Tractor Supply Company 2021 Form 10-K Summary
Business context and reporting period
Tractor Supply Company is a U.S. rural-lifestyle retailer operating one reportable segment. It sells livestock, pet, hardware, tool, truck, seasonal, clothing, footwear, and agricultural products through Tractor Supply, Del’s Feed & Farm Supply, Petsense, e-commerce websites, and its mobile application.
The filing covers the 52-week fiscal year ended December 25, 2021, with comparison to the 52-week fiscal year ended December 26, 2020. At year-end, the Company operated 2,181 stores in 49 states, including 2,003 Tractor Supply and Del’s stores and 178 Petsense stores.
Financial performance and key metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Net sales | $12.731 billion | $10.620 billion | +19.9% |
| Comparable store sales | +16.9% | +23.1% | Decelerated |
| Gross profit | $4.477 billion | $3.762 billion | +19.0% |
| Gross margin | 35.2% | 35.4% | -25 basis points |
| Operating income | $1.307 billion | $996.9 million | +31.1% |
| Operating margin | 10.3% | 9.4% | +88 basis points |
| Net income | $997.1 million | $749.0 million | +33.1% |
| Diluted EPS | $8.61 | $6.38 | +34.9% |
| Effective tax rate | 22.1% | 22.6% | Decreased |
Sales growth reflected strong demand across categories, geographies, and channels, continued customer focus on homes, land, and animals during the COVID-19 pandemic, new-customer acquisition, increased spending by existing customers, and double-digit e-commerce growth. Transaction value increased 9.8% and transaction count increased 7.1% on a comparable-store basis.
Gross margin was pressured by product-cost inflation, higher transportation and fuel costs, and mix shift toward lower-margin consumable, usable, and edible products. Price management and limited promotional and clearance activity offset a substantial portion of those pressures. SG&A leverage improved as a percentage of sales, although wage rates, additional labor hours, and strategic investments increased expenses. COVID-19 response costs declined to $63.3 million from $117.1 million in 2020.
Cash flow, liquidity, debt, and capital allocation
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Cash provided by operating activities | $1.139 billion | $1.395 billion |
| Cash used in investing activities | $627.3 million | $292.2 million |
| Capital expenditures | $628.4 million | $294.0 million |
| Cash used in financing activities | $975.1 million | Cash provided of $155.2 million |
| Cash and cash equivalents at year-end | $878.0 million | $1.342 billion |
| Working capital | $1.186 billion | $1.515 billion |
Operating cash flow decreased primarily because of increased inventory and timing of payments and accruals, partially offset by higher net income. Inventory increased to $2.191 billion from $1.783 billion, reflecting higher average inventory per store, inflation, strong sales trends, and new-store growth.
Total outstanding borrowings were $1.000 billion, or $986.4 million net of unamortized debt costs. Debt consisted of $650 million of 1.75% senior notes due 2030, $150 million of 3.70% senior notes due 2029, and a $200 million term loan due 2023. The Company had no revolving credit borrowings, $52.9 million of outstanding letters of credit, and a $500 million revolving credit facility. It was in compliance with its debt covenants at year-end. Senior unsecured debt ratings were Baa1 with a stable outlook from Moody’s and BBB with a stable outlook from S&P.
The Company repurchased approximately 4.4 million shares for $798.9 million and paid $239.0 million in dividends during fiscal 2021, returning approximately $1.04 billion to stockholders. The Board subsequently increased the share-repurchase authorization to $6.5 billion and declared a quarterly dividend of $0.92 per share payable in March 2022.
Material changes versus the prior comparable period
- Net sales increased 19.9%, while comparable store sales growth moderated from 23.1% to 16.9%.
- Net income and diluted EPS increased substantially, helped by sales growth, SG&A leverage, lower COVID-19 response costs, and the absence of the $74.1 million Petsense-related impairment recorded in 2020.
- Gross margin declined 25 basis points because of inflation, transportation costs, fuel costs, and product mix.
- Operating margin expanded to 10.3% from 9.4%.
- Capital expenditures more than doubled to $628.4 million, primarily due to store remodels, side-lot improvements, distribution capacity, and growth investments.
- Cash declined by $463.7 million, reflecting higher capital expenditures, share repurchases, dividends, and inventory investment.
- The store base increased by 76 locations net, from 2,105 to 2,181. Tractor Supply opened 80 stores; Petsense opened seven and closed 11.
- No goodwill or indefinite-lived intangible-asset impairment was recorded in 2021, compared with $69.0 million of goodwill and trade-name impairment related to Petsense in 2020.
Guidance, outlook, commentary, risks, and unusual items
Management planned approximately 75 to 80 new Tractor Supply stores and 10 new Petsense stores in fiscal 2022, representing approximately 4% selling-square-footage growth. Planned fiscal 2022 capital expenditures were approximately $625 million to $675 million, including more than 150 store remodels, side-lot improvements at approximately 100 locations, distribution-center investment, and technology and omni-channel initiatives. Planned fiscal 2022 share repurchases were approximately $700 million to $800 million.
The Company expected existing cash, operating cash flow, available debt capacity, leases, and trade credit to fund operations and fiscal 2022 capital requirements. It also planned to complete a roughly 900,000-square-foot distribution center in Navarre, Ohio, in fall 2022, and begin construction of a similarly sized facility in Maumelle, Arkansas, targeted for completion in late 2023.
The proposed acquisition of Orscheln Farm and Home, announced for approximately $320 million in cash and involving 167 stores, remained subject to regulatory clearance and customary closing conditions as described in the filing.
Key risks include normalization after pandemic-related demand benefits, COVID-19 effects, supply-chain disruption, merchandise and transportation inflation, tariffs, labor availability and wage costs, weather and seasonality, competition including online retailers, execution of store and distribution expansion, acquisition integration, cybersecurity and privacy incidents, technology implementation, self-insurance claims, litigation, tax examinations, environmental compliance, and access to capital markets. The Company self-insures significant workers’ compensation and general liability exposures; workers’ compensation reserves were $67.1 million and general liability reserves were $41.3 million at year-end.
A derivative stockholder lawsuit concerning diversity and inclusion disclosures was pending. Management stated that it did not believe the matter would materially affect the financial statements, although the ultimate outcome was not determinable. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Facts investors should verify
- Whether elevated pandemic-related demand and comparable-store sales growth can be sustained after normalization.
- Whether inflation, freight, fuel, tariffs, and product mix continue to pressure gross margin.
- Inventory growth, shrinkage, markdown exposure, and the effect on operating cash flow.
- Execution, cost, and timing of the Navarre and Maumelle distribution centers and the planned store expansion.
- Cash requirements for planned repurchases, dividends, capital expenditures, the Orscheln acquisition, and debt maturities.
- Compliance with debt covenants and the availability of the revolving credit facility.
- Progress in mitigating labor shortages, wage inflation, supply-chain disruption, cybersecurity, and data-privacy risks.
- Resolution and potential financial impact of pending litigation, tax matters, and self-insurance claims.