Tractor Supply Company (NASDAQ: TSCO), today announced financial results for its third quarter ended September 24, 2016.

Third Quarter Results

Net sales for the third quarter 2016 increased 4.5% to $1.54 billion from $1.48 billion in the third quarter of 2015. Comparable store sales decreased 0.6% versus a 2.9% increase in the prior year's third quarter. Comparable average ticket decreased 1.1% while comparable store transaction counts remained positive with an increase of 0.5%, representing the 34th consecutive quarter of transaction count growth. Comparable store sales were strongest in the West and Southeast regions and weakest in Midwest, South Central and Northeast regions.

As previously reported in the Company's Business Update press release on September 7, 2016, the Company believes that economic conditions in the energy producing and agricultural markets negatively impacted consumer spending primarily in the Midwest and South Central regions. Additionally, lower demand for pre-season cold weather and heating related products negatively impacted sales primarily in the Northeast region. On a category basis, the Company continued to see strong demand for many everyday basic items, with the Livestock and Pet category generating a mid-single digit comparable store sales increase.

Gross profit increased 4.5% to $535.3 million from $512.2 million in the prior year's third quarter, and gross margin remained flat to prior year at 34.7%. The Company's ongoing margin initiatives offset a negative shift in the mix of products sold and the impact of incremental sales driving initiatives. Freight expense did not have a significant impact on the quarter. Lower diesel fuel prices and container costs as well as a reduction in outbound stem miles were offset by higher inbound and outbound costs related to mix and higher lane costs.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 5.4% to $393.3 million from $373.0 million in the prior year period. As a percent of net sales, SG&A increased to 25.5% compared to 25.3% in the third quarter of 2015. The increase as a percentage of net sales was primarily attributable to the decline in comparable store sales and the incremental costs associated with the Company's new distribution facilities. These increases were partially offset by strong expense control and lower year-over-year incentive compensation as a percentage of net sales.

Net income increased 2.4% to $89.4 million from $87.3 million, and diluted earnings per share increased 4.7% to $0.67 from $0.64 in the third quarter of the prior year.

The Company opened 34 new stores and closed one store, a Del's store, in the third quarter of 2016 compared to 30 new store openings and three store closures, two of which were Del's stores, in the prior year period.

Greg Sandfort, Chief Executive Officer, stated, "Our third quarter sales performance was significantly influenced by economic headwinds in our energy and agricultural markets and lower pre-season demand for cold weather and heating products. We do not believe the current trends are the result of significant changes in the competitive landscape or market share. During this more challenging environment, our teams are focused on driving sales and managing controllable items such as inventory and expenses. Over the long-term, we remain focused on enhancing our merchandise offerings, systems, people and processes to better meet the evolving needs of our customers, drive profitable growth and return value to our shareholders."

First Nine Months Results

Net sales increased 6.2% to $4.86 billion from $4.58 billion in the first nine months of 2015. Comparable store sales increased 1.1% versus a 4.7% increase in the first nine months of 2015. Gross profit increased 6.1% to $1.68 billion from $1.58 billion, and gross margin remained flat to prior year at 34.5%.

Selling, general and administrative expenses, including depreciation and amortization, increased 6.7% to $1.2 billion and increased as a percent of sales to 24.3% compared to 24.1% for the first nine months of 2015.

Net income increased 5.0% to $313.5 million from $298.7 million, and diluted earnings per share increased 6.9% to $2.33 from $2.18 for the first nine months of 2015.

The Company opened 92 new stores and closed five stores, all of which were Del's stores, in the first nine months of 2016 compared to 88 new store openings and five store closures, three of which were Del's stores during the first nine months of 2015.

