Tractor Supply’s Margin Performance and DuPont Analysis



Margin performance

Tractor Supply Company (TSCO) grew its gross margin by 60 basis points from 34.1% a year ago. Its management indicated that the margin expansion occurred due to strong price management tools and reduced diesel prices around the globe. This had a positive impact on the cost of freight by around six basis points. The EBITDA (earnings before interest, tax, depreciation, and amortization) margin stood at 11.5%. This is a rise of 40 basis points compared to 3Q14. Let’s look at how the margins have been in the past.

Tractor Supply’s peers like Willaims-Sonoma (WSM), Lowe’s (LOW), and Bed Bath & Beyond (BBBY) had EBITDA margins of 11.1%, 13.4%, and 13.8% in the recent quarter.

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DuPont analysis

The company’s ROE (return on equity) in 3Q15 was impressive at 32.0%. When it’s dissected with the help of the DuPont tool, it reveals that the net income margin rose by 29 basis points above the margin in 2Q14 to 5.9%. This is way above the industry average of 4.9%. The asset turnover has been revolving around the 2.7x mark. The industry average is 2.7. The financial leverage rose to 1.73 from 1.69 in 3Q14 due to the rise in the debt from $150 million to $190 million. It leveraged the returns to the equity holders while keeping the interest coverage ratio above the industry average.

The SPDR S&P Retail ETF (XRT) has exposure of around 1.1% in Tractor Supply.


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