• by Sarah Mahoney  @mahoney_sarah, October 13, 2023

Tractor Supply Company, a retailer that has enjoyed a long and rosy pandemic orbit, is drifting back to earth. Oppenheimer & Co. has lowered its recommendation of the retailer, which it had previously expected to outperform the market. The new “perform” rating is based on a “potentially pro-longed, post-pandemic sales expansion lull, likely to occur as COVID-related tailwinds gradually abate.”

With moderate prices and bucolic “life out here” positioning, Tractor Supply benefited from multiple consumer trends. The chain captured the same nest-feathering obsession that fueled large gains at Lowe’s and the Home Depot, and the same passion for raising chickens and planting squash that drove record real-estate transactions. But those trends are gradually subsiding, Oppenheimer says.

The Brentwood, Tennessee-based retailer posted a lofty sales gain of 19.9% and a hefty 11.6% jump in 2022. Estimates for the current year are 5.9%, the same level of growth achieved in 2019.

In the longer term, the company still “represents one of the most interesting new unit growth, margin expansion opportunities” within medium-sized retailers, writes Brian Nagel, who follows the company for Oppenheimer.

But in the near term, he expects the company to have smaller sales gains than in the last several years, with less upside potential.

Consumers are returning to “more normalized, less rural lifestyles and activities,” he says and will adjust their consumption accordingly.

That is already showing in “much weaker ticket growth.”

Tractor Supply is scheduled to announce quarterly results next week. Its most recent earnings report said second-quarter sales climbed 7.2% to $4.18 billion, below forecasts, with average transactions gaining just 1.8%.

“As has been well documented, U.S. consumer spending on goods is moderating,” said Hal Lawton, president and chief executive officer, in the announcement. “Additionally, our business was further impacted by seasonal underperformance, particularly in June.” Acknowledging the retailer’s remarkable growth and market share gains over the last three years, he said the company plans to open 90 more stores per year to achieve sales goals.