TRACTOR SUPPLY CO /DE/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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March 30, 2019
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission file number
000-23314
TRACTOR SUPPLY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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13-3139732
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or Organization)
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5401 Virginia Way, Brentwood, Tennessee
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37027
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(Address of Principal Executive Offices)
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(Zip Code)
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Not Applicable
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(615) 440-4000
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(Former name, former address and former fiscal year, if changed since last report)
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(Registrant’s Telephone Number, Including Area Code)
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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
þ
NO
o
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
þ
NO
o
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.
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Large accelerated filer
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þ
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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o
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Emerging growth company
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o
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|||
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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
YES
o
NO
þ
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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||
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Common Stock, $0.008 par value
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TSCO
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NASDAQ Global Select Market
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||
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
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Class
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Outstanding at April 27, 2019
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Common Stock, $.008 par value
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120,641,792
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TRACTOR SUPPLY COMPANY
INDEX
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Page No.
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Page
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRACTOR SUPPLY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)
|
March 30,
2019 |
December 29,
2018 |
March 31,
2018 |
|||||||||
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ASSETS
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||||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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102,215
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$
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86,299
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$
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132,398
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||
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Inventories
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1,881,332
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1,589,542
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1,760,065
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|||||
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Prepaid expenses and other current assets
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90,692
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114,447
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86,815
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|||||
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Income taxes receivable
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4,846
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4,111
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4,815
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|||||
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Total current assets
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2,079,085
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1,794,399
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1,984,093
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|||||
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Property and equipment, net
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1,120,869
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1,134,464
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1,050,399
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|||||
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Operating lease right-of-use assets
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2,086,950
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—
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—
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|||||
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Goodwill and other intangible assets
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124,492
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124,492
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124,492
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|||||
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Deferred income taxes
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—
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6,607
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18,585
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|||||
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Other assets
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25,805
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25,300
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30,218
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|||||
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Total assets
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$
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5,437,201
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$
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3,085,262
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$
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3,207,787
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||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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|||||
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Current liabilities:
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|||||
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Accounts payable
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$
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785,068
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$
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619,981
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$
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732,524
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||
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Accrued employee compensation
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28,704
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54,046
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23,274
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|||||
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Other accrued expenses
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204,797
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232,416
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200,053
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|||||
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Current portion of long-term debt
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21,250
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26,250
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25,000
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|||||
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Current portion of finance lease liabilities
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3,683
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3,646
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3,545
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|||||
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Current portion of operating lease liabilities
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260,441
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—
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—
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|||||
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Income taxes payable
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7,991
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1,768
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29,539
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Total current liabilities
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1,311,934
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938,107
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1,013,935
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Long-term debt
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605,695
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381,100
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679,565
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|||||
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Finance lease liabilities, less current portion
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28,336
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29,270
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31,717
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|||||
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Operating lease liabilities, less current portion
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1,929,520
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—
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—
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|||||
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Deferred income taxes
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6,878
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—
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—
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|||||
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Deferred rent
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—
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107,038
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106,542
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|||||
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Other long-term liabilities
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69,262
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67,927
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62,783
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Total liabilities
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3,951,625
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1,523,442
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1,894,542
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Stockholders’ equity:
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|||||
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Preferred stock
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—
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—
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—
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|||||
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Common stock
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1,380
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1,375
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1,364
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Additional paid-in capital
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864,738
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823,413
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728,588
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|||||
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Treasury stock
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(2,635,996
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)
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(2,480,677
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)
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(2,288,364
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)
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|||||
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Accumulated other comprehensive income
|
3,067
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3,814
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5,190
|
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|||||
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Retained earnings
|
3,252,387
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3,213,895
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2,866,467
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|||||
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Total stockholders’ equity
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1,485,576
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1,561,820
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1,313,245
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|||||
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Total liabilities and stockholders’ equity
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$
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5,437,201
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$
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3,085,262
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$
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3,207,787
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||
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)
:
$0.008
par value;