Fiscal 2016 Outlook

As previously stated in the Company's Business Update press release dated September 7, 2016, the Company has updated its guidance for the expected results of operations in fiscal 2016. A summary of the fiscal 2016 outlook is as follows:

         
  Net Sales   $6.70 billion - $6.75 billion  
  Comparable Store Sales   1.0% - 1.7%  
  Net Income   $432 million - $438 million  
  Earnings per Diluted Share   $3.22 - $3.26  
  Capital Expenditures   $235 million - $245 million  
         

Included in this forecast are additional expenses related to the first year of operations for the new Casa Grande, Arizona distribution center. The forecast also considers the impact of the additional 53rd week in fiscal 2016. Anticipated capital expenditures include spending to support 113 new store openings. The Company is not adjusting its outlook for fiscal 2016 as a result of the Petsense acquisition as the impact of the transaction, including Petsense's results of operations and acquisition and integration costs, is not expected to have a material impact on operating results for the year.

Conference Call Information

Tractor Supply Company will be hosting a conference call at 5:00 p.m. Eastern Time today to discuss the quarterly results. The call will be broadcast simultaneously over the Internet on the Company's website at IR.TractorSupply.com.

Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast.

A replay of the webcast will also be available at IR.TractorSupply.com shortly after the conference call concludes.

Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)

         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 24, 2016   September 26, 2015   September 24, 2016   September 26, 2015
                                 
        % of       % of       % of       % of
        Sales       Sales       Sales       Sales
Net sales   $ 1,542,706   100.0 %   $ 1,475,645   100.0 %   $ 4,863,037   100.0 %   $ 4,579,897   100.0 %
Cost of merchandise sold     1,007,432   65.3       963,397   65.3       3,184,097   65.5       2,997,724   65.5  
Gross profit     535,274   34.7       512,248   34.7       1,678,940   34.5       1,582,173   34.5  
                                         
Selling, general and administrative expenses     357,592   23.2       342,891   23.2       1,076,180   22.1       1,014,209   22.1  
Depreciation and amortization     35,662   2.3       30,149   2.1       103,296   2.1       90,744   2.0  
                                         
Operating income     142,020   9.2       139,208   9.4       499,464   10.3       477,220   10.4  
Interest expense, net     1,110   0.1       782   -       4,145   0.1       2,480   -  
                                         
Income before income taxes     140,910   9.1       138,426   9.4       495,319   10.2       474,740   10.4  
Income tax expense     51,466   3.3       51,114   3.5       181,782   3.7       176,057   3.9  
Net income   $ 89,444   5.8 %   $ 87,312   5.9 %   $ 313,537   6.5 %   $ 298,683   6.5 %
                                         
Net income per share:                                        
  Basic   $ 0.67       $ 0.64       $ 2.35       $ 2.20    
  Diluted   $ 0.67       $ 0.64       $ 2.33       $ 2.18    
                                         
Weighted average shares outstanding:                                        
  Basic     133,392         135,525         133,529         135,997    
  Diluted     134,256         136,741         134,509         137,292    
                                         
Dividends declared per common share outstanding   $ 0.24       $ 0.20       $ 0.68       $ 0.56    
                                         
                                         

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)

         
    THIRD QUARTER ENDED   NINE MONTHS ENDED
    September 24, 2016   September 26, 2015   September 24, 2016   September 26, 2015
         
Net income   $ 89,444   $ 87,312   $ 313,537     $ 298,683
                         
Other comprehensive income (loss):                        
  Change in fair value of interest rate swap, net of taxes     251     -     (1,111 )     -
Total other comprehensive income (loss)     251     -     (1,111 )     -
Total comprehensive income   $ 89,695   $ 87,312   $ 312,426     $ 298,683
                           
                           

Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

       
  September 24, 2016   September 26, 2015
ASSETS      
Current assets:          
  Cash and cash equivalents $ 55,507     $ 51,352  
  Inventories   1,489,934       1,414,562  
  Prepaid expenses and other current assets   67,980       64,822  
  Income taxes receivable   16,335       -  
    Total current assets   1,629,756       1,530,736  
           
Property and equipment:          
  Land   94,362       86,197  
  Buildings and improvements   906,624       750,170