Profits to Be Made in Llama Feed

 | Sep 29, 2011 | 10:00 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




At the beginning of the month I wrote about PetSmart (PETM), a specialty retailer that's yielding big returns. Another retailer that almost nobody talks about, and is growing like crazy, is Tractor Supply (TSCO). Shares of the company, which presented Wednesday at Dana Telsey's fall retail conference, have returned some 1,400% in the last decade.

Tractor Supply is the largest operator of retail farm and ranch stores in the U.S., supplying the needs of recreational farmers and ranchers through 1,043 stores in 44 states. The stores are located in rural communities and near agricultural centers, selling equine, pet and small animal products (39% of revenue); hardware (23%); work clothing (10%); and a wide variety of agricultural products. If you need it for your llama farm, Tractor Supply sells it.

Judging from the company's results, it appears the economy is so bad in parts of America that people must be growing their own food. Tractor Supply's first-half sales were up 13.4% this year on a 7.9% jump in the number of new stores. Same-store sales rose 7% vs. a 4.7% climb last year.

In 2010 sales advanced 13%, and most analysts are expecting 14% bump in 2011. Revenue growth is being driven by the addition of 80 to 85 new stores, as well as increasing same-store sales of 6%. (Historically the company isn't a great comps story. Same-store sales usually grow between 2% and 3%.) The Street expects earnings per share to jump 25% to $2.82 this year, and another 14.5% to $3.23 in 2012.


Tractor Supply is another interesting midcap specialty retailer. The company is able to expand gross and operating margins almost at will, since the vast majority of products it sells are not sold by the competition. (There are not too many places where you can get shampoo for your llamas.) In the most recent quarter, the company was able to post operating margins of 7.72%. Management believes it can easily achieve 8.5% in the near future as it takes action to make the company more profitable.

Furthermore, management believes it can add 73% more stores and has set a long-term goal of 1,800 stores. In the western part of the country, the company only has 26 locations -- and that includes big farm states like California. It has plans to double the number of stores in the Midwest and add 50% more stores to the Northeast. At 23x 2011 EPS estimates, this isn't the stock's first rodeo. It's pricy for a retailer. Personally, I would be more comfortable adding a position in the mid-$50s, which would be closer to 19x estimates. But whether you are looking for a growing midcap retailer or llama feed, Tractor Supply has the goods.

Columnist Conversations

What ISN'T this company doing? Continues to dominate -- nice set of deals unveiled overnight.
The futures are up slightly this morning as traders buy yesterday's junk. As noted in last night's Strategy Se...
Equifax's (EFX) CEO is being replaced today in response to the data breach incident. Trading in the shares ...
TheStreet's Scott Gamm has Jordan Belfort on-camera today. Any questions you may have for the Wolf of Wall Str...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.