400,000
shares authorized at all periods presented.
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172,457
,
171,887
, and
170,498
shares issued;
120,674
,
121,828
, and
123,059
shares outstanding at
March 30, 2019
,
December 29, 2018
, and
March 31, 2018
, respectively.
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Treasury Stock (at cost, shares in thousands)
:
51,783
,
50,059
, and
47,439
shares at
March 30, 2019
,
December 29, 2018
, and
March 31, 2018
, respectively.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page
3
TRACTOR SUPPLY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
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For the Fiscal Three Months Ended
|
||||||
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March 30,
2019 |
March 31,
2018 |
|||||
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Net sales
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$
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1,822,220
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$
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1,682,901
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Cost of merchandise sold
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1,207,236
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1,119,252
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|||
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Gross profit
|
614,984
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563,649
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|
|||
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Selling, general and administrative expenses
|
465,809
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426,113
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|
|||
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Depreciation and amortization
|
45,767
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42,787
|
|
|||
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Operating income
|
103,408
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|
94,749
|
|
|||
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Interest expense, net
|
4,930
|
|
4,468
|
|
|||
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Income before income taxes
|
98,478
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90,281
|
|
|||
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Income tax expense
|
21,646
|
|
18,848
|
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|||
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Net income
|
$
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76,832
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$
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71,433
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Net income per share – basic
|
$
|
0.63
|
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$
|
0.57
|
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Net income per share – diluted
|
$
|
0.63
|
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$
|
0.57
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|||
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Basic
|
121,211
|
|
124,477
|
|
|||
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Diluted
|
122,152
|
|
125,174
|
|
|||
|
Dividends declared per common share outstanding
|
$
|
0.31
|
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$
|
0.27
|
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|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page
4
TRACTOR SUPPLY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
|
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For the Fiscal Three Months Ended
|
||||||
|
|
March 30,
2019 |
March 31,
2018 |
|||||
|
Net income
|
$
|
76,832
|
|
$
|
71,433
|
|
|
|
Other comprehensive income:
|
|||||||
|
Change in fair value of interest rate swaps, net of taxes
|
(1,464
|
)
|
1,832
|
|
|||
|
Total other comprehensive income
|
(1,464
|
)
|
1,832
|
|
|||
|
Total comprehensive income
|
$
|
75,368
|
|
$
|
73,265
|
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page
5
TRACTOR SUPPLY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
|
|
Common Stock
|
Additional
Paid-in
Capital
|
Treasury
Stock
|
Accum. Other Comp. Income
|
Retained
Earnings
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
|
Shares
|
Dollars
|
|||||||||||||||||||||||||
|
Stockholders’ equity at
December 29, 2018 |
121,828
|
|
$
|
1,375
|
|
$
|
823,413
|
|
$
|
(2,480,677
|
)
|
$
|
3,814
|
|
$
|
3,213,895
|
|
$
|
1,561,820
|
|
||||||
|
Common stock issuance under stock award plans & ESPP
|
570
|
|
5
|
|
34,727
|
|
34,732
|
|
||||||||||||||||||
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Share-based compensation
|
9,624
|
|
9,624
|
|
||||||||||||||||||||||
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Repurchase of shares to satisfy tax obligations
|
(3,026
|
)
|
(3,026
|
)
|
||||||||||||||||||||||
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Repurchase of common stock
|
(1,724
|
)
|
(155,319
|
)
|
(155,319
|
)
|
||||||||||||||||||||
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Dividends paid
|
(37,623
|
)
|
(37,623
|
)
|
||||||||||||||||||||||
|
Change in fair value of interest rate swaps, net of taxes
|
(1,464
|
)
|
(1,464
|
)
|
||||||||||||||||||||||
|
Net income
|
76,832
|
|
76,832
|
|
||||||||||||||||||||||
|
Cumulative adjustment as a result of ASU 2017-12 adoption
|
717
|
|
(717
|
)
|
—
|
|
||||||||||||||||||||
|
Stockholders’ equity at
March 30, 2019 |
120,674
|
|
$
|
1,380
|
|
$
|
864,738
|
|
$
|
(2,635,996
|
)
|
$
|
3,067
|
|
$
|
3,252,387
|
|
$
|
1,485,576
|
|
||||||
|
|
Common Stock
|
Additional
Paid-in
Capital
|
Treasury
Stock
|
Accum. Other Comp. Income
|
Retained
Earnings
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
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Shares
|
Dollars
|
|||||||||||||||||||||||||
|
Stockholders’ equity at
December 30, 2017 |
125,303
|
|
$
|
1,363
|
|
$
|
716,228
|
|
$
|
(2,130,901
|
)
|
$
|
3,358
|
|
$
|
2,828,625
|
|
$
|
1,418,673
|
|
||||||
|
Common stock issuance under stock award plans & ESPP
|
123
|
|
1
|
|
4,362
|
|
4,363
|
|
||||||||||||||||||
|
Share-based compensation
|
8,567
|
|
8,567
|
|
||||||||||||||||||||||
|
Repurchase of shares to satisfy tax obligations
|
(569
|
)
|
(569
|
)
|
||||||||||||||||||||||
|
Repurchase of common stock
|
(2,367
|
)
|
(157,463
|
)
|
(157,463
|
)
|
||||||||||||||||||||
|
Dividends paid
|
(33,591
|
)
|
(33,591
|
)
|
||||||||||||||||||||||
|
Change in fair value of interest rate swaps, net of taxes
|
1,832
|
|
1,832
|
|
||||||||||||||||||||||
|
Net income
|
71,433
|
|
71,433
|
|
||||||||||||||||||||||
|
Stockholders’ equity at
March 31, 2018 |
123,059
|
|
$
|
1,364
|
|
$
|
728,588
|
|
$
|
(2,288,364
|
)
|
$
|
5,190
|
|
$
|
2,866,467
|
|
$
|
1,313,245
|
|
||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page
6
TRACTOR SUPPLY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
For the Fiscal Three Months Ended
|
||||||
|
|
March 30,
2019 |
March 31,
2018 |
|||||
|
Cash flows from operating activities:
|
|
|
|||||
|
Net income
|
$
|
76,832
|
|
$
|
71,433
|
|
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|||||||
|
Depreciation and amortization
|
45,767
|
|
42,787
|
|
|||
|
(Gain) / loss on disposition of property and equipment
|
(224
|
)
|
94
|
|
|||
|
Share-based compensation expense
|
9,624
|
|
8,567
|
|
|||
|
Deferred income taxes
|
13,485
|
|
(91
|
)
|
|||
|
Change in assets and liabilities:
|
|
|
|
|
|||
|
Inventories
|
(291,790
|
)
|
(306,857
|
)
|
|||
|
Prepaid expenses and other current assets
|
23,755
|
|
1,437
|
|
|||
|
Accounts payable
|
165,087
|
|
155,956
|
|
|||
|
Accrued employee compensation
|
(25,342
|
)
|
(8,399
|
)
|
|||
|
Other accrued expenses
|
(31,159
|
)
|
(5,226
|
)
|
|||
|
Income taxes
|
5,488
|
|
18,712
|
|
|||
|
Other
|
(4,547
|
)
|
(276
|
)
|
|||
|
Net cash used in operating activities
|
(13,024
|
)
|
(21,863
|
)
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|||
|
Capital expenditures
|
(28,785
|
)
|
(45,144
|
)
|
|||
|
Proceeds from sale of property and equipment
|
358
|
|
13
|
|
|||
|
Net cash used in investing activities
|
(28,427
|
)
|
(45,131
|
)
|
|||
|
Cash flows from financing activities:
|
|
|
|
|
|||
|
Borrowings under debt facilities
|
385,000
|
|
375,000
|
|
|||
|
Repayments under debt facilities
|
(165,500
|
)
|
(96,250
|
)
|
|||
|
Debt issuance costs
|
—
|
|
(346
|
)
|
|||
|
Principal payments under finance lease liabilities
|
(897
|
)
|
(900
|
)
|
|||
|
Repurchase of shares to satisfy tax obligations
|
(3,026
|
)
|
(569
|
)
|
|||
|
Repurchase of common stock
|
(155,319
|
)
|
(157,463
|
)
|
|||
|
Net proceeds from issuance of common stock
|
34,732
|
|
4,363
|
|
|||
|
Cash dividends paid to stockholders
|
(37,623
|
)
|
(33,591
|
)
|
|||
|
Net cash provided by financing activities
|
57,367
|
|
90,244
|
|
|||
|
Net change in cash and cash equivalents
|
15,916
|
|
23,250
|
|
|||
|
Cash and cash equivalents at beginning of period
|
86,299
|
|
109,148
|
|
|||
|
Cash and cash equivalents at end of period
|
$
|
102,215
|
|
$
|
132,398
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|||
|
Cash paid during the period for:
|
|
|
|
|
|||
|
Interest
|
$
|
6,137
|
|
$
|
2,534
|
|
|
|
Income taxes
|
2,080
|
|
789
|
|
|||
|
Supplemental disclosures of non-cash activities:
|
|||||||
|
Non-cash accruals for construction in progress
|
$
|
6,540
|
|
$
|
12,270
|
|
|
|
Operating lease assets and liabilities recognized upon adoption of ASC 842
|
2,084,880
|
|
—
|
|
|||
|
Increase of operating lease assets and liabilities from new or modified leases
|
64,519
|
|
—
|
|
|||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page
7
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 and ranchers and those who enjoy the rural lifestyle (which we refer to as the “
Out Here
” lifestyle), as well as tradesmen and small businesses. 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 30, 2019
, the Company operated a total of
1,951
retail stores in
49
states (
1,775
Tractor Supply and Del’s retail stores and
176
Petsense retail stores) and also offered an expanded assortment of products online at
TractorSupply.com
and
Petsense.com
.
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 29, 2018
. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
In the first quarter of fiscal 2019, the Company adopted lease accounting guidance as discussed in Note 7 and Note 13 to the Condensed Consolidated Financial Statements. Adoption of the new lease accounting guidance had a material impact to our Condensed Consolidated Balance Sheets and related disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities of approximately
$2.08 billion
as of the date of adoption. This guidance was applied using the optional transition method which allowed the Company to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No adjustment to retained earnings was made as a result of the adoption of this guidance. Consistent with the optional transition method, the financial information in the Condensed Consolidated Balance Sheets prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented. The standard did not materially impact our Condensed Consolidated Statements of Income, Comprehensive Income, Stockholders’ Equity, or Cash Flows. For additional information, including the required disclosures, related to the impact of adopting this standard, see Note 7 and Note 13 to the Condensed Consolidated Financial Statements.
In the first quarter of fiscal 2019, the Company adopted Accounting Standards Update 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” using the modified retrospective transition method. This method allows for a cumulative effect adjustment to retained earnings, as of the effective date in the period of adoption, for previously recorded amounts of hedge ineffectiveness. Upon adoption of the guidance, we recognized a cumulative-effect adjustment of
$0.7
million, from retained earnings to accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures. For additional information on the required disclosures related to the impact of adopting this guidance, see Note 6 and Note 13 to the Condensed Consolidated Financial Statements.
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.
Page
8
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. The Company had
$628.3 million
in borrowings under its debt facilities (as discussed in
Note 5
) at
March 30, 2019
,
$408.8 million
in borrowings at
December 29, 2018
, and
$706.3 million
in borrowings at
March 31, 2018
. 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
, the fair value of the interest rate swaps, excluding accrued interest, was a
$3.9 million
asset at
March 30, 2019
, a
$5.8 million
asset at
December 29, 2018
, and a
$7.6 million
asset at
March 31, 2018
.
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 30, 2019.
For the
first
quarters of fiscal
2019
and
2018
, share-based compensation expense was
$9.6 million
and
$8.6 million
, respectively.
Stock Options
The following table summarizes information concerning stock option grants during the first
three
months of fiscal
2019
:
|
|
Fiscal three months ended
|
||
|
|
March 30, 2019
|
||
|
Stock options granted
|
389,290
|
|
|
|
Weighted average exercise price
|
$
|
89.59
|
|
|
Weighted average grant date fair value per option
|
$
|
20.93
|
|
As of
March 30, 2019
, total unrecognized compensation expense related to non-vested stock options was approximately
$16.5 million
with a remaining weighted average expense recognition period of
1.9
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
2019
:
|
|
Fiscal three months ended
|
||
|
|
March 30, 2019
|
||
|
Restricted stock units granted
|
230,820
|
|
|
|
Performance-based restricted share units granted
(a)
|
56,379
|
|
|
|
Weighted average grant date fair value per share
|
$
|
86.35
|
|
(a) Assumes 100% target level achievement of the relative performance targets.
In fiscal
2019
, the Company granted awards that are subject to the achievement of specified performance goals. The performance metrics for the units are growth in net sales and growth in earnings per diluted share. The number of performance-based restricted share units presented in the foregoing table represent the shares that can be achieved at the performance metric target value. The actual number of shares that will be issued under the performance share awards, which may be higher or lower than the target, will be determined by the level of achievement of the performance goals. If the performance targets are achieved, the units will be issued based on the achievement level and the grant date fair value and will cliff vest in full on the third anniversary of the date of the grant.
