Tractor Supply reported softer Q3 2024 results, as was expected given inflation that had boosted its average unit retail prices over the past three years is now deflationary. Comparable sales declined -0.2%, with comparable transactions increasing +0.3% and comparable ticket decreasing -0.5%. Placer shows visits per location down -2.5%, with the difference between the increase in comp-transactions and average visits likely explained by new stores and a lower frequency of visit (i.e., less browsing).
Visitors that visited a location at least 3 times in the quarter were roughly flat year-over-year on a per location basis, whereas less frequent visitors were down -3%. CEO Hal Layton said, “Our customer engagement remains strong. The investments we've made in our Neighbor's Club, our world-class loyalty program…continues to see solid growth in customer counts and retention. Our Neighbor's Club comp sales continue to outpace our overall sales growth.” These statements are supported by the noted Placer visits / visitor data. Gross margin was up, but SG&A delevered due to the lower sales. Operating income at $325M remains very healthy. 9-month free cash flow was roughly flat year-over-year at $365M.
Regarding macro trends and traffic Layton said “I think what we're seeing on our comp transactions being muted a bit is very comparable to what's happening in all the rest of retail and I certainly believe as retail moderates back to its normal levels, rising tides will lift all boats. And those of us that continue to have positive comp transactions, we'll continue to see stronger positive comp transactions as that occurs.”
Tractor Supply noted that farm & feed retail industry revenue was down in the quarter (down 3%-4%), but that it had taken share. Tractor Supply’s consumable, usable, and edible products (i.e., feed) were modestly negative, despite increased poundage due to deflation. Equine, livestock, and poultry feed saw mid- to high-single declines in price per pound. Discretionary categories like apparel also experienced declines. By contrast, live-goods, mulches & soils, grilling, wildlife supplies, and big-ticket items like riding mowers were strong.
Part of the lift for these categories is the expanded outdoor garden area and the Project Fusion remodel program. As a reminder, Project Fusion “[o]utfits new stores and retrofits existing Tractor Supply stores with an improved layout for convenient and accessible shopping, including a Customer Service Hub with upgraded digital tools and an expanded assortment of apparel, tools, hardware, pet food, animal feed and more. As part of the initiative, some stores have added a new Garden Center with an expansive assortment of lawn and garden products, while others now offer a self-serve pet wash station or an on-site veterinary clinic.”
What does Placer tell one about Tractor Supply’s business and competition? We look at the past six months and Texas to get a more nuanced understanding of the competitive situation. As shown in the table below, Tractor Supply visitors also visiting a Lowe’s location was roughly flat year-over-year, whereas The Home Depot was down. We suspect that the difference reflects Lowe’s expansion into the feed & farm category in more outer suburb markets as well as the decline in the DIY home improvement market overall.
We see evidence of that DIY decline as visits to Lowe’s locations are down -2.2% in Texas on a per location basis, whereas Home Depot is slightly up due to strength among Pro customers. (Lowe’s DIY business is 50% larger than Home Depot’s on a relative basis.) Dwell time, which is more indicative of the DIY shopper, is down at both Home Depot and Lowe’s; whereas it’s slightly up for Tractor. In terms of feed & farm quasi-competitors, McCoy’s Building Supply is up nicely in visitors, but down as also a shopper of Tractor’s, suggesting that Tractor has lost some sales to McCoy’s. However, as the below table shows, McCoy's is considerably smaller than Tractor Supply. Lowe’s is the one to monitor.
The table below shows the prior and post visitor journey for Tractor Supply visitors to the home improvement, hardware, and farm & farm category, this year versus last year. McCoy’s has the greatest near-competition, with 20.3% of its visits immediately adjacent to another retailer in the category. That has slipped to 18.4% this year, meaning that they likely won more of the “home improvement” shopping trip, either on an absolute or relative basis. By contrast Tractor Supply and Gebo’s are little changed year-over-year. The sharp declines to Lowe’s and Home Depot likely reflect the DIY pullback that we discuss above as well as them winning more of “home improvement” shopping trip for those households engaged in a DIY project. The smaller decrease in Lowe’s pre/post visits to other home improvement retailers relative to Home Depot again points to what we shared above: Lowe’s expansion into the feed & farm category.
