. We have a lot of confidence […] in our back half. And if some of the uncertainties don't play out, we acknowledge there is potentially some upside to the guidance that we've given.”

On a rough day for the stock market as a whole, Tractor Supply shares (Ticker: TSCO) fell more than 4 percent Monday to $180.94. But both Peter Benedict at Robert W. Baird and Zachary Fadem at Wells Fargo told clients that pullback is a buying opportunity. Both analysts say Tractor’s longer-term growth thesis still holds true: The company is drawing more customers who are spending more when they visit and is investing in growth initiatives to prime the pump for more top- and bottom-line growth in coming years. Benedict has a $210 price target for the stock, while Fadem’s is $215.

To wit on the growth runway: Lawton on Monday discussed both the Project Fusion store remodel program — 160 stores have been overhauled so far — and a push to transform many stores’ side lots to sell more goods and be a better outlet for drive-thru pickups of online purchases.

“We are learning a great deal about our customers' appetite for our expanded lawn and garden assortment, and we are even more excited than when we embarked on the initial test pilot,” Lawton said of the latter.

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