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TRACTOR SUPPLY COMPANY REPORTS RECORD SALES AND EARNINGS FOR 2Q FY20
Source: Tractor Supply Company news release

Brentwood, Tennessee -- Tractor Supply Company, the largest rural lifestyle retailer in the United States, today reported financial results for its second quarter ended June 27, 2020.

"In a highly dynamic environment, the Tractor Supply team delivered record results for the second quarter. At all levels, our team's dedication to supporting each other and our customers is a true reflection of Tractor Supply's Mission and Values in action," said Hal Lawton, Tractor Supply's President and Chief Executive Officer. "Thank you to all of the Tractor Supply Team Members for their resilience and determination during these trying times. We believe our performance in the second quarter demonstrates the strength of our business and long-term growth potential."

Lawton continued, "As we attract new customers and gain market share, now is the time for us to build on Tractor Supply's Out Here lifestyle assortment and convenient shopping format. Over the last few months, we have successfully rolled out new technology and services such as curbside pickup, same day/next day delivery and our first-ever mobile app. We are excited today to announce our Field Activity Support Team (FAST) and several new technology and service enhancements that are being implemented across the enterprise. Additionally, we are beginning work to transform our side lots and mature stores to improve space productivity, bring our latest merchandising strategies to life and advance our efforts to remain nationally strong while locally relevant. These strategic growth initiatives are guided by our commitment to disciplined financial returns and sustained profitable growth."

Second Quarter 2020 Results

Net sales for the second quarter 2020 increased 35.0% to $3.18 billion from $2.35 billion in the second quarter of 2019. Comparable store sales for the second quarter 2020 increased 30.5% driven by comparable transaction count and comparable average ticket of 14.6% and 15.8%, respectively. The COVID-19 pandemic had a significant impact on consumer demand across all of the Company's major product categories as customers focused on the care of their homes, land and animals. The increase in comparable store sales was driven by unprecedented demand for spring and summer seasonal categories along with exceptional growth in everyday merchandise, including consumable, usable and edible products. All geographic regions of the Company had robust comparable store sales growth. In addition, the Company's e-commerce sales experienced triple-digit sales growth.

Gross profit increased 41.0% to $1.16 billion from $820.7 million in the second quarter of 2019, and gross margin increased 155 basis points to 36.4% from 34.9% in the prior year's second quarter. The increase in gross margin was driven by lower depth and frequency of sales promotions, favorable product mix and lower transportation costs as a percent of net sales.

Selling, general and administrative (SG&A) expenses, including depreciation and amortization, increased 33.0% to $709.1 million from $533.2 million in the second quarter of 2019. As a percent of net sales, SG&A expenses decreased 33 basis points to 22.3% from 22.7% in the prior year's second quarter. The decrease in SG&A as a percent of net sales was primarily attributable to leverage in occupancy and other fixed costs from the increase in comparable store sales. The leverage from these SG&A expenses were partially offset by incremental costs related to the COVID-19 pandemic and increased incentive compensation given the Company's strong performance in the quarter. The Company incurred incremental costs related to the COVID-19 pandemic of approximately $55 million, including appreciation wages for frontline Team Members as well as additional labor hours and supply costs dedicated to cleaning and sanitation as COVID-19 cases increased across the country.

Operating income for the second quarter of 2020 increased 55.7% to $447.8 million compared to $287.6 million in the second quarter of 2019.

The effective income tax rate was 22.9% compared to 22.4% in the prior year's second quarter.

Net income increased 54.5% to $338.7 million from $219.2 million in the second quarter of 2019, and diluted earnings per share increased 61.1% to $2.90 from $1.80 in the prior year's second quarter.

During the second quarter of 2020, the Company opened 18 new Tractor Supply stores and three new Petsense stores and closed three Petsense stores.

First Six Months of Fiscal 2020 Results

Net sales for the first six months of 2020 increased 23.0% to $5.14 billion from $4.18 billion in the first six months of 2019. Comparable store sales increased 19.0% as compared to an increase of 4.0% in the first six months of 2019.

Gross profit increased 26.6% to $1.82 billion from $1.44 billion in the first six months of 2019, and gross margin increased to 35.4% from 34.4% in the first six months of 2019.

SG&A expenses, including depreciation and amortization, increased 20.4% to $1.26 billion from $1.04 billion in the first six months of 2019. As a percent of net sales, SG&A expenses decreased to 24.5% from 25.0% in the first six months of 2019.

The effective income tax rate was 22.7% in the first six months of 2020 compared to 22.3% in the first six months of 2019.

Net income increased 42.7% to $422.5 million from $296.0 million in the first six months of 2019, and diluted earnings per share increased 48.6% to $3.61 from $2.43 in the first six months of 2019.

During the first six months of 2020, the Company opened 38 new Tractor Supply stores and three new Petsense stores and closed one Del's store and three Petsense stores.

Third Quarter 2020 Outlook

The impact that the COVID-19 pandemic will have on the broader economy and the Company's fiscal 2020 results remains uncertain.

Commenting on the Company's outlook, Kurt Barton, Tractor Supply's Chief Financial Officer and Treasurer, said, "Amid an extremely dynamic and uncertain environment, the Tractor Supply team is executing at a very high level. The uncertainties impacting our outlook include but are not limited to: the level of virus control including the duration and degree of quarantine measures and the possibility of a second-wave outbreak; how macroeconomic factors evolve such as funding of additional consumer stimulus and the impact of the crisis on consumer shopping patterns and consumer's income levels; and the incremental costs of doing business as an essential, needs-based retailer in the current environment. Against this backdrop, we are focused on supporting our Team Members, customers and communities and being excellent long-term stewards of the Company."