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Tractor Supply Company Reports Fourth Quarter and Full Year 2013 Results

~ Fourth Quarter Earnings per Share Increased 23.6% to $0.68

BRENTWOOD, Tenn., Jan. 29, 2014 /PRNewswire/ -- Tractor Supply Company (NASDAQ: TSCO), the largest retail farm and ranch store chain in the United States, today announced financial results for its fourth quarter and fiscal year ended December 28, 2013. Additionally, the Company provided its initial outlook for fiscal 2014.

Fourth Quarter Results

Net sales increased 10.0% to $1.42 billion from $1.29 billion in the prior year's fourth quarter. Comparable store sales increased 3.5% versus a 4.7% increase in the prior year period. The increase in comparable store sales was driven by continued strong results in key consumable, usable and edible (C.U.E.) products, principally animal- and pet-related merchandise. Seasonal items, predominantly heating and insulated outerwear, also performed well due to the cold weather in the latter part of the quarter.

Gross profit increased 13.0% to $479.7 million from $424.6 million in the prior year's fourth quarter. As a percent of sales, gross margin increased 90 basis points to 33.9% from 33.0% in the prior year period. Gross margin improvement was the result of strong inventory and markdown management, solid retail price management in C.U.E. products and a mix shift to higher margin seasonal product, such as insulated outerwear and footwear. Additionally, the Company was cycling strong sales of lower-margin emergency response products as a result of Hurricane Sandy in the prior year.

Selling, general and administrative expenses, including depreciation and amortization, increased to 23.5% of sales compared to 23.3% of sales in the prior year's fourth quarter. The increase as a percent of sales was primarily attributable to costs related to the relocated Southeast distribution center and a new corporate data center.

Net income for the quarter was $95.9 million, or $0.68 per diluted share, compared to net income of $79.5 million, or $0.55 per diluted share, in the fourth quarter of the prior year. All references to per share amounts reflect a two-for-one stock split that was effective September 26, 2013.

The Company opened 31 new stores in the fourth quarter of 2013 compared to 25 new store openings in the prior year's fourth quarter.

Greg Sandfort, President and Chief Executive Officer, stated, "We are very pleased with our strong fourth quarter and full-year results. The fourth quarter marked our 17th consecutive quarter of positive comparable store sales and our 23rd consecutive quarter of positive comparable transaction counts. In recent years, we have grown our business effectively despite challenging economic environments and volatile weather trends. We believe our results are a function of the balanced approach we take to run our business, through managing sales, margins, expenses and capital investments.

Mr. Sandfort continued, "We are proud of our many achievements over the past year, which included the celebration of the Company's 75th anniversary; our first store openings in Arizona, Nevada and Wyoming; the relocation of our Southeast distribution center; and the Company's recent addition to the S&P 500 Index. Looking ahead, we believe we are well-positioned to continue executing our strategic sales- and margin-enhancing initiatives and investing in the business to drive long-term sustainable growth and shareholder value."

Full Year Results

Net sales increased 10.7% to $5.16 billion from $4.66 billion in fiscal 2012. Comparable store sales increased 4.8% versus a 5.3% increase in fiscal 2012. Gross profit increased 12.0% to $1.75 billion from $1.57 billion and gross margin increased 40 basis points to 34.0% of sales from 33.6% of sales for fiscal 2012.

Selling, general and administrative expenses, including depreciation and amortization, increased 9.7% to $1.24 billion, and improved as a percent of sales to 24.0% compared to 24.2% for fiscal 2012.

Net income increased 18.7% to $328.2 million from $276.5 million and net income per diluted share increased 22.1% to $2.32 from $1.90 for fiscal 2012. All references to per share amounts reflect a two-for-one stock split that was effective September 26, 2013.

During fiscal 2013, the Company opened 102 new stores and closed two stores compared to 93 new store openings and two store closures during fiscal 2012.

Fiscal 2014 Outlook

The Company anticipates net sales for fiscal 2014 will range between $5.62 billion and $5.70 billion, with comparable store sales expected to increase 2.5% to 4.0%. The Company projects fiscal 2014 full year net income to range from $2.54 to $2.62 per diluted share. For the full year, the Company expects capital expenditures to range between $240 million and $250 million, including spending to support 102 to 106 new store openings and construction of the new Store Support Center to open in 2014.

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 TractorSupply.com and can be accessed under the link "Investor Relations." The webcast will be archived shortly after the conference call concludes and will be available through February 12, 2014.

