The Company expects gross margin rate for the second quarter 2016 to be down 25 to 30 basis points compared to the prior year’s second quarter rate of 35.3%, with the mix of products and higher transportation costs (net of lower diesel prices) offsetting the favorable impact of the Company’s ongoing gross margin initiatives. Additionally, while the Company had strong expense control, selling, general and administrative expenses as a percent of sales is expected to increase as a result of the lower comparable store sales.
As a result of the above factors, the Company expects net income per diluted share for the second quarter to be between $1.15 and $1.16.
Based upon the preliminary second quarter results, the Company is providing the following updated guidance for the results of operations expected for fiscal 2016:
Greg Sandfort, Chief Executive Officer, stated, “As our preliminary results show, we had a challenging second quarter. While our traffic trends remained positive and the sale of core pet and animal offerings remained strong, we did experience weakness in many of our seasonal and big ticket categories. We tend to look at the business by the half, and following a strong first quarter with an early start to the sale of seasonal merchandise driven by favorable March weather and an early Easter, we saw a reversal in trends with the cooler temperatures throughout much of the country in April and May. As the weather patterns normalized in early June, so did our sales trends, but it was not enough to offset the weakness earlier in the quarter. Traffic trends in the second quarter remained healthy, and our team members in the field, distribution centers and store support center continued to meet our customers’ everyday basic needs.”
Mr. Sandfort continued, “Despite an improved sales trend in June, we do not anticipate a significant shift in seasonal sales into the third quarter. Although we have not experienced a significant change in our customers’ use of credit or a shift in spending to lower cost products which normally would suggest a fundamental change in their purchase behaviors, the lower than expected sales in the second quarter leads us to a more cautious outlook for the business in fiscal 2016.”
The Company provided the following information to offer further insight into the second quarter results:
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At June 25, 2016, Tractor Supply Company operated 1,542 stores in 49 states. The Company’s stores are focused on supplying the lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, livestock, 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 heating, lawn and garden items, power equipment, gifts and toys; (4) work/recreational clothing and footwear; and (5) maintenance products for agricultural and rural use.
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 sales and earnings growth, estimated results of operations, anticipated gross margin, merchandising and strategic initiatives and demand for seasonal products. 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, failure of an acquisition to produce anticipated results, 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, the ability 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 employee or customer data, ongoing and potential future legal or regulatory proceedings, management of our information systems, failure to 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 or updates to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.