Page
9
As of
March 30, 2019
, total unrecognized compensation expense related to non-vested restricted stock units and non-vested performance-based restricted share units was approximately
$33.9 million
with a remaining weighted average expense recognition period of
2.4
years.
Note 4 – Net Income Per Share:
The Company presents both basic and diluted net income per share on the face of the unaudited Condensed Consolidated Statements of Income. Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average diluted shares outstanding during the period. Dilutive shares are computed using the treasury stock method for share-based awards. Performance-based restricted share units are included in diluted shares only if the related performance conditions are considered satisfied as of the end of the reporting period. Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
Fiscal three months ended
|
Fiscal three months ended
|
|||||||||||||||||||
|
March 30, 2019
|
March 31, 2018
|
||||||||||||||||||||
|
|
Income
|
Shares
|
Per Share
Amount |
Income
|
Shares
|
Per Share
Amount |
|||||||||||||||
|
Basic net income per share:
|
$
|
76,832
|
|
121,211
|
|
$
|
0.63
|
|
$
|
71,433
|
|
124,477
|
|
$
|
0.57
|
|
|||||
|
Dilutive effect of share-based awards
|
—
|
|
941
|
|
—
|
|
—
|
|
697
|
|
—
|
|
|||||||||
|
Diluted net income per share:
|
$
|
76,832
|
|
122,152
|
|
$
|
0.63
|
|
$
|
71,433
|
|
125,174
|
|
$
|
0.57
|
|
|||||
Anti-dilutive stock awards excluded from the above calculations totaled approximately
0.3 million
and
3.7 million
shares for the
three
months ended
March 30, 2019
and
March 31, 2018
, respectively.
Note 5
– Debt:
The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
|
March 30,
2019 |
December 29,
2018 |
March 31,
2018 |
||||||||||
|
Senior Notes
|
$
|
150.0
|
|
$
|
150.0
|
|
|
$
|
150.0
|
|
||
|
Senior Credit Facility:
|
|
|||||||||||
|
February 2016 Term Loan
|
155.0
|
|
165.0
|
|
175.0
|
|
||||||
|
June 2017 Term Loan
|
91.3
|
|
93.8
|
|
96.3
|
|
||||||
|
Revolving credit loans
|
232.0
|
|
—
|
|
285.0
|
|
||||||
|
Total outstanding borrowings
|
628.3
|
|
408.8
|
|
706.3
|
|
||||||
|
Less: unamortized debt issuance costs
|
(1.3
|
)
|
(1.4
|
)
|
(1.7
|
)
|
||||||
|
Total debt
|
627.0
|
|
407.4
|
|
704.6
|
|
||||||
|
Less: current portion of long-term debt
|
(21.3
|
)
|
(26.3
|
)
|
(25.0
|
)
|
||||||
|
Long-term debt
|
$
|
605.7
|
|
$
|
381.1
|
|
$
|
679.6
|
|
|||
|
|
||||||||||||
|
Outstanding letters of credit
|
$
|
35.4
|
|
$
|
33.5
|
|
$
|
42.8
|
|
|||
Senior Notes
On August 14, 2017, the Company entered into a note purchase and private shelf agreement (the “Note Purchase Agreement”), pursuant to which the Company agreed to sell
$150 million
aggregate principal amount of senior unsecured notes due
August 14, 2029
(the “2029 Notes”) in a private placement. The 2029 Notes bear interest at
3.70%
per annum with interest payable semi-annually in arrears on each annual and semi-annual anniversary of the issuance date. The obligations under the Note Purchase Agreement are unsecured, but guaranteed by each of the Company’s material subsidiaries.
The Company may from time to time issue and sell additional senior unsecured notes (the “Shelf Notes”) pursuant to the Note Purchase Agreement, in an aggregate principal amount of up to
$150 million
. The Shelf Notes will have a maturity date of no more than
12
years after the date of original issuance and may be issued through
August 14, 2020
, unless earlier terminated in accordance with the terms of the Note Purchase Agreement.
Page
10
Pursuant to the Note Purchase Agreement, the 2029 Notes and any Shelf Notes (collectively, the "Notes") are redeemable by the Company, in whole at any time or in part from time to time, at
100%
of the principal amount of the Notes being redeemed, together with accrued and unpaid interest thereon and a make whole amount calculated by discounting all remaining scheduled payments on the Notes by the yield on the U.S. Treasury security with a maturity equal to the remaining average life of the Notes plus
0.50%
.
Senior Credit Facility
On February 19, 2016, the Company entered into a senior credit facility (the “2016 Senior Credit Facility”) consisting of a
$200 million
term loan (the “February 2016 Term Loan”) and a
$500 million
revolving credit facility (the “Revolver”) with a sublimit of
$50 million
for swingline loans. This agreement is unsecured and matures on February 19, 2022.
On June 15, 2017, pursuant to an accordion feature available under the 2016 Senior Credit Facility, the Company entered into an incremental term loan agreement (the “June 2017 Term Loan”) which increased the term loan capacity under the 2016 Senior Credit Facility by
$100 million
. This agreement is unsecured and matures on
June 15, 2022
.
The February 2016 Term Loan of
$200 million
requires quarterly payments totaling
$10 million
per year in years one and two and
$20 million
per year in years three through the maturity date, with the remaining balance due in full on the maturity date of
February 19, 2022
. The June 2017 Term Loan of
$100 million
requires quarterly payments totaling
$5 million
per year in years one and two and
$10 million
per year in years three through the maturity date, with the remaining balance due in full on the maturity date of
June 15, 2022
. The 2016 Senior Credit Facility also contains a
$500 million
revolving credit facility (with a sublimit of
$50 million
for swingline loans).
Borrowings under the February 2016 Term Loan and Revolver bear interest at either the bank’s base rate (
5.500%
at
March 30, 2019
) or the London Inter-Bank Offer Rate (“LIBOR”) (
2.495%
at
March 30, 2019
) plus an additional amount ranging from
0.500%
to
1.125%
per annum (
0.750%
at
March 30, 2019
), adjusted quarterly based on our leverage ratio. The Company is also required to pay, quarterly in arrears, a commitment fee for unused capacity ranging from
0.075%
to
0.200%
per annum (
0.125%
at
March 30, 2019
), adjusted quarterly based on the Company’s leverage ratio. Borrowings under the June 2017 Term Loan bear interest at either the bank’s base rate (
5.500%
at
March 30, 2019
) or LIBOR (
2.495%
at
March 30, 2019
) plus an additional
1.000%
per annum. As further described in Note 6, the Company has entered into interest rate swap agreements in order to hedge our exposure to variable rate interest payments associated with each of the term loans under the 2016 Senior Credit Facility.
Proceeds from the 2016 Senior Credit Facility may be used for working capital, capital expenditures, dividends, share repurchases and other matters. There are
no
compensating balance requirements associated with the 2016 Senior Credit Facility.
Covenants and Default Provisions of the Debt Agreements
The 2016 Senior Credit Facility and the Note Purchase Agreement (collectively, the “Debt Agreements”) require quarterly compliance with respect to
two
material covenants: a fixed charge coverage ratio and a leverage ratio. Both ratios are calculated on a trailing twelve-month basis at the end of each fiscal quarter. The fixed charge coverage ratio compares earnings before interest, taxes, depreciation, amortization, share-based compensation and rent expense (“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding any straight-line rent adjustments). The fixed charge coverage ratio shall be greater than or equal to
2.00
to 1.0 as of the last day of each fiscal quarter. The leverage ratio compares rental expense (excluding any straight-line rent adjustments) multiplied by a factor of six plus total debt to consolidated EBITDAR. The leverage ratio shall be less than or equal to
4.00
to 1.0 as of the last day of each fiscal quarter. The Debt Agreements also contain certain other restrictions regarding additional indebtedness, capital expenditures, business operations, guarantees, investments, mergers, consolidations and sales of assets, prepayment of debts, transactions with subsidiaries or affiliates, and liens. As of
March 30, 2019
, the Company was in compliance with
all
debt covenants.
The Debt Agreements contain customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events and invalidity of loan documents. Upon certain changes of control, payment under the Debt Agreements could become due and payable. In addition, under the Note Purchase Agreement, upon an event of default or change of control, the make whole payment described above may become due and payable.
