Tractor Supply Earnings Call Balances Headwinds And Growth

Tractor Supply Company ((TSCO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Tractor Supply Balances Q4 Softness With Confident Long-Term Growth Story

Tractor Supply Company’s latest earnings call carried a cautiously optimistic tone, as management acknowledged a softer fourth quarter but leaned heavily on solid full-year results and a robust strategic agenda. Executives highlighted steady sales and earnings growth for the year, expanding gross margin, strong customer engagement and digital performance, and tangible progress across store expansion and new growth initiatives. While Q4 was pressured by promotions, weak discretionary and holiday categories, tariff and delivery costs, and tough storm-related comparisons, management framed most of these as transitory headwinds and reinforced confidence through constructive 2026 guidance.

Full-Year Sales and EPS Growth Underpin the Story

Fiscal 2025 provided a firm foundation for Tractor Supply’s long-term narrative. Net sales increased 4.3% to $15.5 billion, supported by a 1.2% gain in comparable-store sales and ongoing store openings. Full-year diluted EPS came in at $2.06, as the company balanced disciplined execution with continued investment in strategic priorities. While not a blowout year, management emphasized that the business delivered steady growth and protected profitability even as it funded new capabilities and growth platforms aimed at strengthening Tractor Supply’s competitive position in the rural lifestyle market.

Q4 Sales Growth Held Up as Digital Shined

Fourth-quarter performance was more mixed. Net sales rose 3.3% to $3.9 billion and comps edged up 0.3%, with diluted EPS at $0.43. The clear bright spot was digital, where sales grew at a high single-digit rate, providing meaningful support to omnichannel performance. Online and digitally enabled channels are becoming an increasingly important lever for Tractor Supply, both in driving incremental sales and in reinforcing the brand’s convenience proposition for its core rural and suburban customer base.

Customer Engagement and Loyalty Remain a Competitive Moat

Customer metrics were a key highlight. The company grew its identified customer base by roughly 2%, and its Neighbor’s Club loyalty program now accounts for more than 80% of total sales. Customer service scores reached all-time highs, and retention of high-value customers stayed strong. These trends suggest that Tractor Supply is deepening engagement with its most profitable shoppers, building a data-rich loyalty ecosystem that should help sustain traffic and share of wallet even amid macro and category-specific volatility.

Store Expansion and Supply Chain Investments Drive Scale

Tractor Supply continued to expand its physical footprint and improve its logistics backbone. The retailer opened 99 new Tractor Supply stores in 2025, with strong early productivity from these locations. Nearly 60% of the chain is now in the Project Fusion format, and 160 stores were localized to better reflect regional needs. On the supply chain front, distribution centers delivered mid-single-digit productivity improvements, the company opened its first bulk distribution center, and began work on an 11th DC. These moves are designed to support long-term growth, improve in-stock levels, and lower per-unit distribution costs over time.

Direct Sales, Final Mile and Allivet Build New Growth Engines

Management underscored meaningful progress on several strategic growth vectors. The direct-sales initiative—focused on serving more complex and higher-value customers—ended the year with about 50 specialists covering 375 stores, generating over $2 million in December monthly sales and targeting around $50 million in revenue for 2026 as the sales force doubles. Final Mile delivery expanded to 210 delivery centers, reaching roughly 25% of stores, with plans to build out to about 375 hubs and more than 50% store coverage in 2026. Meanwhile, Allivet, the company’s pet and animal prescription business, contributed roughly $100 million in sales, reinforcing Tractor Supply’s push deeper into the growing animal health and pet-care markets.

2026 Guidance and Capital Allocation Signal Confidence

Tractor Supply’s 2026 guidance and capital plans reflected a constructive, though not overly aggressive, outlook. The company expects total sales growth of 4%–6% and comparable-store sales growth of 1%–3%, with diluted EPS in the $2.13–$2.23 range and operating margin between 9.3% and 9.6%. Management anticipates further gross-margin expansion, partly offset by modest SG&A deleverage. Planned net capital spending of $675 million–$725 million includes opening about 100 new stores, roughly half via fee development, alongside $375 million–$450 million in share repurchases. The company will continue to fund digital initiatives and growth projects such as adding over 150 final-mile hubs (targeting coverage of more than 50% of stores and last-mile reach to over 1,200 locations) and doubling the direct-sales team, underscoring a balanced approach between reinvestment and shareholder returns.

Margin Improvement and AI Adoption Support Long-Term Profitability

Despite promotional pressure late in the year, Tractor Supply expanded its full-year gross margin by approximately 16 basis points. Management attributed this to a mix of product, scale, and operational gains, and highlighted the increasing role of technology and AI. The company is deploying enterprise AI tools, including advanced models, to enhance forecasting accuracy, optimize inventory flow, and boost team productivity. Over time, Tractor Supply expects continued gross-margin tailwinds from its exclusive brands, emerging retail media capabilities, and ongoing supply chain efficiencies, suggesting structural profit improvements beyond near-term noise.

