tsco-20210327

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended			March 27, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from						to

Commission file number 000-23314

TRACTOR SUPPLY COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Delaware

13-3139732

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

5401 Virginia Way, Brentwood, Tennessee 37027

(Address of Principal Executive Offices and Zip Code)

(615) 440-4000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.008 par value

TSCO

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


Class						Outstanding at April 24, 2021
Common Stock, $0.008 par value						115,255,974

TRACTOR SUPPLY COMPANY

INDEX


		Page No.

PART I.	Financial Information	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (unaudited) – March 27, 202 1 , December 26, 2020, and March 28, 2020	3
	Condensed Consolidated Statements of Income (unaudited) – For the Fiscal Three Months Ended March 2 7 , 202 1 and March 28, 20 20	4
	Condensed Consolidated Statements of Comprehensive Income (unaudited) – For the Fiscal Three Months Ended March 2 7 , 202 1 and March 28, 20 20	5
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – For the Fiscal Three Months Ended March 2 7 , 202 1 and March 28, 20 20	6
	Condensed Consolidated Statements of Cash Flows (unaudited) – For the Fiscal Three Months Ended March 2 7 , 202 1 and March 28, 20 20	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II.	Other Information	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signature		28

Page 2

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


	March 27, 2021		December 26, 2020		March 28, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,149,930	$	1,341,756	$	461,473

Inventories	2,084,677		1,783,270		1,905,913
Prepaid expenses and other current assets	146,227		133,659		112,853

Total current assets	3,380,834		3,258,685		2,480,239

Property and equipment, net	1,287,004		1,248,960		1,143,189
Operating lease right-of-use assets	2,589,418		2,423,881		2,228,597
Goodwill and other intangible assets	55,520		55,520		124,492
Deferred income taxes	11,428		31,586		—
Other assets	35,475		30,484		25,888
Total assets	$	7,359,679	$	7,049,116	$	6,002,405

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,181,924	$	976,096	$	887,938
Accrued employee compensation	68,102		119,701		31,146
Other accrued expenses	377,777		324,813		234,460
Current portion of long-term debt	—		—		30,000
Current portion of finance lease liabilities	4,674		4,554		4,172
Current portion of operating lease liabilities	303,222		298,696		281,620
Income taxes payable	40,226		19,938		24,789

Total current liabilities	1,975,925		1,743,798		1,494,125

Long-term debt	984,838		984,324		989,074
Finance lease liabilities, less current portion	31,890		33,096		31,157
Operating lease liabilities, less current portion	2,399,246		2,220,904		2,051,885
Deferred income taxes	—		—		1,796

Other long-term liabilities	115,481		143,154		80,645
Total liabilities	5,507,380		5,125,276		4,648,682

Stockholders’ equity:
Preferred stock	—		—		—
Common stock	1,409		1,401		1,391
Additional paid-in capital	1,154,451		1,095,500		978,837
Treasury stock	(3,610,362)		(3,356,953)		(3,277,215)
Accumulated other comprehensive loss	(1,118)		(3,243)		(5,051)
Retained earnings	4,307,919		4,187,135		3,655,761
Total stockholders’ equity	1,852,299		1,923,840		1,353,723
Total liabilities and stockholders’ equity	$	7,359,679	$	7,049,116	$	6,002,405

Preferred Stock (shares in thousands): $1.00 par value; 40 shares authorized; no shares were issued or outstanding during any period presented.

Common Stock (shares in thousands): $0.008 par value; 400,000 shares authorized at all periods presented. 176,069, 175,128, and 173,888 shares issued; 115,587, 116,246, and 115,592 shares outstanding at March 27, 2021, December 26, 2020, and March 28, 2020, respectively.

Treasury Stock (at cost, shares in thousands): 60,482, 58,882, and 58,296 shares at March 27, 2021, December 26, 2020, and March 28, 2020, respectively.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 3

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	For the Fiscal Three Months Ended
	March 27, 2021		March 28, 2020
Net sales	$	2,792,336	$	1,959,188
Cost of merchandise sold	1,808,556		1,297,939
Gross profit	983,780		661,249
Selling, general and administrative expenses	693,190		497,275
Depreciation and amortization	60,054		51,436
Operating income	230,536		112,538
Interest expense, net	7,221		5,049
Income before income taxes	223,315		107,489
Income tax expense	41,961		23,712
Net income	$	181,354	$	83,777

Net income per share – basic	$	1.56	$	0.72
Net income per share – diluted	$	1.55	$	0.71

Weighted average shares outstanding:
Basic	116,153		116,738
Diluted	117,227		117,432

Dividends declared per common share outstanding	$	0.52	$	0.35

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	For the Fiscal Three Months Ended
	March 27, 2021		March 28, 2020
Net income	$	181,354	$	83,777

Other comprehensive income/(loss):
Change in fair value of interest rate swaps, net of taxes	2,125		(5,250)
Total other comprehensive income/(loss)	2,125		(5,250)
Total comprehensive income	$	183,479	$	78,527

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Treasury Stock		Accum. Other Comp. Income/(Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Dollars
Stockholders’ equity at December 26, 2020	116,246	$	1,401	$	1,095,500	$	(3,356,953)	$	(3,243)	$	4,187,135	$	1,923,840
Common stock issuance under stock award plans & ESPP	941	8		58,700								58,708
Share-based compensation expense				12,318								12,318
Repurchase of shares to satisfy tax obligations				(12,067)								(12,067)
Repurchase of common stock	(1,600)					(253,409)						(253,409)
Cash dividends paid to stockholders										(60,570)		(60,570)
Change in fair value of interest rate swaps, net of taxes								2,125				2,125
Net income										181,354		181,354
Stockholders’ equity at March 27, 2021	115,587	$	1,409	$	1,154,451	$	(3,610,362)	$	(1,118)	$	4,307,919	$	1,852,299


	Common Stock			Additional Paid-in Capital		Treasury Stock		Accum. Other Comp. Income/(Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Dollars
Stockholders’ equity at December 28, 2019	118,165	$	1,389	$	966,698	$	(3,013,996)	$	199	$	3,612,833	$	1,567,123
Common stock issuance under stock award plans & ESPP	280	2		10,601								10,603
Share-based compensation expense				6,945								6,945

Repurchase of shares to satisfy tax obligations				(5,407)								(5,407)
Repurchase of common stock	(2,853)					(263,219)						(263,219)
Cash dividends paid to stockholders										(40,849)		(40,849)
Change in fair value of interest rate swaps, net of taxes								(5,250)				(5,250)
Net income										83,777		83,777
Stockholders’ equity at March 28, 2020	115,592	$	1,391	$	978,837	$	(3,277,215)	$	(5,051)	$	3,655,761	$	1,353,723

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 6

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Fiscal Three Months Ended
	March 27, 2021		March 28, 2020
Cash flows from operating activities:
Net income	$	181,354	$	83,777
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	60,054		51,436
Loss/(gain) on disposition of property and equipment	108		(315)
Share-based compensation expense	12,318		6,945
Deferred income taxes	20,158		1,643
Change in assets and liabilities:
Inventories	(301,407)		(303,132)
Prepaid expenses and other current assets	(12,568)		(11,988)
Accounts payable	205,828		244,902
Accrued employee compensation	(51,599)		(8,609)
Other accrued expenses	55,305		(12,352)
Income taxes	20,288		18,805
Other	(12,722)		12,820
Net cash provided by operating activities	177,117		83,932
Cash flows from investing activities:
Capital expenditures	(100,741)		(29,648)
Proceeds from sale of property and equipment	222		320

Net cash used in investing activities	(100,519)		(29,328)
Cash flows from financing activities:
Borrowings under debt facilities	—		809,000
Repayments under debt facilities	—		(186,500)

Principal payments under finance lease liabilities	(1,086)		(1,000)
Repurchase of shares to satisfy tax obligations	(12,067)		(5,407)
Repurchase of common stock	(253,409)		(263,219)
Net proceeds from issuance of common stock	58,708		10,603
Cash dividends paid to stockholders	(60,570)		(40,849)
Net cash (used in)/provided by financing activities	(268,424)		322,628
Net change in cash and cash equivalents	(191,826)		377,232
Cash and cash equivalents at beginning of period	1,341,756		84,241
Cash and cash equivalents at end of period	$	1,149,930	$	461,473

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	4,216	$	5,781
Income taxes	2,071		1,358

Supplemental disclosures of non-cash activities:
Non-cash accruals for construction in progress	$	10,301	$	7,046
Increase of operating lease assets and liabilities from new or modified leases	238,494		108,872
Increase of finance lease assets and liabilities from new or modified leases	—		1,904

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Index

TRACTOR SUPPLY COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – General:

Nature of Business

Founded in 1938, Tractor Supply Company (the “Company” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company also owns and operates Petsense, LLC (“Petsense”), a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services. At March 27, 2021, the Company operated a total of 2,121 retail stores in 49 states (1,944 Tractor Supply and Del’s retail stores and 177 Petsense retail stores) and also offered an expanded assortment of products through the Tractor Supply Company mobile application and online at TractorSupply.com and Petsense.com.

On February 17, 2021, the Company announced that it has entered into an agreement to acquire all of the outstanding equity interests of Orscheln Farm and Home, LLC, a farm and ranch retailer with 167 retail stores in 11 states, in an all-cash transaction for approximately $320 million. The Company intends to fund the acquisition through cash-on-hand. The acquisition is conditioned on the receipt of regulatory clearance and satisfactory completion of customary closing conditions.

Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the pandemic persists or worsens, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time).

Note 2 – Fair Value of Financial Instruments:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, short-term receivables, trade payables, debt instruments, and interest rate swaps. Due to their short-term nature, the carrying values of cash and cash equivalents, short-term receivables, and trade payables approximate current fair value at each balance sheet date. As described in further detail in Note 5 to the Condensed Consolidated Financial Statements, the Company had $1.00 billion in borrowings under its debt facilities at each of March 27, 2021 and December 26, 2020, and $1.02 billion in borrowings under its debt facilities at March 28, 2020. Based on market interest rates (Level 2 inputs), the carrying value of borrowings in our debt facilities approximates fair value for each period reported. The fair value of the Company’s interest rate swaps is determined based on the present value of expected future cash flows using forward rate curves (a Level 2 input). As described in further detail in Note 6 to the Condensed Consolidated Financial Statements, the fair value of the interest rate swaps, excluding accrued interest, was a net liability of $1.5 million, $4.4 million, and $6.8 million at March 27, 2021, December 26, 2020, and March 28, 2020, respectively.

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Index

Note 3 – Share-Based Compensation:

Share-based compensation includes stock options, restricted stock units, performance-based restricted share units, and certain transactions under our Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized based on grant date fair value of all stock options, restricted stock units, and performance-based restricted share units plus a 15% discount on shares purchased by employees as a part of the ESPP. The discount under the ESPP represents the difference between the purchase date market value and the employee’s purchase price.

There were no significant modifications to the Company’s share-based compensation plans during the fiscal three months ended

March 27, 2021.

For the first quarter of fiscal 2021 and 2020, share-based compensation expense was $12.3 million and $6.9 million, respectively.

Stock Options

The following table summarizes information concerning stock option grants during the first three months of fiscal 2021:


	Fiscal Three Months Ended
	March 27, 2021
Stock options granted	235,607
Weighted average exercise price	$	143.18
Weighted average grant date fair value per option	$	30.13

As of March 27, 2021, total unrecognized compensation expense related to non-vested stock options was approximately $13.4 million with a remaining weighted average expense recognition period of 2.3 years.

Restricted Stock Units and Performance-Based Restricted Share Units

The following table summarizes information concerning restricted stock unit and performance-based restricted share unit grants during the first three months of fiscal 2021:


			Fiscal Three Months Ended
			March 27, 2021
Restricted stock units granted			245,961
Performance-based restricted share units granted

SEC Form 10-Q filed by Tractor Supply Company