Tractor Supply Company FY2022 Form 10-K Summary
Business context and reporting period
Tractor Supply Company is a U.S. rural-lifestyle retailer operating one reportable segment. As of December 31, 2022, it operated 2,333 stores in 49 states: 2,066 Tractor Supply stores, 186 Petsense stores, and 81 Orscheln Farm and Home stores. The fiscal year ended December 31, 2022 and included 53 weeks, compared with 52 weeks in fiscal 2021.
The Company completed the Orscheln acquisition on October 12, 2022, acquiring 166 stores for approximately $397.7 million and divesting 85 stores for net proceeds of approximately $69.4 million. The remaining 81 Orscheln stores are expected to be rebranded as Tractor Supply stores by the end of fiscal 2023.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $14.205 billion | $12.731 billion | +11.6% |
| Comparable store sales | +6.3% | +16.9% | Decelerated |
| Gross profit | $4.972 billion | $4.477 billion | +11.1% |
| Gross margin | 35.0% | 35.2% | -17 basis points |
| Operating income | $1.435 billion | $1.307 billion | +9.8% |
| Operating margin | 10.1% | 10.3% | -16 basis points |
| Net income | $1.089 billion | $997.1 million | +9.2% |
| Diluted EPS | $9.71 | $8.61 | +12.8% |
| Effective tax rate | 22.5% | 22.1% | +40 basis points |
The additional 53rd week contributed 1.8 percentage points of sales growth and approximately $0.16 of diluted EPS. Comparable-store average transaction value increased 6.9%, while comparable transaction count decreased 0.6%. Livestock and pet products increased to 50% of sales from 47% in the prior year, while hardware, tools and truck products declined to 19% from 21%.
Gross margin was pressured by product-cost inflation, transportation and fuel costs, and a shift toward lower-margin consumable, usable and edible products. Pricing initiatives and other margin actions offset a significant portion of these pressures. SG&A, including depreciation and amortization, increased to $3.54 billion from $3.17 billion; reported SG&A excluding depreciation and amortization remained 24.9% of sales.
Cash flow, liquidity, debt and capital allocation
| Metric | FY2022 | FY2021 |
|---|---|---|
| Cash flow from operating activities | $1.357 billion | $1.139 billion |
| Capital expenditures | $773.4 million | $628.4 million |
| Net cash used in investing activities | $1.094 billion | $627.3 million |
| Net cash used in financing activities | $938.8 million | $975.1 million |
| Cash and cash equivalents at year-end | $202.5 million | $878.0 million |
| Total debt | $1.164 billion | $986.4 million |
| Working capital | $781.6 million | $1.186 billion |
Debt comprised $650 million of 1.75% senior notes, $150 million of 3.70% senior notes and $378 million drawn under the new $1.20 billion unsecured revolving credit facility. The Company was in compliance with its debt covenants at year-end and held investment-grade ratings of Baa1 from Moody’s and BBB from S&P, both with stable outlooks. Approximately 85% of total debt was fixed-rate or hedged at year-end.
The Company returned approximately $1.11 billion to stockholders through $700.1 million of share repurchases and $409.6 million of dividends. It repurchased approximately 3.4 million shares and ended the year with $1.65 billion remaining under its $6.50 billion authorization. The quarterly dividend increased from $0.52 per share in fiscal 2021 to $0.92 in fiscal 2022; a $1.03 per-share dividend was declared for payment in March 2023.
Inventory increased to $2.710 billion from $2.191 billion, reflecting inflation, new-store growth, the Orscheln acquisition and inventory positioning for expected demand. Management stated that existing cash, operating cash flow, debt capacity, leases, trade credit and access to debt markets should fund operations and planned capital needs through the end of fiscal 2023.
Material changes versus the prior comparable period
- Net sales and net income increased, but comparable-store sales growth slowed substantially from fiscal 2021.
- The 53rd fiscal week benefited reported sales and diluted EPS.
- Gross and operating margins declined modestly because of inflation, freight and fuel costs, product mix and growth investments.
- The Company expanded its store base by 152 locations, including 63 new Tractor Supply stores, nine new Petsense stores and 81 Orscheln stores acquired.
- Debt increased by approximately $177.7 million, primarily reflecting borrowings used to finance the Orscheln acquisition and related activity.
- Cash declined by approximately $675.5 million as capital expenditures, the acquisition, dividends and repurchases exceeded operating cash flow and divestiture proceeds.
- No goodwill, indefinite-lived intangible or significant long-lived asset impairment charges were recorded in fiscal 2022.
Guidance, outlook, commentary and risks
For fiscal 2023, management planned approximately 70 new Tractor Supply stores, 10 to 15 new Petsense stores, completion of the Orscheln rebranding, and continued remodeling, garden-center, technology and omni-channel investments. Planned capital expenditures were approximately $700 million to $775 million, and projected share repurchases were approximately $575 million to $675 million.
The Company opened its ninth distribution center in Navarre, Ohio, in January 2023, adding approximately 900,000 square feet of capacity. A new 1.2 million-square-foot distribution center in Maumelle, Arkansas was expected to begin operations in the first quarter of fiscal 2024.
Principal risks include consumer spending and macroeconomic weakness, inflation and commodity costs, interest rates, competition, weather and climate events, supply-chain disruption, labor availability and wage inflation, execution and integration of Orscheln, cybersecurity and technology failures, inventory shrinkage or obsolescence, regulatory and tax matters, litigation, self-insurance estimates, and access to capital markets. The Company also identifies risks related to tariffs and international sourcing.
The audit opinions on the consolidated financial statements and internal control over financial reporting were unqualified. The critical audit matter was workers’ compensation self-insurance reserves, which totaled $74.0 million at year-end and depend on actuarial assumptions and claims-development estimates.
Most important facts for investors to verify
- Assess the sustainability of 6.3% comparable-store sales growth after the benefit of the 53rd week and the unusually strong prior-year comparison.
- Monitor gross-margin recovery or further pressure from inflation, freight, fuel, product mix and tariff exposure.
- Verify successful integration and rebranding of the 81 remaining Orscheln stores, including expected sales and margin contributions.
- Track inventory growth, shrinkage, markdown exposure and working-capital requirements.
- Evaluate leverage, variable-rate borrowings, covenant headroom and liquidity after acquisition spending and shareholder returns.
- Compare fiscal 2023 capital expenditures, new-store openings and distribution-center execution with the stated plans.
- Review the assumptions underlying self-insurance, inventory reserves, vendor funding, goodwill and lease obligations.
- Confirm the continuation and affordability of the dividend and share-repurchase program in light of cash balances and debt levels.