After posting a decline in comparable-store sales in the second half of 2023, Tractor Supply's comparable-store sales increased +1.1% in Q1 2024 due to a substantial improvement in traffic (+573 basis points quarter-over-quarter according to our data), traffic/transaction conversion rate (+50 basis points year-over-year), and comparable ticket (+130 basis points quarter-over-quarter). Unlike most retailers that saw a decline in January visits due to weather, Tractor Supply was up that month (the horses, cows, pigs, and chickens got to eat). Tractor Supply CFO Kurt Barton shared, ‘We started out with a very strong January as the month features some spans of brutal cold. While February was warmer than normal and relatively soft, the best way to view the winter season performance is to look at weather categories across January and February combined…We comped positive in March in spite of a limited arrival of spring across our markets. Where this season had turned to spring, we were very pleased with how the business performed. All geographic regions performed in a tight band for the quarter.” However, Tractor Supply CEO Hal Lawton did share, “I think rural America is doing very well right now. We see our highest performance across our store base in rural America right now. If you look at the national statistics, you see more migration coming out of cities than in. And you see that migration going to rural America.” –which lines up with our story last week about smaller format Ace Hardware and Harbor Freight.
Looking forward, given easing inflation and easier multi-year comps, we expect the two- and three-year comparable-store sales CAGRs (below) to improve in the coming quarters. (The improvement in the conversion rate is one of the better foretellers of this.) The press release quotes CEO Hal Lawton saying, “We saw several positive signs in our business during the quarter, including ongoing market share gains, transaction growth, and strength in big-ticket sales.” In terms of the economics, profitability also improved with higher gross and operating margins, and cash generation/flow-through very strong at $100M.
On retail execution and consumer trends, Lawton shared, “Overall, our customer base remains healthy and highly engaged. Total customer count grew mid-single digits with growth in active, new and reactivated customers as we invested in our Neighbor's Club program and customer service. During the quarter, we significantly enhanced our Neighbor's Club offering. With more than 34 million members, Neighbor's Club should continue to build our customers' loyalty and affinity for Tractor Supply as we go forward. Our customer service scores continue to run at all-time highs. This is an area where we have strategically invested in training, compensation, benefits, tools and technology to help elevate our customer service...After nearly two years of pressure on our big-ticket comps, we were pleased to see big ticket categories turn positive in the quarter. We experienced broad-based strength across seasonal categories, including zero-turn tractors, recreational vehicles and outdoor power equipment...as it relates to spring, we saw nice big-ticket ramp in absolute dollars and comps as we exited Q1 2024 and those trends have continued into Q2 2024…”
Lawton continued, “Categories that performed below our comp sales growth were more in our discretionary businesses such as clothing and gifts and truck tool and hardware… In pet food, we've seen growth moderate as the category disinflates and pet ownership moderates.” Our data also shows continued softness for pet specialty visits, despite easing inflation and easier comps.
