Rural lifestyle retailer Tractor Supply is revving up its growth plans with a new long-term target of eventually operating 3,000 stores in the U.S. — 200 more stores than previous targets.
The retailer currently has 2,200 locations and will open approximately 70 new stores this year, said John Ordus, Tractor Supply’s EVP and Chief Stores Officer on the company’s Q2 earnings call. New store openings will gradually ramp up over the next few years, with plans for 80 in 2024 and then 90 a year in 2025 and beyond, until the target of 3,000 is met.
“We believe we have a robust, distinct business model in an attractive market,” said Hal Lawton, President and CEO of Tractor Supply in a statement. “We have achieved remarkable growth and market share gains over the last three-plus years, and we remain excited about the many vectors that exist for us to expand our competitive advantages and deliver attractive growth. With significant share opportunity in a total addressable market of more than $180 billion, we have a long growth runway ahead of us as we continue to execute on our ‘Life Out Here’ strategy.”
The company will fund store expansion sin part through an update to its real estate development and management strategy, which will see Tractor Supply begin sale-leasebacks of some of its new stores once development is finished, as well as a handful of the 117 completed stores that it currently owns. The company plans to capture incremental cost savings by owning locations during the store development process, thus enabling a fixed fee model and more control, and then receive a cash influx to fund future stores by selling certain locations and leasing them back.
Taking 2023 as an example, the company expects an after-tax benefit of approximately 20 cents of diluted earnings per share in the second half of the year from the sale-leaseback of 10 to 15 stores, and a similar benefit is anticipated each following year over the near term. Despite this new model, the total number of stores owned by the company is expected to remain relatively consistent over time.
Because of this shift in strategy, capital expenditures for 2023 are now forecast to be in the range of $800 million to $850 million, compared to the previous estimate of $700 million to $775 million, due to implementation of the new store development program, which will be fully funded through the sale of existing company-owned stores. Other capital plans for 2023, in addition to the 70 new stores, include:
- Completing the conversion of all Orscheln Farm and Home stores to Tractor Supply;
- A continuation of the “Project Fusion” remodels;
- The building of a 10th distribution center; and
- The opening of 10 to 15 new Petsense by Tractor Supply stores.
The new Project Fusion store design has already been completed at more than 700 stores and is aimed at enhancing space productivity with improved layout, signage and SKU expansions, as well as offering an improved customer experience with a “more contemporary” design.
In Q2 2023, Tractor Supply saw net sales increase 7.2% year-over-year to $4.18 billion, with comparable store sales increasing 2.5%. The company attributed the comparable store sales growth to the strength of its core year-round merchandise assortment, including “consumable, usable and edible” products, which significantly outpaced the chain average and offset softness in the demand for seasonal goods as well as declines in the purchase of big-ticket items.
“As has been well documented, U.S. consumer spending on goods is moderating,” said Lawton. “Additionally, our business was further impacted by seasonal underperformance, particularly in June. Consequently, our second quarter results, while solid, were below our expectations. Given our first half performance and our view that our customers will continue to be discerning in their spending for the remainder of the year, we are adjusting our full year outlook,” with net sales for fiscal 2023 now expected to be in the range of $14.8 to $14.9 billion, down from the previous projection of $15 to $15.3 billion.