Want to start a chicken farm for $30? Look no further, as Tractor Supply has got everything you need. The do it yourself trend brought by the pandemic has greatly benefited the company, here's how they're doing.
Key takeaways on Tractor Supply Co.
- Tractor Supply CO is a hardware chain specializing in farming activities.
- The stock is up 30%-year to date, far above the 17.78% of the S&P 500.
- It went down 4% after results, but this down can mainly be attributed to profit taking as most indicators are in the green.
What is Tractor Supply
Tractor Supply Co is a Tennessee-based hardware chain that sells anything that is used alongside tractors, but not the machine itself. Animal feed and accessories, tractor apparel, farming accessories, or basically anything that goes with the tractor lover lifestyle.
Founded between the Great Depression and the Second World War, in 1938, it is the largest rural lifestyle retailer in the US. Its biggest customers are your farmers and your ranchers. The shop is kind of like Home Depot, but to take care of your fields, not your lawn.
In other terms, Tractor Supply is a bit like the Peloton of farmland, having created a lifestyle brand that focused on the rural community.
Farming supply, great. What makes them different?
What differentiates it from companies like Lowe’s or Home Depot is that it does not target homeowners but instead everyone who’s house is a farm. In their own words, their clients are home, land and livestock owners with above an average income, but below average cost of living.
The company hired experts to work in their stores, with ranching and farming backgrounds to give them credibility. They also host events, partnering with local organizations to host on site events like competitions or pet clinics for cows.
Fun fact: their main profit puppy are chickens. That is right. The starter kit of 10 Brahma chickens is only $30 dollars: all you need to start a chicken farm. Poultry has the highest retention rate than any other products in the company. First you buy the chickens, and then, all you need to tend to the chickens. Then you need snake proof material because you do not want your chickens eaten by snakes, then you need a net to make sure your chickens do not fly away so make sure you have a dedicated net, etc. As you can see many products only come AFTER they sold you the chickens, transforming one small acquisition into a series of upsells.
Last interesting element about the company is its community. TSC generally opens stores in areas that have a high concentration of cattle farmers and has launched a loyalty program called the “Neighbor’s Club” that grows faster than any other loyalty program with over 21 million members. This loyalty program only accounts for two thirds of the company’s sales.
Year’s results and stock price
As we mentioned the “tractor lifestyle” earlier, believing that it is outdated would be a major mistake. On the contrary, it is a booming market. TSC has reported record profits last quarter as the pandemic fueled a boom of do-it-yourself projects. The spring season especially is a key one for tractor supply.
Company executives lifted their sales and profit outlooks, estimating a 11%-13% increase vs a 5%-8% previous estimation.
Additionally, the company just announced that they had more customers last quarter as well as more money spent per customer, 370 million in profits up 9% from last year, which was already up 54% from the year before last year. Their earnings per share for the second quarter were of $3.19 vs an expected $2.90. These wins are expected to translate into nearly $8 of earnings per share in 2021, a full $1 above prior forecasts.
Though the stock price has declined on Monday following the news, it can mainly be attributed to profit taking as previous numbers look excellent. Year to date, the stock is up 30%, double the rest of the market. Guess that they can be laughing at Wall Street from a farm in Tennessee.
The second half might be as good for the company, though there is also the risk that with the global reopening and people going back to city lifestyles, the DIY sector might slow down a little. However, farmers and ranchers will always do their jobs, and they are the primary target segment of the company.
While it may sound niche, sometimes, deciding to dominate a smaller segment rather than competing for a smaller piece of the bigger cake can reap higher profits. Just like Peloton is not targeting every person that enjoys sports, TSC’s core customers are not house-owning individuals, but "recreational farmers, ranchers, and all those who enjoy living the rural lifestyle." Sometimes, specialization is the key.