How to Play Tractor Supply Stock After 18% Drop in 6 Months?

Tractor Supply Company TSCO has seen its shares decline 17.8% over the past six months, underperforming the industry, the broader Zacks Retail – Wholesale sector and the S&P 500's declines of 16.6%, 3.8% and 9.6%, respectively. This pullback reflects a combination of challenging macroeconomic conditions and company-specific headwinds.TSCO Stock's Price Performance Image Source: Zacks Investment Research Closing the trading session at $51.32 yesterday, TSCO remains below its 200-day and 50-day SMAs of $54.52 and $54.17, respectively, indicating a possible sustained downward trend.TSCO Stock Trades Below 50 & 200-Day SMAs Image Source: Zacks Investment Research Investors remain divided on whether Tractor Supply is headed for further downside or nearing a potential rebound.What’s Affecting Tractor Supply’s Growth?Tractor Supply faces headwinds as it navigates a challenging retail environment marked by shifting consumer behavior and macroeconomic pressures. In the fourth quarter of 2024, the company reported a modest 0.6% increase in comparable store sales, primarily fueled by a 2.3% rise in transaction count. However, this growth was partially offset by a 1.7% decline in average ticket size, suggesting consumers are spending less per visit.Tractor Supply faces headwinds as mounting cost pressures and a subdued retail landscape weigh on its near-term outlook. The company is reeling under the burden of higher depreciation and amortization expenses, largely stemming from growth initiatives such as the opening of a new distribution center. These investments, while aimed at long-term efficiency, have pushed up selling, general and administrative (SG&A) expenses, including depreciation and amortization, by 5.5% year over year. As a percentage of sales, SG&A expanded 60 basis points (bps) to 26.8% in the fourth quarter.This increase reflects not only the elevated depreciation and fixed costs but also modest deleverage, all of which outpaced the offsetting impact of Tractor Supply's ongoing productivity and cost control measures, including gains from its sale-leaseback strategy. The strain on expenses led to a 4.8% decline in operating income and a 69-bps drop in operating margin to 8.44%, signaling potential pressure on profitability.The company expects SG&A costs to rise another 6.7% in 2025, with SG&A as a percentage of sales forecasted to increase by 30 bps. Compounding these cost concerns is a tough retail sales environment and the anticipation of deflation becoming a modest headwind in the first half of 2025.Can TSCO’s Growth Efforts Ignite a Recovery?Tractor Supply continues to benefit from strong customer engagement, market share gains, and its everyday low-price strategy. The company is leveraging its "Life Out Here" lifestyle assortment and convenience store format to deepen customer loyalty. Strategic moves like the Allivet acquisition are expanding its presence in the pet pharmacy space, enhancing value for its Neighbor’s Club members. The upcoming launch of Field & Stream branded products further diversifies its outdoor offerings.Tractor Supply’s Neighbor’s Club loyalty program continues to be a key driver of its growth, delivering record highs in active accounts, customer retention and service scores. Enhanced tiers, faster rewards and personalized offers have fueled member engagement, while the program now accounts for the majority of sales, including strong traction at Petsense. Cross-shopping between Petsense and Tractor Supply is also rising. Initiatives like Hometown Heroes and investments in personalization and digital enhancements, such as improved search and checkout, further strengthen the customer experience and brand loyalty.TSCO’s Valuation PictureTractor Supply’s premium valuation is becoming a concern amid slowing growth and rising costs. The stock is currently trading at a forward 12-month P/E ratio of 22.95X, significantly higher than the industry average of 14.84X. Image Source: Zacks Investment Research This elevated multiple may be hard to justify given recent pressure on margins, softer earnings growth and macroeconomic uncertainties. This stretched valuation could limit upside potential in the near term, especially if performance fails to accelerate meaningfully.How to Play TSCO Stock?With the recent stock decline, Tractor Supply faces heightened challenges amid shifting consumer behavior and mounting macroeconomic pressures. The company’s premium valuation, trading well above industry peers, looks increasingly difficult to support the estimates. Profitability pressures and softening consumer demand further cloud the near-term outlook. Investors should approach with caution, as the company’s near-term outlook remains uncertain. At present, TSCO carries a Zacks Rank #4 (Sell).Three Picks You Can’t MissWe have highlighted three better-ranked stocks in the broader sector, namely Nordstrom, Inc. JWN, The Gap, Inc. GAP and Urban Outfitters Inc. URBN.Nordstrom, a fashion retailer that provides apparel, shoes, beauty, accessories and home goods for women, men, young adults and children, currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 1.9% from the year-ago period’s reported figures. JWN delivered an earnings surprise of 26.14% in the last reported quarter.The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It sports a Zacks Rank of 1 at present.The Zacks Consensus Estimate for The Gap’s fiscal 2025 earnings and revenues indicates growth of 7.7% and 1.6%, respectively, from fiscal 2024 reported levels. GAP delivered a trailing four-quarter average earnings surprise of 77.5%.Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It currently carries a Zacks Rank #2 (Buy).The Zacks Consensus Estimate for Urban Outfitters’ fiscal 2025 earnings and sales indicates growth of 14.5% and 6.6%, respectively, from the fiscal 2024 reported levels. URBN delivered a trailing four-quarter average earnings surprise of 28.4%.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Tractor Supply Company (TSCO): Free Stock Analysis Report Nordstrom, Inc. (JWN): Free Stock Analysis Report Urban Outfitters, Inc. (URBN): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks