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Contrarian Alert: 5 Downgraded Stocks That May Reward Long-Term InvestorsTractor Supply NASDAQ: TSCO said its second-quarter results came in below expectations as unusually weak May trends offset positive comparable sales in April and June, prompting the rural lifestyle retailer to lower its fiscal 2026 outlook, withdraw its long-term financial framework and announce the closure of about 75 underperforming Petsense stores.Chief Executive Officer Hal Lawton said the company’s “underlying business remains healthy,” but that the quarter was pressured by a combination of higher fuel prices during the spring selling season and persistent drought in key southeastern markets. Those factors weighed on discretionary and project-oriented categories, including big-ticket items and hardlines spring goods.
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3 Retail Winners Using Cash Flow to Stay Ahead“Performance in our big ticket categories and hard lines spring goods during May alone reduced our Q2 comp sales by approximately two percentage points,” Lawton said, adding that needs-based businesses remained resilient.
Sales rise, but comparable sales decline Net sales increased approximately 2% to $4.5 billion, driven by new store growth and partly offset by lower comparable store sales. Comparable sales declined approximately 1.5%, reflecting lower transaction counts, modest inflation and softer discretionary demand, particularly in big-ticket categories.
Tractor Supply’s 10% Culling: A Bruise, Not a BreakLawton said consumable, usable and edible categories remained positive during the quarter, while big-ticket sales declined in the mid-single digits, led by softness in spring and summer categories in May. Digital sales posted double-digit growth, supported by deliver-from-store performance, higher traffic and improved conversion.
Chief Financial Officer Kurt Barton said reported gross profit increased 2.6% to $1.68 billion, with gross margin expanding 11 basis points to 37.1%. On an adjusted basis, gross profit rose 3.0% to $1.69 billion, and adjusted gross margin expanded 24 basis points to 37.2% of net sales. Barton said disciplined product cost management and tariff refunds more than offset higher freight expense and investments in the company’s price-value position.
Reported SG&A expense increased 14.4% to $1.22 billion, including a $65.8 million charge tied to the Petsense business and $9.5 million in acquisition costs associated with VIP Petcare. Excluding those items, adjusted SG&A rose 7.3% and deleveraged by approximately 118 basis points as a percentage of sales, largely because of lower comparable sales. Adjusted operating income was $548.3 million, and adjusted diluted earnings per share were $0.81.
Company cuts 2026 outlook Tractor Supply updated its fiscal 2026 guidance to reflect year-to-date performance and expectations for the remainder of the year. The company now expects:
Net sales growth of approximately 2.5% to 3.5%. Comparable store sales in the range of negative 1% to flat. Adjusted operating margin of 8.5% to 8.8%. Adjusted diluted EPS of $1.90 to $2.00. Barton said the company’s base case assumes modest sequential improvement in comparable sales in the second half as recent actions take hold and comparisons ease. However, he said guidance also reflects the possibility that current pressures persist.
For the second half, Barton said gross margin is expected to be below the prior year, with greater pressure in the third quarter than the fourth. Freight costs, including fuel, are expected to remain elevated, while tariff refunds are expected to provide less benefit than they did in the second quarter. The company also plans to open its 11th distribution center early in the fourth quarter, with start-up costs beginning in the third quarter and continuing into the fourth.
Pet strategy remains a focus Lawton said pet performance remains below where the company wants it to be, though trends improved sequentially from the first quarter and Tractor Supply continues to hold share. He said category resets are complete, including more localized assortments, greater exposure to premium nutrition and a stronger exclusive brand portfolio.
The company’s Freshpet rollout was in approximately 250 stores at the end of the second quarter, and Tractor Supply remains on track to expand it to at least 700 stores by year-end. During the question-and-answer portion of the call, Chief Merchant Seth Estep said more than 40% of Freshpet buyers were either new pet food buyers at Tractor Supply or reactivated buyers.
Tractor Supply also completed its acquisition of VIP Petcare during the quarter. Lawton said the acquisition adds relationships with about 1 million pets annually through a network of 2,500 veterinarians across 39 states and helps connect veterinary services, prescriptions and products across physical and digital channels.
The company is also moving to improve its value proposition through its “unbeatable price” campaign, clearer everyday value messaging and targeted promotions. Estep said customer survey results showed a roughly 180-basis-point year-over-year improvement in customers’ price-value perception of Tractor Supply, with sequential improvement in June and stronger results in July.
Petsense closures and capital reallocation Tractor Supply said it will close approximately 75 underperforming Petsense stores following a review of the business. Lawton said in response to an analyst question that those locations have negative four-wall cash flow, and that closing them will allow the company to redeploy capital into the core business.
Lawton said the remaining Petsense business is expected to be “strong” and profitable, while complementing the broader pet ecosystem that includes Allivet and VIP Petcare. He also said Petsense is not directly connected to the core Tractor Supply business and that the closures should not affect the company’s pet re-acceleration efforts in Tractor Supply stores.
The company also said it plans to open approximately 85 to 90 new stores in 2027, compared with a previous expectation of 100 new stores. Lawton said capital will be redeployed toward Project Fusion remodels, store relocations and Final Mile delivery.
Lawton described Project Fusion as one of the company’s most important initiatives to improve the existing store base, citing localization and expanded pet wash as elements contributing to performance. He also said Final Mile delivery remains a strong growth opportunity, with Tractor Supply completing as many Final Mile deliveries in the first half of 2026 as it did in all of 2025.
Long-term framework withdrawn Tractor Supply withdrew the long-term financial framework it introduced at its December 2024 Investor Day. Barton said the prior targets reflected the operating environment and assumptions at that time, but several underlying conditions have changed, including softer farm and ranch markets and pressure across key end markets.
“We no longer believe it is appropriate to anchor investors to the long-term financial algorithm we previously outlined,” Barton said. The company plans to provide an updated long-term framework with its fourth-quarter 2026 earnings announcement.
Despite the revised outlook, Barton said Tractor Supply remains in a strong financial position, with healthy cash flow, a strong balance sheet and financial flexibility. He said share repurchase activity is expected to be toward the high end of the company’s original guidance range of $375 million to $450 million, and that Tractor Supply remains committed to returning capital to shareholders through a growing dividend.
About Tractor Supply (NASDAQ:TSCO)Tractor Supply Company NASDAQ: TSCO is a specialty retailer focused on products for the home, farm, ranch and outdoors. The company operates a network of physical retail locations complemented by an e-commerce platform, offering a one-stop source of supplies and equipment for customers with rural and suburban lifestyles. Its merchandise assortment targets a range of needs, from animal and livestock care to maintenance, outdoor power equipment, and seasonal products.
Product categories include animal feed and supplies, pet products, fencing and fencing supplies, equine equipment, lawn and garden tools, work clothing and footwear, and small agricultural and outdoor power equipment.
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