Tractor Supply executives spent months debating whether inflation and other pressures squeezing their customers would be short-lived. This summer, they concluded the challenges would persist and came up with a plan that includes reduced prices, less expansion and lower financial targets.
While shoppers continue to buy everyday necessities like pet food, animal feed and bedding, they are delaying riding lawn mowers, outdoor power equipment and other big-ticket discretionary purchases.
"It only made sense to update our guidance, and then...step away from our long-term framework," Chief Financial Officer Kurt Barton said.
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, according to Barton.
"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.
Tractor Supply executives have watched customer budgets fray for nearly a year. A pullback on discretionary items, from holiday decor to dog treats, that began late last year only deepened in the company's latest quarter, particularly in May.
The double blow of drought and high fuel costs is especially stretching farm and ranch and rural economies, which account for roughly 40% of Tractor Supply's addressable market and tend to rely on diesel trucks to cover long distances to stores. Meanwhile, pet care and home improvement, which each make up around 20% of its end market, are constrained by shrinking pet ownership and low housing turnover. As a result, the retailer's customer traffic and store transactions have fallen below executives' expectations, squeezing sales and profit and knocking roughly 32% off the stock price this year.
Tractor Supply's profit fell more than 16% in the three months ended June 27, to roughly $361 million, compared with a year earlier. While sales climbed 2.3% to $4.54 billion, same-store sales slipped 1.5%.
Shoppers pulled back on certain seasonal and big-ticket purchases in May as the war in Iran pushed average gas prices to a four-year high, hitting Tractor Supply at the peak of its spring selling season. "We certainly saw the consumer for a period of time make decisions that they may not make that purchase this spring season," Barton said. Though June sales rebounded, the company cut its full-year sales outlook, now expecting a rise of 2.5% to 3.5%, down from a prior outlook of up 4% to 6%.
To entice value-driven shoppers, Tractor Supply is offering promotions and lowering prices on popular items, including pine shavings for animal bedding and premium pet-food. The retailer is using tariff refunds to help offset those discounts and absorb elevated freight costs, Barton said, declining to share the amount the company has received.
At the same time, the chain is scaling back expansion to focus on its existing footprint. Tractor Supply is closing roughly 75 underperforming Petsense pet-specialty stores and lowering its 2027 opening target to between 85 and 90 new locations, down from 100. Saved capital will fund upgrades including store remodels, expanded final mile deliveries handled in-house and self-service pet-washes.
The company has to prepare for continued pressure, particularly in its pet business, analysts said. Pet populations are declining and may stay that way while at the same time the space is seeing more competition. Closing some pet-specialty stores, fine-tuning pet-food options and enhancing services for companion animals, all changes in the works, should help, they said.
As will some of Tractor Supply's broader efforts, such as sharper price points, if they are done well, they said. The company's bounce back in June may be a sign the shifts are working. "It's a good proof point," said Spencer Hanus, a senior research analyst at Wolfe Research. "But there is still more work to be done."
Comments