The Note Purchase Agreement also requires that, in the event the Company amends its 2016 Senior Credit Facility, or any subsequent credit facility of
$100 million
or greater, such that it contains covenant or default provisions that are not provided in the Note Purchase Agreement or that are similar to those contained in the Note Purchase Agreement but which contain percentages, amounts, formulas or grace periods that are more restrictive than those set forth in the Note Purchase Agreement or are otherwise more
Page
11
beneficial to the lenders thereunder, the Note Purchase Agreement shall be automatically amended to include such additional or amended covenants and/or default provisions.
Note 6
– Interest Rate Swaps:
The Company entered into an interest rate swap agreement which became effective on
March 31, 2016
, with a maturity date of
February 19, 2021
. The notional amount of this swap agreement began at
$197.5 million
(the principal amount of the February 2016 Term Loan borrowings as of March 31, 2016) and will amortize at the same time and in the same amount as the February 2016 Term Loan borrowings as described in Note 5, up to the maturity date of the interest rate swap agreement on February 19, 2021. As of
March 30, 2019
, the notional amount of the interest rate swap was
$155.0 million
.
The Company entered into a second interest rate swap agreement which became effective on
June 30, 2017
, with a maturity date of
June 15, 2022
. The notional amount of this swap agreement began at
$100 million
(the principal amount of the June 2017 Term Loan borrowings as of June 30, 2017) and will amortize at the same time and in the same amount as the June 2017 Term Loan borrowings as described in Note 5. As of
March 30, 2019
, the notional amount of the interest rate swap was
$91.3 million
.
The Company’s interest rate swap agreements are executed for risk management and are not held for trading purposes. The objective of the interest rate swap agreements is to mitigate interest rate risk associated with future changes in interest rates. To accomplish this objective, the interest rate swap agreements are intended to hedge the variable cash flows associated with the variable rate term loan borrowings under the 2016 Senior Credit Facility. Both interest rate swap agreements entitle the Company to receive, at specified intervals, a variable rate of interest based on LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreement, without exchange of the underlying notional amount.
The Company has designated its interest rate swap agreements as cash flow hedges and accounts for the underlying activity in accordance with hedge accounting. The interest rate swaps are presented within the Condensed Consolidated Balance Sheets at fair value. In accordance with hedge accounting, the gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income (“OCI”), net of related income taxes, and reclassified into earnings in the same income statement line and period during which the hedged transactions affect earnings.
As of March 30, 2019, amounts to be reclassified from Accumulated Other Comprehensive Income (“AOCI”) into interest during the next twelve months are not expected to be material. No significant amounts were excluded from the assessment of cash flow hedge effectiveness as of March 30, 2019.
The assets and liabilities measured at fair value related to the Company’s interest rate swaps, excluding accrued interest, were as follows (in thousands):
|
Derivatives Designated
as Cash Flow Hedges
|
Balance Sheet Location
|
March 30,
2019 |
December 29,
2018 |
March 31,
2018 |
||||||||||
|
Interest rate swaps (short-term portion)
|
Other current assets
|
$
|
2,200
|
|
$
|
2,601
|
|
$
|
1,950
|
|
||||
|
Interest rate swaps (long-term portion)
|
Other assets
|
1,676
|
|
3,222
|
|
5,698
|
|
|||||||
|
Total derivative assets
|
$
|
3,876
|
|
$
|
5,823
|
|
$
|
7,648
|
|
|||||
The offset to the interest rate swap asset or liability is recorded as a component of equity, net of deferred taxes, in AOCI, and will be reclassified into earnings over the term of the underlying debt as interest payments are made.
The following table summarizes the changes in AOCI, net of tax, related to the Company’s interest rate swaps (in thousands):
|
March 30,
2019 |
December 29,
2018 |
March 31,
2018 |
||||||||||
|
Beginning fiscal year AOCI balance
|
$
|
3,814
|
|
$
|
3,358
|
|
$
|
3,358
|
|
|||
|
Current fiscal period (loss)/gain recognized in OCI
|
(1,464
|
)
|
456
|
|
1,832
|
|
||||||
|
Cumulative adjustment as a result of ASU 2017-12 adoption
|
717
|
|
—
|
|
—
|
|
||||||
|
Other comprehensive (loss)/gain, net of tax
|
(747
|
)
|
456
|
|
1,832
|
|
||||||
|
Ending fiscal period AOCI balance
|
$
|
3,067
|
|
$
|
3,814
|
|
$
|
5,190
|
|
|||
Cash flows related to the interest rate swaps are included in operating activities on the Condensed Consolidated Statements of Cash Flows.
Page
12
The following table summarizes the impact of pre-tax gains and losses derived from the Company’s interest rate swaps (in thousands):
|
Fiscal three months ended
|
|||||||||
|
Financial Statement Location
|
March 30,
2019 |
March 31,
2018 |
|||||||
|
Amount of (losses)/gains recognized in OCI during the period
|
Other comprehensive income
|
$
|
(1,947
|
)
|
$
|
2,468
|
|
||
The following table summarizes the impact of taxes affecting AOCI as a result of the Company’s interest rate swaps (in thousands):
|
Fiscal three months ended
|
||||||||
|
March 30,
2019 |
March 31,
2018 |
|||||||
|
Income tax (benefit)/expense of interest rate swaps on AOCI
|
$
|
(483
|
)
|
$
|
636
|
|
||
Credit-risk-related contingent features
In accordance with the underlying interest rate swap agreements, the Company could be declared in default on its interest rate swap obligations if repayment of the underlying indebtedness (i.e., the Company’s term loans) is accelerated by the lender due to the Company's default on such indebtedness.
If the Company had breached any of the provisions in the underlying agreements at
March 30, 2019
, it could have been required to post full collateral or settle its obligations under the Company’s interest rate swap agreements. However, as of
March 30, 2019
, the Company had not breached any of these provisions or posted any collateral related to the underlying interest rate swap agreements. Further, as of
March 30, 2019
, the net balance of each of the Company’s interest rate swaps were in a net asset position and therefore the Company would have
no
obligation upon default.
Note 7 – Leases:
The Company leases the majority of its retail store locations, two distribution sites, its Merchandise Innovation Center, and certain equipment under various non-cancellable operating leases. The leases have varying terms and expire at various dates through
2037
. Store leases typically have initial terms of between
10
and
15
years, with
two
to
four
optional renewal periods of
five
years each. The exercise of lease renewal options is at our sole discretion. The Company has included lease renewal options in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Some leases require the payment of contingent rent that is based upon store sales above agreed-upon sales levels for the year and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
In connection with our adoption of the new lease accounting guidance as further discussed in Note 13, we have elected the practical expedient to account for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) together with nonlease components (e.g., fixed payment common-area maintenance) as a single component. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, we used the incremental borrowing rate as of the adoption date.
In addition to the operating lease right-of-use assets presented on the Condensed Consolidated Balance Sheets, assets under finance leases of
$28.9 million
are recorded within the Property and equipment, net line on the Condensed Consolidated Balance Sheets as of
March 30, 2019
.
Page
13
The following table summarizes the Company’s classification of lease cost (in thousands):
|
Fiscal three months ended
|
||||||
|
Statement of Income Location
|
March 30, 2019
|
|||||
|
Finance lease cost:
|
||||||
|
Amortization of lease assets
|
Depreciation and amortization
|
$
|
1,045
|
|
||
|
Interest on lease liabilities
|
Interest expense, net
|
405
|
|
|||
|
Operating lease cost
|
Selling, general and administrative expenses
|
86,221
|
|
|||
|
Net lease cost
|
$
|
87,671
|
|
|||
The following table summarizes the maturity of the Company’s lease liabilities (in thousands):
|
Operating Leases
(a)
|
Finance Leases
|
Total
|
||||||||||
|
2019
|
$
|
264,822
|
|
$
|
3,913
|
|
$
|
268,735
|
|
|||
|
2020
|
339,005
|
|
5,234
|
|
344,239
|
|
||||||
|
2021
|
316,891
|
|
5,294
|
|
322,185
|
|
||||||
|
2022
|
294,032
|
|
4,172
|
|
298,204
|
|
||||||
|
2023
|
269,281
|
|
2,980
|
|
272,261
|
|
||||||
|
After 2023
|
1,209,867
|
|
20,169
|
|
1,230,036
|
|
||||||
|
Total lease payments
|
2,693,898
|
|
41,762
|
|
2,735,660
|
|
||||||
|
Less: Interest
|
(503,937
|
)
|
(9,743
|
)
|
(513,680
|
)
|
||||||
|
Present value of lease liabilities
|
$
|
2,189,961
|
|
$
|
32,019
|
|
$
|
2,221,980
|
|
|||
(a) Operating lease payments exclude $
152.4 million
of legally binding minimum lease payments for leases signed, but not yet commenced.
The following table summarizes the Company’s lease term and discount rate:
|
March 30, 2019
|
|||
|
Weighted-average remaining lease term (years):
|
|||
|
Finance leases
|
9.5
|
|
|
|
Operating leases
|
9.2
|
|
|
|
Weighted-average discount rate:
|
|||
|
Finance leases
|
5.2
|
%
|
|
|
Operating leases
|
4.4
|
%
|
|
The following table summarizes the other information related to the Company’s lease liabilities (in thousands):
|
Fiscal three months ended
|
||||
|
March 30, 2019
|
||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||
|
Financing cash flows from finance leases
|
$
|
897
|
|
|
|
Operating cash flows from finance leases
|
405
|
|
||
|
Operating cash flows from operating leases
|
73,465
|
|
||
Page
14
The Company adopted new lease accounting guidance in the first quarter of fiscal 2019 as discussed in Note 1 and Note 13, and as required, the following disclosure is provided for periods prior to adoption. As of December 29, 2018 future minimum payments, by year and in the aggregate, under leases with initial or remaining terms of one year or more consist of the following (in thousands):
|
Capital
Leases
|
Operating
Leases
|
|||||||
|
2019
|
$
|
5,215
|
|
$
|
344,836
|
|
||
|
2020
|
5,234
|
|
328,589
|
|
||||
|
2021
|
5,294
|
|
306,572
|
|
||||
|
2022
|
4,172
|
|
284,327
|
|
||||
|
2023
|
2,980
|
|
260,518
|
|
||||
|
Thereafter
|
20,169
|
|
1,175,972
|
|
||||
|
Total minimum lease payments
|
43,064
|
|
$
|
2,700,814
|
|
|||
|
Amount representing interest
|
(10,148
|
)
|
|
|
||||
|
Present value of minimum lease payments
|
32,916
|
|
|
|
||||
|
Less: current portion
|
(3,646
|
)
|
|
|
||||
|
Long-term capital lease obligations
|
$
|
29,270
|
|
|
|
|||
Note 8 – Capital Stock and Dividends:
Capital Stock
The authorized capital stock of the Company consists of common stock and preferred stock. The Company is authorized to issue
400 million
shares of common stock. The Company is also authorized to issue
40 thousand
shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.
Dividends
During the first
three
months of fiscal
2019
and
2018
, the Board of Directors declared the following cash dividends:
|
Date Declared
|
Dividend Amount
Per Share |
Record Date
|
Date Paid
|
|||||
|
February 6, 2019
|
$
|
0.31
|
|
February 25, 2019
|
March 12, 2019
|
|||
|
|
|
|
|
|
||||
|
February 7, 2018
|
$
|
0.27
|
|
February 26, 2018
|
March 13, 2018
|
|||
It is the present intention of the Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition and capital needs of the Company, along with any other factors that the Board of Directors deems relevant.
On
May 8, 2019
, the Company’s Board of Directors declared a quarterly cash dividend of
$0.35
per share of the Company’s outstanding common stock. The dividend will be paid on
June 11, 2019
, to stockholders of record as of the close of business on
May 28, 2019
.
Note 9 – Treasury Stock:
The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program. On May 8, 2019, the Board of Directors authorized a
$1.5 billion
increase to the existing share repurchase program, bringing the total amount authorized to
$4.5 billion
, exclusive of any fees, commissions, or other expenses related to such repurchases. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited or terminated at any time without prior notice. As of
March 30, 2019
, the Company had remaining authorization under the share repurchase program of
$364.7 million
, exclusive of any fees, commissions or other expenses.
Page
15
The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the
first
quarters of fiscal
2019
and fiscal
2018
(in thousands, except per share amounts):
|
Fiscal three months ended
|
||||||||
|
March 30,
2019 |
March 31,
2018 |
|||||||
|
Total number of shares repurchased
|
1,724
|
|
2,367
|
|
||||
|
Average price paid per share
|
$
|
90.09
|
|
$
|
66.53
|
|
||
|
Total cash paid for share repurchases
|
$
|
155,319
|
|
$
|
157,463
|
|
||
Note 10 – Income Taxes:
The Company’s effective income tax rate
increased
to
22.0%
in the
first
quarter of fiscal
2019
compared to
20.9%
for the
first
quarter of fiscal
2018
. The primary driver for the increase in the Company’s effective income tax rate was the realization of discrete federal and state credits in the first fiscal quarter of 2018 that did not re-occur in the first fiscal quarter of 2019, partially offset by an incremental tax benefit in the first quarter of fiscal 2019 associated with share-based compensation.
Note 11 – Commitments and Contingencies:
Construction and Real Estate Commitments
At March 30, 2019, there were
no
material commitments related to real estate or construction projects extending greater than twelve months.
Letters of Credit
At
March 30, 2019
, there were
$35.4 million
of outstanding letters of credit under the 2016 Senior Credit Facility.
Litigation
The Company is involved in various litigation matters arising in the ordinary course of business. The Company believes that any estimated loss related to such matters has been adequately provided for in accrued liabilities, to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations, or cash flows.
Note 12
– Segment Reporting:
The Company has
one
reportable segment which is the retail sale of products that support the rural lifestyle. The following table indicates the percentage of net sales represented by each major product category during the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
:
|
|
Fiscal three months ended
|
||||
|
Product Category:
|
March 30,
2019 |
March 31,
2018 |
|||
|
Livestock and Pet
|
52
|
%
|
52
|
%
|
|
|
Hardware, Tools and Truck
|
21
|
|
21
|
|
|
|
Seasonal, Gift and Toy Products
|
17
|
|
16
|
|
|
|
Clothing and Footwear
|
7
|
|
8
|
|
|
|
Agriculture
|
3
|
|
3
|
|
|
|
Total
|
100
|
%
|
100
|
%
|
|
Page
16
Note 13
– New Accounting Pronouncements:
New Accounting Pronouncements Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” This update requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842.” This update permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and that were not accounted for as leases under previous lease guidance. In July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases,” was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02. Furthermore, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. These new leasing standards are effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March of 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” which was issued to provide more detailed guidance and clarification for implementing ASU 2016-02.
The Company adopted this guidance in the first quarter of fiscal 2019 and as a part of that process, made the following elections:
|
•
|
The Company elected the optional transition method which allows for the lessee to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No such adjustment to retained earnings was made as a result of the adoption of this guidance.
|
|
•
|
The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed us to carry forward our prior lease classification under Accounting Standards Codification (“ASC”) Topic 840.
|
|
•
|
The Company did not elect the hindsight practical expedient for all leases.
|
|
•
|
The Company elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term.
|
|
•
|
The Company elected the land easement practical expedient.
|
Adoption of the new standard had a material impact to our Condensed Consolidated Balance Sheets and related disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities of approximately
$2.08 billion
as of the date of adoption. The standard did not materially impact our Condensed Consolidated Statements of Income, Comprehensive Income, Stockholders’ Equity, or Cash Flows.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. This update expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments in ASU 2017-12 provide new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The amendments in ASU 2017-12 require that an entity with cash flow or net investment hedges existing at the date of adoption apply a cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness to the opening balance of retained earnings as of the beginning of the fiscal year in which the entity adopts this guidance. The amended presentation and disclosure guidance should be adopted prospectively. The Company adopted this guidance in the first quarter of fiscal 2019 and recognized a cumulative-effect adjustment of
$0.7
million from retained earnings to accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.
Page
17
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.
In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes” which expands the permissible benchmark interest rates to include the Secured Overnight Financing Rate (SOFR) to be eligible as a U.S. benchmark interest rate for purposes of applying hedge accounting under Topic 815, Derivatives and Hedging. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted if an entity has previously adopted ASU 2017-12. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.
New Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its Condensed Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact that adoption of this guidance will have on its Condensed Consolidated Financial Statements and related disclosures.
Page
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended
December 29, 2018
. This Form 10-Q also contains forward-looking statements and information. The forward-looking statements included herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including sales and earnings growth, estimated results of operations in future periods, the declaration and payment of dividends, future capital expenditures (including their amount and nature), business strategy, expansion and growth of our business operations, and other such matters are forward-looking statements. These forward-looking statements may be affected by certain risks and uncertainties, any one, or a combination of which, could materially affect the results of our operations. To take advantage of the safe harbor provided by the Act, we are identifying certain factors that could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written.
As with any business, many aspects of our operations are subject to influences outside our control. These factors include, without limitation, national, regional, and local 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, including that from online competitors, 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, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, 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. We discuss in greater detail risk factors relating to our business in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 29, 2018
. Forward-looking statements are based on our knowledge of our business and the environment in which we operate, but because of the factors listed above or other factors, 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 there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Seasonality and Weather
Our business is seasonal. Historically, our sales and profits are the highest in the second and fourth fiscal quarters due to the sale of seasonal products. We experience our highest inventory and accounts payable balances during our first fiscal quarter for purchases of seasonal products to support the higher sales volume of the spring selling season, and again during our third fiscal quarter to support the higher sales volume of the cold-weather selling season. We believe that our business can be more accurately assessed by focusing on the performance of the halves, not the quarters, due to the fact that different weather patterns from year-to-year can shift the timing of sales and profits between quarters, particularly between the first and second fiscal quarters and the third and fourth fiscal quarters.
Historically, weather conditions, including unseasonably warm weather in the fall and winter months and unseasonably cool weather in the spring and summer months, have affected the timing and volume of our sales and results of operations. In addition, extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain, and droughts, have impacted operating results both negatively and positively, depending on the severity and length of these conditions. Our strategy is to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends.
Page
19
Comparable Store Metrics
Comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations.
Results of Operations
Fiscal Three Months (
First
Quarter) Ended
March 30, 2019
and
March 31, 2018
Net sales for the
first
quarter of fiscal
2019
increased
8.3%
to
$1.82 billion
from
$1.68 billion
in the
first
quarter of fiscal
2018
. Comparable store sales for the
first
quarter of fiscal
2019
were
$1.77 billion
, a
5.0%
increase
as compared to the
first
quarter of fiscal
2018
. Comparable store sales increased
3.7%
for the
first
quarter of fiscal
2018
.
The comparable store sales results in the
first
quarter of fiscal
2019
included increases in comparable average ticket of
3.2%
and comparable transaction count of
1.8%
. All geographic regions of the Company and all major product categories had positive comparable store sales growth. The increase in comparable store sales was primarily driven by strength in everyday merchandise, including consumable, usable, and edible products, along with strong demand for winter seasonal categories, and to a lesser extent, sales of spring merchandise.
In addition to comparable store sales growth in the
first
quarter of fiscal
2019
, sales from stores open less than one year were
$57.6 million
in the
first
quarter of fiscal
2019
, which represented
3.4
percentage points of the
8.3%
increase over
first
quarter fiscal
2018
net sales. For the
first
quarter of fiscal
2018
, sales from stores open less than one year were
$67.2 million
, which represented a 4.3% increase over
first
quarter fiscal
2017
net sales.
The following table summarizes our store growth for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
:
|
Fiscal three months ended
|
|||||
|
Store Count Information:
|
March 30,
2019 |
March 31,
2018 |
|||
|
Tractor Supply
|
|||||
|
Beginning of period
|
1,765
|
|
1,685
|
|
|
|
New stores opened
|
10
|
|
15
|
|
|
|
Stores closed
|
—
|
|
—
|
|
|
|
End of period
|
1,775
|
|
1,700
|
|
|
|
Petsense
|
|||||
|
Beginning of period
|
175
|
|
168
|
|
|
|
New stores opened
|
1
|
|
4
|
|
|
|
Stores closed
|
—
|
|
—
|
|
|
|
End of period
|
176
|
|
172
|
|
|
|
Consolidated, end of period
|
1,951
|
|
1,872
|
|
|
|
Stores relocated
|
—
|
|
—
|
|
|
Page
20
The following table indicates the percentage of net sales represented by each of our major product categories for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
:
|
Percent of Net Sales
|
||||||
|
|
Fiscal three months ended
|
|||||
|
Product Category:
|
March 30,
2019 |
March 31,
2018 |
||||
|
Livestock and Pet
|
52
|
%
|
52
|
%
|
||
|
Hardware, Tools and Truck
|
21
|
|
21
|
|
||
|
Seasonal, Gift and Toy Products
|
17
|
|
16
|
|
||
|
Clothing and Footwear
|
7
|
|
8
|
|
||
|
Agriculture
|
3
|
|
3
|
|
||
|
Total
|
100
|
%
|
100
|
%
|
||
Gross profit
increased
9.1%
to
$615.0 million
for the
first
quarter of fiscal
2019
from
$563.6 million
for the
first
quarter of fiscal
2018
. As a percent of net sales, gross margin increased 26 basis points to
33.75%
for the
first
quarter of fiscal
2019
from
33.49%
for the
first
quarter of fiscal
2018
. The increase in gross margin was primarily driven by strong sell-through of winter seasonal categories and the strength of the Company’s price management program, partially offset by an increase in transportation costs.
Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization,
increased
9.1%
to
$511.6 million
for the
first
quarter of fiscal
2019
from
$468.9 million
in the
first
quarter of fiscal
2018
. SG&A expenses, as a percent of net sales, increased 21 basis points to
28.07%
in the
first
quarter of fiscal
2019
from
27.86%
in the
first
quarter of fiscal
2018
. The increase in SG&A as a percent of net sales was primarily attributable to incremental costs associated with a new distribution facility in Frankfort, New York, and higher store and field team members’ incentive compensation due to the strong year-over-year performance and, to a lesser extent, investment in store team member wages. These SG&A increases were partially offset by leverage in occupancy and other costs from the increase in comparable store sales.
The effective income tax rate
increased
to
22.0%
in the
first
quarter of fiscal
2019
compared to
20.9%
for the
first
quarter of fiscal
2018
. The primary driver for the increase in the Company’s effective income tax rate was the realization of discrete federal and state credits in the first fiscal quarter of 2018 that did not re-occur in the first fiscal quarter of 2019, partially offset by an incremental tax benefit in the first quarter of fiscal 2019 associated with share-based compensation. The Company expects the full fiscal year 2019 effective tax rate to be in a range between 22.4% and 22.7%.
As a result of the foregoing factors, net income for the
first
quarter of fiscal
2019
increased
7.6%
to
$76.8 million
, or
$0.63
per diluted share, as compared to net income of
$71.4 million
, or
$0.57
per diluted share, for the
first
quarter of fiscal
2018
.
Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, remodeling and relocation programs, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.
Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, finance and operating leases, and normal trade credit. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.
The Company believes that its existing cash balances, expected cash flow from future operations, funds available under its debt facilities, finance and operating leases, and normal trade credit will be sufficient to fund its operations and its capital expenditure needs, including new store openings, store acquisitions, relocations and renovations, and distribution facility capacity, through the end of fiscal
2019
.
Page
21
Working Capital
At
March 30, 2019
, the Company had working capital of
$767.1 million
, which
decreased
$89.2 million
from
December 29, 2018
, and
decreased
$203.1 million
from
March 31, 2018
. The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):
|
|
March 30,
2019 |
December 29,
2018 |
Variance
|
March 31,
2018 |
Variance
|
||||||||||||||
|
Current assets:
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
102.2
|
|
$
|
86.3
|
|
$
|
15.9
|
|
$
|
132.4
|
|
$
|
(30.2
|
)
|
||||
|
Inventories
|
1,881.3
|
|
1,589.5
|
|
291.8
|
|
1,760.1
|
|
121.2
|
|
|||||||||
|
Prepaid expenses and other current assets
|
90.7
|
|
114.5
|
|
(23.8
|
)
|
86.8
|
|
3.9
|
|
|||||||||
|
Income taxes receivable
|
4.9
|
|
4.1
|
|
0.8
|
|
4.8
|
|
0.1
|
|
|||||||||
|
Total current assets
|
2,079.1
|
|
1,794.4
|
|
284.7
|
|
1,984.1
|
|
95.0
|
|
|||||||||
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Accounts payable
|
785.1
|
|
620.0
|
|
165.1
|
|
732.5
|
|
52.6
|
|
|||||||||
|
Accrued employee compensation
|
28.7
|
|
54.0
|
|
(25.3
|
)
|
23.3
|
|
5.4
|
|
|||||||||
|
Other accrued expenses
|
204.8
|
|
232.4
|
|
(27.6
|
)
|
200.1
|
|
4.7
|
|
|||||||||
|
Current portion of long-term debt
|
21.3
|
|
26.3
|
|
(5.0
|
)
|
25.0
|
|
(3.7
|
)
|
|||||||||
|
Current portion of finance lease liabilities
|
3.7
|
|
3.6
|
|
0.1
|
|
3.5
|
|
0.2
|
|
|||||||||
|
Current portion of operating lease liabilities
|
260.4
|
|
—
|
|
260.4
|
|
—
|
|
260.4
|
|
|||||||||
|
Income taxes payable
|
8.0
|
|
1.8
|
|
6.2
|
|
29.5
|
|
(21.5
|
)
|
|||||||||
|
Total current liabilities
|
1,312.0
|
|
938.1
|
|
373.9
|
|
1,013.9
|
|
298.1
|
|
|||||||||
|
Working capital
|
$
|
767.1
|
|
$
|
856.3
|
|
$
|
(89.2
|
)
|
$
|
970.2
|
|
$
|
(203.1
|
)
|
||||
In comparison to
December 29, 2018
, working capital as of
March 30, 2019
, was impacted most significantly by changes in inventories, accounts payable, and the adoption of the new lease accounting standard under ASC 842.