About Tractor Supply Company

At December 28, 2013, Tractor Supply Company operated 1,276 stores in 48 states. The Company's stores are focused on supplying the lifestyle needs of recreational farmers and ranchers. The Company also serves the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, pet and small animal products, including items necessary for their health, care, growth and containment; (2) hardware, truck, towing and tool products; (3) seasonal products, including lawn and garden items, power equipment, gifts and toys; (4) maintenance products for agricultural and rural use; and (5) work/recreational clothing and footwear.

Forward Looking Statements

As with any business, all phases of the Company's operations are subject to influences outside its control. This information contains certain forward-looking statements, including statements regarding estimated results of operations, capital expenditures and new store openings in future periods. These forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company's quarterly financial and accounting procedures, and may be affected by certain risks and uncertainties, any one, or a combination, of which could materially affect the results of the Company's operations. These factors include, without limitation, general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and mix of goods sold, purchase price volatility (including inflationary and deflationary pressures), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations, the ability to successfully manage expenses and execute our key gross margin enhancing initiatives, the availability of favorable credit sources, capital market conditions in general, failure to open new stores in the manner and number currently contemplated, the impact of new stores on our business, competition, weather conditions, the seasonal nature of our business, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified employees, product liability and other claims, changes in federal, state or local regulations, potential judgments, fines, legal fees and other costs, breach of information systems or theft of customer data, ongoing and potential future legal or regulatory proceedings, management of our information systems, failure to secure or develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes and results of examination by taxing authorities, the ability to maintain an effective system of internal control over financial reporting and changes in accounting standards, assumptions and estimates. Forward-looking statements made by or on behalf of the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. There can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

(Financial tables to follow)


Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share amounts)



FOURTH QUARTER ENDED



YEAR ENDED


December 28, 2013


December 29, 2012


December 28, 2013


December 29, 2012




















% of




% of




% of




% of




Sales




Sales




Sales




Sales

Net sales

$

1,415,089



100.0

%


$

1,286,166



100.0

%


$

5,164,784



100.0

%


$

4,664,120



100.0

%

Cost of merchandise sold

935,377



66.1



861,544



67.0



3,411,175



66.0



3,098,066



66.4


Gross profit

479,712



33.9



424,622



33.0



1,753,609



34.0



1,566,054



33.6


















Selling, general and administrative expenses

305,665



21.6



277,251



21.5



1,138,934



22.1



1,040,287



22.3


Depreciation and amortization

26,969



1.9



22,595



1.8



100,025



1.9



88,975



1.9


















Operating income

147,078



10.4



124,776



9.7



514,650



10.0



436,792



9.4


Interest (income) expense, net

(528)





200





557





1,055




















Income before income taxes

147,606



10.4



124,576



9.7



514,093



10.0



435,737



9.4


Income tax expense

51,725



3.7



45,089



3.5



185,859



3.6



159,280



3.4


Net income

$

95,881



6.7

%


$

79,487



6.2

%


$

328,234



6.4

%


$

276,457



6.0

%

















Net income per share:
















Basic (a)

$

0.69





$

0.57





$

2.35





$

1.94




Diluted (a)

$

0.68





$

0.55





$

2.32





$

1.90




















Weighted average shares outstanding:
















Basic (a)

139,749





140,436





139,415





142,184




Diluted (a)

141,829





143,466





141,723





145,514




















Dividends declared per common share outstanding (a)

$

0.13





$

0.10





$

0.49





$

0.36





(a) Share and per share amounts reflect a two-for-one stock split that was effective September 26, 2013.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)



December 28, 2013


December 29, 2012

ASSETS




Current assets:




Cash and cash equivalents

$

142,743



$

138,630


Restricted cash



8,400


Inventories

979,308



908,116


Prepaid expenses and other current assets

57,359



51,808


Deferred income taxes

29,838



23,098


Total current assets

1,209,248



1,130,052






Property and equipment:




Land

73,350



61,522


Buildings and improvements

581,938



511,188


Furniture, fixtures and equipment

408,021



350,224


Computer software and hardware

140,222



109,121


Construction in progress

65,312



37,122



1,268,843



1,069,177


Accumulated depreciation and amortization

(603,911)



(519,179)


Property and equipment, net

664,932



549,998






Goodwill

10,258



10,258


Deferred income taxes

92




Other assets

18,861



16,500






Total assets

$

1,903,391



$

1,706,808






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

316,487



$

320,392


Accrued employee compensation

50,573



48,400


Other accrued expenses

155,615



148,316


Current portion of capital lease obligations

42



38


Income taxes payable

9,424



43,359


Total current liabilities

532,141



560,505






Capital lease obligations, less current maturities

1,200



1,242


Deferred income taxes



1,477


Deferred rent

76,930



76,236


Other long-term liabilities

46,226



42,374


Total liabilities

656,497



681,834






Stockholders' equity:




Common stock

1,331



1,307


Additional paid-in capital

452,668



361,106


Treasury stock

(838,588)



(709,172)


Retained earnings

1,631,483



1,371,733


Total stockholders' equity

1,246,894



1,024,974






Total liabilities and stockholders' equity

$

1,903,391



$

1,706,808


Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)



YEAR ENDED


December 28, 2013


December 29, 2012


Cash flows from operating activities:





Net income

$

328,234



$

276,457



Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization

100,025



88,975



Loss on disposition of property and equipment

35



76



Stock compensation expense

13,893



17,641



Excess tax benefit of stock options exercised

(43,517)



(25,836)



Deferred income taxes

(8,309)



(26,581)



Change in assets and liabilities:





Inventories

(71,192)



(77,297)



Prepaid expenses and other current assets

(5,551)



(80)



Accounts payable

(3,905)



53,983



Accrued employee compensation

2,173



139



Other accrued expenses

9,938



8,828



Income taxes payable

9,582



57,321



Other

2,275



4,676



Net cash provided by operating activities

333,681



378,302



Cash flows from investing activities:





Capital expenditures

(218,200)



(152,924)



Proceeds from sale of property and equipment

477



379



Decrease in restricted cash

8,400



13,470



Net cash used in investing activities

(209,323)



(139,075)



Cash flows from financing activities:





Borrowings under revolving credit agreement

185,000





Repayments under revolving credit agreement

(185,000)





Excess tax benefit of stock options exercised

43,517



25,836



Principal payments under capital lease obligations

(38)



(37)



Repurchase of shares to satisfy tax obligations

(4,142)



(6,821)



Repurchase of common stock

(129,416)



(271,799)



Net proceeds from issuance of common stock

38,318



26,577



Cash dividends paid to stockholders

(68,484)



(51,318)



Net cash used in financing activities

(120,245)



(277,562)



Net increase (decrease) in cash and cash equivalents

4,113



(38,335)



Cash and cash equivalents at beginning of period

138,630



176,965



Cash and cash equivalents at end of period

$

142,743



$

138,630








Supplemental disclosures of cash flow information:





Cash paid during the period for:





Interest

$

780



$

1,219



Income taxes

188,003



128,306



Non-cash accruals for construction in progress

8,258



10,897


*






* The Company changed the presentation of the prior period non-cash accruals for construction in progress to conform to the presentation used in the current period.




Selected Financial and Operating Information

(Unaudited)



FOURTH QUARTER ENDED


YEAR ENDED



December 28,

2013


December 29,

2012


December 28,

2013


December 29,

2012

Sales Information:









Comparable store sales increase


3.5%


4.7%


4.8%


5.3%

New store sales (% of total sales)


6.0%


5.9%


5.4%


5.9%

Average transaction value


$45.50


$46.12


$44.48


$44.40











Comparable store average transaction value (decrease) increase


(1.5)%


1.8%


0.0%


2.0%

Comparable store average transaction count increase


5.1%


2.7%


4.7%


3.0%

Total selling square footage (000's)


20,470


18,893


20,470


18,893











Store Count Information:









Beginning of period


1,245


1,151


1,176


1,085

New stores opened


31


25


102


93

Stores closed




(2)


(2)

End of period


1,276


1,176


1,276


1,176











Pre-opening costs (000's)


$2,013


$1,721


$7,756


$7,124











Balance Sheet Information:









Average inventory per store (000's) (a)


$723.5


$727.4


$723.5


$727.4

Inventory turns (annualized)


3.52


3.57


3.29


3.28

Share repurchase program:









Cost (000's)


$38,816


$107,959


$129,416


$271,799

Average purchase price per share (b)


$72.52


$44.44


$56.59


$44.47











Capital Expenditures (millions):









New and relocated stores and stores not yet opened


$17.6


$16.7


$69.1


$60.4

Corporate and other


15.7


2.2


40.7


13.8

Information technology


7.0


7.8


29.8


28.2

Distribution center capacity and improvements


4.0


6.0


44.9


16.4

Existing stores


9.2


7.0


22.3


22.2

Purchase of previously leased stores


7.9


2.0


11.4


11.9

Total


$61.4


$41.7


$218.2


$152.9


(a) Assumes average inventory cost, excluding inventory in transit.

(b) Per share amounts reflect a two-for-one stock split that was effective September 26, 2013.

SOURCE Tractor Supply Company

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