Good morning. Tractor Supply CFO on the company's pivot to attract new consumers; estimated funding level of pension plans increase; plus, blockbuster earnings push equities higher.
The farm-and-ranch chain Tractor Supply made a strategic pivot this summer, after its executives spent months debating whether inflation and other pressures squeezing their customers would be short-lived.
Ultimately, company leaders concluded those challenges would persist, so they came up with a new plan. Part of that plan included lowering prices, closing pet-specialty stores and scaling back expansion, Jennifer Williams reports in today's Morning Ledger .
Background and context: The decision last month follows consecutive earnings misses and scraps targets set in December 2024, after a five-year run where sales surged 80%. The goals covered everything from targets for store openings to sales figures and margins to 2030, and they were increasingly challenging to meet in the current environment, Chief Financial Officer Kurt Barton told Jennifer.
Key quote: "The business was just not moving in the direction to achieve those long-term financial targets, and it was continuing to be in conflict with our current guidance," he said. The company expects to provide an updated outlook when it reports its fourth-quarter results early next year. Jennifer elaborated on her reporting:
U.S. stores and retailers have been contending with higher inflation, and you reported on an interesting approach by Tractor Supply. What's their new game plan?
Shoppers are hunting for value. Tractor Supply is responding by lowering prices on some of its popular items, including pine shavings for animal bedding and premium pet-food.
The chain is also focusing on its existing stores. This translates to closing some of its underperforming pet-speciality locations and lowering store opening targets. Instead, capital is going toward updating existing stores with new technology, for one, and expanding a service in which Tractor Supply employees deliver items to customers.
The pet food segment of their business was interesting. What struck you about their strategy to address declining pet ownership?
Tractor Supply has been doubling down on its pet business, recently acquiring veterinary services business VIP Petcare and last week announcing an expanded assortment of dog and cat products, as examples. At the same time, pet populations are declining and the space is seeing more competition.
The company is creating a pet ecosystem in which pet owners can do everything from buy dog food and cat toys to wash their pets and consult a veterinarian. Analysts note this convenience helps retain shoppers who face an increasing number of retail choices.
What are some takeaways for other businesses or CFOs?
Retailers are shifting strategies as households spend more judiciously. Barton told me value is one of the more important factors for current shoppers, and the chain is focused on its prices as a result. An interesting aspect of pricing strategies right now is that some companies are using tariff refunds to help offset any investments in prices.
The Week Ahead
Monday
Earnings: Barrick Mining, Ferguson Enterprises, Rocket Lab and Simon Property Group
Tuesday
Earnings: Cardinal Health, Cava Group, CoreWeave, Lumentum and On Holding
The National Federation of Independent Business releases its Small Business Optimism Index for July.
The National Association of Realtors reports existing-home sales for July.
Wednesday
Earnings: Amcor, Brinker International, Cisco Systems, Performance Food Group and StubHub Holdings
The Bureau of Labor Statistics releases the consumer-price index for July.
Thursday
Earnings: Applied Materials, Brookfield, Tapestry and Yeti Holdings
The BLS releases the producer-price index for July.
Friday
The Census Bureau reports retail and food-service sales for July.
The University of Michigan releases its Consumer Sentiment index for August.
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Latest from CFO Journal
The estimated funding level of pension plans sponsored by S&P 1500 companies increased by 2 percentage points in July to 111% as a result of an increase in discount rates slightly offset by a decrease in equity markets, according to consulting firm Mercer LLC. As of the end of July, the plans' estimated aggregate surplus increased by $21 billion, to $160 billion, compared with a $139 billion surplus at the end of June, Mercer said.
"Domestic equity markets were roughly flat month over month, while interest rates sharply rose despite the Fed holding rates steady," said Mercer partner Matt McDaniel. "Ongoing conflicts in the Middle East and lingering inflation concerns contributed to market volatility."
-- Jennifer Williams
What Else Matters to CFOs
Big-name American consumer brands from Kraft Heinz to Colgate-Palmolive are delivering solid growth lately -- outside the U.S.
Major U.S. consumer-staple, food and restaurant companies are seeing substantial increases in overseas revenue, especially in emerging markets, while domestic sales are more lackluster.
For food-and-beverage chains like Starbucks and KFC, overseas markets offer more runway for new stores that can bolster sales. Meanwhile, sales of everyday items from napkins to salad bowls are slowing in the U.S. as American customers, squeezed by inflation and worried about the economy, spend more selectively, company executives say.
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The Big Number
Market cap of China's CXMT, which recently listed its shares in Shanghai and is the most valuable company listed in mainland China, with a market capitalization equivalent to this amount as of Friday.
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The WSJ Leadership Institute's CFO Journal offers corporate leaders and professionals CFO analysis, advice and commentary to make informed decisions. We cover topics including corporate tax, accounting, regulation, capital markets, management and strategy.
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