|
•
|
The increase in inventories and accounts payable resulted primarily from the purchase of additional inventory to support new store growth, as well as an increase in seasonal merchandise to prepare for the spring selling season.
|
|
•
|
The change in operating lease liabilities is due to the adoption of the new lease accounting standard under ASC 842.
|
|
•
|
The decrease in accrued expenses is a result of the timing of payments in the normal course of business.
|
In comparison to
March 31, 2018
, working capital as of
March 30, 2019
, was impacted most significantly by changes in inventories, accounts payable, and the adoption of the new lease accounting standard under ASC 842.
|
•
|
The change in operating lease liabilities is due to the adoption of the new lease accounting standard under ASC 842.
|
|
•
|
The increase in inventories and accounts payable resulted primarily from the purchase of additional inventory to support new store growth and to support our new northeast distribution center in Frankfort, New York, which began shipping merchandise to our stores in the first quarter of fiscal 2019.
|
Page
22
Debt
The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
|
March 30,
2019 |
December 29,
2018 |
March 31,
2018 |
||||||||||
|
Senior Notes
|
$
|
150.0
|
|
$
|
150.0
|
|
|
$
|
150.0
|
|
||
|
Senior Credit Facility:
|
|
|||||||||||
|
February 2016 Term Loan
|
155.0
|
|
165.0
|
|
175.0
|
|
||||||
|
June 2017 Term Loan
|
91.3
|
|
93.8
|
|
96.3
|
|
||||||
|
Revolving credit loans
|
232.0
|
|
—
|
|
285.0
|
|
||||||
|
Total outstanding borrowings
|
628.3
|
|
408.8
|
|
706.3
|
|
||||||
|
Less: unamortized debt issuance costs
|
(1.3
|
)
|
(1.4
|
)
|
(1.7
|
)
|
||||||
|
Total debt
|
627.0
|
|
407.4
|
|
704.6
|
|
||||||
|
Less: current portion of long-term debt
|
(21.3
|
)
|
(26.3
|
)
|
(25.0
|
)
|
||||||
|
Long-term debt
|
$
|
605.7
|
|
$
|
381.1
|
|
$
|
679.6
|
|
|||
|
|
||||||||||||
|
Outstanding letters of credit
|
$
|
35.4
|
|
$
|
33.5
|
|
$
|
42.8
|
|
|||
For additional information about the Company’s debt and credit facilities, refer to
Note 5
to the Condensed Consolidated Financial Statements. Refer to
Note 6
to the Condensed Consolidated Financial Statements for information about the Company’s interest rate swap agreements.
Operating Activities
Operating activities used net cash of
$13.0 million
and
$21.9 million
in the first
three
months of fiscal
2019
and fiscal
2018
, respectively. The
$8.9 million
decrease in net cash used in operating activities
in the first
three
months of fiscal
2019
compared to the first
three
months of fiscal
2018
is due to changes in the following operating activities (in millions):
|
|
Fiscal three months ended
|
||||||||||
|
|
March 30,
2019 |
March 31,
2018 |
Variance
|
||||||||
|
Net income
|
$
|
76.8
|
|
$
|
71.4
|
|
$
|
5.4
|
|
||
|
Depreciation and amortization
|
45.8
|
|
42.8
|
|
3.0
|
|
|||||
|
Share-based compensation expense
|
9.6
|
|
8.6
|
|
1.0
|
|
|||||
|
Deferred income taxes
|
13.5
|
|
(0.1
|
)
|
13.6
|
|
|||||
|
Inventories and accounts payable
|
(126.7
|
)
|
(150.9
|
)
|
24.2
|
|
|||||
|
Prepaid expenses and other current assets
|
23.8
|
|
1.4
|
|
22.4
|
|
|||||
|
Accrued expenses
|
(56.5
|
)
|
(13.6
|
)
|
(42.9
|
)
|
|||||
|
Income taxes
|
5.5
|
|
18.7
|
|
(13.2
|
)
|
|||||
|
Other, net
|
(4.8
|
)
|
(0.2
|
)
|
(4.6
|
)
|
|||||
|
Net cash used in operating activities
|
$
|
(13.0
|
)
|
$
|
(21.9
|
)
|
$
|
8.9
|
|
||
The
$8.9 million
decrease in net cash used in operating activities
in the first
three
months of fiscal
2019
compared with the first
three
months of fiscal
2018
resulted from less cash required due to the timing of receipts and payments in relation to inventory and accounts payable and a net change in accrued expenses due principally to the timing of payments in the normal course of business.
Investing Activities
Investing activities used cash of
$28.4 million
and
$45.1 million
in the first
three
months of fiscal
2019
and fiscal
2018
, respectively. The
$16.7 million
decrease
in cash used in investing activities primarily reflects
a decrease
in capital expenditures in the first
three
months of fiscal
2019
compared to fiscal
2018
.
Page
23
Capital expenditures for the first
three
months of fiscal
2019
and fiscal
2018
were as follows (in millions):
|
|
Fiscal three months ended
|
||||||
|
|
March 30,
2019 |
March 31,
2018 |
|||||
|
Information technology
|
$
|
9.7
|
|
$
|
17.8
|
|
|
|
Existing stores
|
7.5
|
|
4.3
|
|
|||
|
New and relocated stores and stores not yet opened
|
7.3
|
|
10.5
|
|
|||
|
Distribution center capacity and improvements
|
4.2
|
|
12.4
|
|
|||
|
Corporate and other
|
0.1
|
|
0.1
|
|
|||
|
Total capital expenditures
|
$
|
28.8
|
|
$
|
45.1
|
|
|
The spending on information technology represents continued support of our store growth and our omni-channel platform, as well as improvements in security and compliance, enhancements to our customer relationship management program and other strategic initiatives.
Spending on existing stores principally reflects routine refresh activity. In the first
three
months of fiscal
2019
, the Company opened
10
new Tractor Supply stores compared to
15
new Tractor Supply stores during the first
three
months of fiscal
2018
. The Company also opened
one
new Petsense store during the first
three
months of fiscal
2019
compared to
four
new Petsense stores during the first
three
months of fiscal
2018
. We expect to open approximately 80 new Tractor Supply stores during fiscal
2019
compared to
80
new Tractor Supply stores in fiscal
2018
. We also expect to open approximately 10 to 15 new Petsense stores during fiscal
2019
compared to
18
new Petsense stores in fiscal
2018
.
Spending for distribution center capacity and improvements was higher in the first fiscal quarter of 2018 due to the expansion of our distribution center in Waverly, Nebraska and the construction of our new northeast distribution center in Frankfort, New York. The expansion of the Waverly, Nebraska distribution center was completed in the first quarter of fiscal 2018. The new northeast distribution center in Frankfort, New York began shipping merchandise to our stores in the first quarter of fiscal 2019.
