Tractor Supply (TSCO) In Red: What's Weighing On The Stock?

Tractor Supply Company (NASDAQ:TSCO) stock has been trading low following its second quarter 2016 comparable store sales (comps) update and the soft outlook provided on Jun 29. While the dismal second quarter comps performance is not new to Tractor Supply due to the seasonal nature of its business, the markets hurt this farm and ranch store retailer and the stock trades down 2.8% since the news.

Tractor Supply’s business is highly seasonal, with sales and profits usually escalating in the spring and winter selling seasons on the back of demand for its merchandise offering. Unseasonable weather, heavy precipitation, drought conditions and early or late frosts may have a material impact on the company’s financial condition and operational results.

This was well manifested in the company’s second quarter comps performance as it dropped 0.5% against a 5.6% rise recorded in the year-ago period. Comps fell owing to an unusually cold weather that largely impacted the sale of spring season products, especially in North and Midwest regions. However, net sales in the quarter advanced 4.5% year over year to $1.85 billion. Also, comparable store transaction count marked its 33rd consecutive quarter of growth, rising 1.5% in the second quarter.

While weather normalized in Jun, the company is skeptical of sales shift to the third quarter. Due to this uncertainty and disappointing second quarter sales performance, management lowered its sales, comps and earnings outlook for 2016. Also, it provided a bleak gross margin and SG&A expense view. Gross margin is also expected to contract in 2016, bearing the brunt of an unfavorable product mix and higher transport costs.

However, Tractor Supply is progressing well with its growth plans, which include store expansion and technological advancements. Further, the company’s sustained focus on expanding its core business in key markets, along with efficient inventory management, remain considerable growth drivers.

While there are positives embedded in the stock, the recent drab second quarter comps performance and murky 2016 guidance are the primary concerns for at least the time being. The company currently holds a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the same industry include Cabela's Incorporated (NYSE:CAB) , The Michaels Companies Inc. (NASDAQ:MIK) and ULTA Salon, Cosmetics & Fragrance Inc. (NASDAQ:ULTA) , each holding a Zacks Rank #2 (Buy).