Q4 Miss and Promotional Intensity Weigh on Results

The quarter, however, did not meet internal expectations. Management pointed to an elevated promotional environment—especially around Black Friday and Cyber Week—as the single largest driver of the shortfall versus plan. Q4 gross margin fell about 10 basis points year-over-year, with discounting needed to drive traffic and clear seasonal merchandise. This underscores the more competitive retail landscape and the delicate balance retailers face between maintaining price perception and protecting profitability, especially in discretionary categories.

Discretionary Big-Ticket and Holiday Categories Underperform

Weakness in big-ticket and holiday-related categories was a clear drag. Big-ticket items, excluding emergency response products, declined by high single digits in the quarter, and even emergency-response-related big-ticket sales were down by a similar magnitude. Seasonal holiday categories such as decor, toys, dog treats and snacks, and power tools also underperformed expectations. This mix shift reduced units per transaction and highlighted a cautious consumer mindset around non-essential, higher-ticket purchases, a theme echoed across much of retail.

Storm Lapping Creates Regional Comp Headwinds

Weather and storm dynamics also worked against Tractor Supply in 2025. The company lapped a strong hurricane recovery in 2024, while 2025 was historically quiet for hurricanes. Management estimates that this created roughly a 100-basis-point headwind to comparable sales, with the South Atlantic region most affected, where two regions saw mid-single-digit declines. While such factors are inherently volatile and not within management’s control, they contributed to the company’s commentary around quarterly variability and the challenges of forecasting short-term demand.

Expense Growth and Operating Income Pressure

Operating leverage moved the wrong way in the quarter, putting pressure on earnings. SG&A, including depreciation and amortization, rose about 70 basis points as a percentage of sales to 27.5% and increased roughly 6% year-over-year. Nearly two-thirds of that increase was tied to growth investments—new stores and the Allivet acquisition. Even though these expenses are aimed at future returns, they weighed on near-term profitability, leading to a 6.5% decline in operating income versus the prior year. Investors will be watching how quickly these investments translate into stronger earnings growth and margin recovery.

Tariffs, Delivery Costs and Inventory Build Drag on Margins

External cost pressures also played a role. Tariffs and higher delivery-related transportation costs crimped margins and contributed to an increase in inventory levels. Average inventory per store was up about 5%, with roughly one-third of that increase tied to tariffs. Management expects some tariff-related pricing impact to persist, but plans to mitigate the hit through cost actions and operational efficiencies. The interplay between freight, tariffs, and pricing power will remain a key margin watchpoint.

Quarterly Volatility and Near-Term Uncertainty Acknowledged

Management was candid about near-term uncertainty and volatility. They highlighted a wide range of potential demand outcomes for 2026, tougher comparisons in the first quarter, and the meaningful impact that weather and seasonal patterns can have on weekly performance. Calling 2025 “not the year we had planned,” executives nonetheless reiterated their confidence in the long-term strategy and structural growth drivers. The message to investors was clear: expect some choppiness quarter to quarter, but the company believes it is building a stronger, more diversified business for the long haul.

Forward-Looking Guidance Reinforces a Steady Growth Path

The company’s 2026 guidance painted a picture of measured, sustainable expansion rather than aggressive acceleration. Tractor Supply projects total sales growth of 4%–6% and comp growth of 1%–3%, anchored by modest unit growth and expanding customer engagement. Operating margin is expected in the 9.3%–9.6% range, with gross-margin gains more heavily weighted to the back half of the year and partly offset by modest SG&A deleverage. Management anticipates an effective tax rate around 22% and interest expense broadly in line with 2025. On the capital side, the company plans $675 million–$725 million of net capex, roughly 100 new store openings, and share repurchases of $375 million–$450 million, while investing aggressively in digital capabilities, expanding final-mile coverage to more than 50% of stores, and doubling its direct-sales force. Overall, the guidance underscores confidence that the growth and efficiency initiatives underway will translate into steady earnings progression despite macro and category uncertainties.

Tractor Supply’s latest earnings call presented a nuanced picture: a solid full-year performance and clear strategic progress contrasted with a more challenging fourth quarter marked by promotions, category softness, and external cost pressures. Management did not shy away from acknowledging the disappointments and volatility, but emphasized that many of the headwinds are cyclical or transitory, while the company continues to invest behind structural advantages in loyalty, store growth, supply chain, and technology. For investors, the story is one of steady, incremental growth with some near-term noise, backed by disciplined capital allocation and a strategic roadmap that appears built for durability rather than quick wins.