Financing Activities
Financing activities provided net cash of
$57.4 million
and
$90.2 million
in the first
three
months of fiscal
2019
and fiscal
2018
, respectively. The
$32.8 million
change in net cash from financing activities in the first
three
months of fiscal
2019
compared to the first
three
months of fiscal
2018
is due to changes in the following (in millions):
|
|
Fiscal three months ended
|
||||||||||
|
|
March 30,
2019 |
March 31,
2018 |
Variance
|
||||||||
|
Net borrowings and repayments under debt facilities
|
$
|
219.5
|
|
$
|
278.8
|
|
$
|
(59.3
|
)
|
||
|
Repurchase of common stock
|
(155.3
|
)
|
(157.5
|
)
|
2.2
|
|
|||||
|
Net proceeds from issuance of common stock
|
34.7
|
|
4.4
|
|
30.3
|
|
|||||
|
Cash dividends paid to stockholders
|
(37.6
|
)
|
(33.6
|
)
|
(4.0
|
)
|
|||||
|
Other, net
|
(3.9
|
)
|
(1.9
|
)
|
(2.0
|
)
|
|||||
|
Net cash provided by financing activities
|
$
|
57.4
|
|
$
|
90.2
|
|
$
|
(32.8
|
)
|
||
The
$32.8 million
change in net cash from financing activities in the first
three
months of fiscal
2019
compared with the first
three
months of fiscal
2018
is due to a decrease in borrowings, net of repayments, under our debt facilities, partially offset by an increase in net proceeds from the issuance of common stock stemming from the exercise of stock awards.
Page
24
Dividends
During the first
three
months of fiscal
2019
and
2018
, the Board of Directors declared the following cash dividends:
|
Date Declared
|
Dividend Amount
Per Share |
Record Date
|
Date Paid
|
|||||
|
February 6, 2019
|
$
|
0.31
|
|
February 25, 2019
|
March 12, 2019
|
|||
|
February 7, 2018
|
$
|
0.27
|
|
February 26, 2018
|
March 13, 2018
|
|||
It is the present intention of the Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition and capital needs of the Company, along with any other factors that the Board of Directors deems relevant.
On
May 8, 2019
, the Company’s Board of Directors declared a quarterly cash dividend of
$0.35
per share of the Company’s outstanding common stock. The dividend will be paid on
June 11, 2019
, to stockholders of record as of the close of business on
May 28, 2019
.
Share Repurchase Program
The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program. On May 8, 2019, the Board of Directors authorized a $1.5 billion increase to the existing share repurchase program, bringing the total amount authorized to
$4.5 billion
, exclusive of any fees, commissions, or other expenses related to such repurchases. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited or terminated at any time without prior notice. As of
March 30, 2019
, the Company had remaining authorization under the share repurchase program of
$364.7 million
, exclusive of any fees, commissions, or other expenses.
The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the
first
quarters of fiscal
2019
and fiscal
2018
(in thousands, except per share amounts):
|
Fiscal three months ended
|
||||||||
|
March 30,
2019 |
March 31,
2018 |
|||||||
|
Total number of shares repurchased
|
1,724
|
|
2,367
|
|
||||
|
Average price paid per share
|
$
|
90.09
|
|
$
|
66.53
|
|
||
|
Total cash paid for share repurchases
|
$
|
155,319
|
|
$
|
157,463
|
|
||
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements are limited to outstanding letters of credit. Letters of credit allow the Company to purchase inventory, primarily sourced overseas, in a timely manner and support certain risk management programs.
Significant Contractual Obligations and Commercial Commitments
At
March 30, 2019
, there were
no
material commitments related to real estate or construction projects extending greater than twelve months.
At
March 30, 2019
, there were
$35.4 million
of outstanding letters of credit under the 2016 Senior Credit Facility.
Significant Accounting Policies and Estimates
Management’s discussion and analysis of the Company’s financial position and results of operations are based upon its Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities,
Page
25
revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s significant accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:
|
-
|
Inventory valuation
|
-
|
Impairment of long-lived assets
|
|
-
|
Self-insurance reserves
|
-
|
Impairment of goodwill and other indefinite-lived intangible assets
|
See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2018
, for a discussion of the Company’s critical accounting policies. The Company’s financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.
New Accounting Pronouncements
Refer to
Note 13
to the Condensed Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of
March 30, 2019
.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to interest rate changes, primarily as a result of borrowings under our 2016 Senior Credit Facility (as discussed in
Note 5
to the Unaudited Condensed Consolidated Financial Statements) which bear interest based on variable rates.
As discussed in
Note 6
to the Unaudited Condensed Consolidated Financial Statements, we entered into interest rate swap agreements which are intended to mitigate interest rate risk associated with future changes in interest rates for the term loan borrowings under the 2016 Senior Credit Facility. As a result of these interest rate swaps, our exposure to interest rate volatility is minimized. The interest rate swap agreements have been executed for risk management purposes and are not held for trading purposes.
A 1% change in interest rates on our variable rate debt in excess of that amount covered by the interest rate swaps would have affected interest expense by approximately
$0.4 million
and
$0.3 million
in each of the
three
months ended
March 30, 2019
and
March 31, 2018
, respectively.
Purchase Price Volatility
Although we cannot determine the full effect of inflation and deflation on our operations, we believe our sales and results of operations are affected by both. We are subject to market risk with respect to the pricing of certain products and services, which include, among other items, grain, corn, steel, petroleum, cotton, and other commodities, as well as transportation services. Therefore, we may experience both inflationary and deflationary pressure on product cost, which may impact consumer demand and, as a result, sales and gross margin. Our strategy is to reduce or mitigate the effects of purchase price volatility principally by taking advantage of vendor incentive programs, growing economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors without sacrificing quality.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “1934 Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of
March 30, 2019
. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of
March 30, 2019
, our disclosure controls and procedures were effective.
Internal Control over Financial Reporting
We adopted the new lease accounting standard under ASC 842 as of December 30, 2018 (see
Note 1
and Note 13). As a result, we updated accounting policies affected by ASC 842 and modified internal controls over financial reporting related to ASC 842.
There were no other changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various litigation matters arising in the ordinary course of business. The Company believes that any estimated loss related to such matters has been adequately provided for in accrued liabilities, to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations, or cash flows.
Item 1A. Risk Factors
There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2018
.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Stock repurchase activity during the
first
quarter of fiscal
2019
was as follows:
|
Period
|
Total Number of Shares Purchased
|
Average
Price Paid
Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Dollar
Value of Shares That May Yet Be Purchased Under the Plans or Programs
|
||||||||||
|
December 30, 2018 - January 26, 2019
|
570,000
|
|
$
|
85.20
|
|
570,000
|
|
$
|
471,453,306
|
|
||||
|
January 27, 2019 - February 23, 2019
|
478,099
|
|
(a)
|
91.59
|
|
444,100
|
|
430,699,739
|
|
|||||
|
February 24, 2019 - March 30, 2019
|
710,000
|
|
92.95
|
|
710,000
|
|
364,717,356
|
|
||||||
|
Total
|
1,758,099
|
|
$
|
90.07
|
|
1,724,100
|
|
$
|
364,717,356
|
|
||||
(a) The number of shares purchased and average price paid per share includes 33,999 shares withheld from vested restricted stock units and performance-based restricted share units to satisfy employees’ minimum statutory tax withholding requirements for the period of January 27, 2019 - February 23, 2019.
Share repurchases were made pursuant to the share repurchase program described under Part I Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations. We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with regulations of the SEC and other applicable legal requirements.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Page
26
Item 6. Exhibits
Exhibit
|
32.1*
|
|
101
|
The following financial information from our Quarterly Report on Form 10-Q for the
first
quarter of fiscal
2019
, filed with the Securities and Exchange Commission on
May 9, 2019
, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets at
March 30, 2019
,
December 29, 2018
and
March 31, 2018
, (ii) the Condensed Consolidated Statements of Income for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
, (iii) the Condensed Consolidated Statements of Comprehensive Income for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
, (v) the Condensed Consolidated Statements of Cash Flows for the fiscal
three
months ended
March 30, 2019
and
March 31, 2018
, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
|
* Filed herewith
Page
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
TRACTOR SUPPLY COMPANY
|
|
|
|
|
|
|
Date:
|
May 9, 2019
|
By:
|
/s/ Kurt D. Barton
|
|
|
|
|
Kurt D. Barton
|
|
|
|
|
Executive Vice President - Chief Financial Officer and Treasurer
|
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
Page
28
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1 General:Note 2 Fair Value Of Financial Instruments:Note 3 Share-based Compensation:Note 4 Net Income Per Share:Note 5 Debt:Note 6 Interest Rate Swaps:Note 7 Leases:Note 8 Capital Stock and Dividends:Note 9 Treasury Stock:Note 10 Income Taxes:Note 11 Commitments and Contingencies:Note 12 Segment Reporting:Note 13 New Accounting Pronouncements:Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits