The Tractor Supply Company + Real Estate Combo: A Recipe For Superior Returns

Company Overview - Tractor Supply Company (TSCO) is a leading rural lifestyle retailer in the US, operating over 2,400 stores across 49 states, targeting customers such as recreational farm owners, ranchers, and pet owners [8] - The company offers more than 300,000 products, including livestock and equine feed, companion animal products, seasonal and recreational items, and hardware tools [11] - TSCO has a strong loyalty program, the Neighbor's Club, with over 34 million members, and sources 90% of its merchandise from 400 core vendors [5][12] Financial Performance - TSCO's net sales increased by 2.9% in Q1 2024, with comparable store sales rising by 1.1% and online sales growing by double-digits [19] - The company reiterated its 2024 guidance, expecting net sales of $14.7B to $15.1B and comparable store sales growth of -1% to +1.5% [21] - TSCO has a strong balance sheet with a 2024E net leverage ratio of less than 1x EBITDA and an investment-grade rating of BBB [27] Strategic Initiatives - TSCO is expanding its distribution network, with its tenth and largest distribution center in Maumelle, Arkansas, expected to improve store service levels and reduce freight costs [21] - The company uses sale-leaseback deals to free up capital for investments, with plans to continue this strategy for the next 7 to 10 years [29] - TSCO's loyalty program and supply chain advancements highlight its commitment to customer satisfaction and future growth [5] Shareholder Value - TSCO has returned 42% since October 2023 and has a ten-year return of 409%, significantly outperforming the S&P 500 [3][6] - The company has consistently increased its dividend, with a 6.8% hike in Q1 2024, marking its 15th consecutive annual increase [23] - TSCO has bought back more than a fifth of its shares over the past decade, contributing to its impressive stock price performance [25] Market Position and Trends - TSCO benefits from the post-pandemic migration to rural areas, driven by work-from-home opportunities and cost-of-living differences [7] - The company's focus on rural markets provides resilience during economic downturns, with a loyal customer base and steady demand [4] - TSCO's real estate strategy and sale-leaseback deals position it well for growth, with Agree Realty (ADC) being a major beneficiary of its leaseback transactions [29][31] Challenges and Risks - Elevated interest rates and sticky inflation are pressuring consumer-focused corporations, with consumer credit increasing by $240B since pre-pandemic levels [13][14] - Consumer sentiment has worsened, with spending diverging between higher-income and lower-income consumers [15][16] - TSCO's current blended P/E ratio of 27.8x is above its long-term normalized P/E ratio, indicating a potentially lofty valuation [37]