Tractor Supply focuses on cost-cutting as inflation pressure mounts

Outdoor retailer Tractor Supply Co. is hiring additional staff in its finance division to identify cost savings as the company, like many others, faces inflationary pressure on multiple fronts.

Brentwood, Tenn.-based Tractor Supply over the past year has expanded its financial planning and analysis team by about 40%, to 20 employees, and doubled the size of its indirect procurement group, which negotiates purchases for items not sold in stores, to 15 people, Chief Financial Kurt Barton said. The company—which sells products including gardening and pet supplies, outdoor apparel and farm equipment—employs 150 people in its finance function, and about 46,000 people overall. The company said it expects to double the size of the financial planning team by the end of 2022.

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Tractor Supply’s additional finance staff have been tasked in part with helping the company improve its efficiency across departments as it combats rising costs. Rising inflation has prompted the company to put a greater focus on not just increasing sales but doing so efficiently, Mr. Barton said. "Go after a lot of our fixed costs, our occupancy costs, our supplies—everything that’s in there," he said, describing his assignment to his procurement team.

Transportation and product costs—such as steel for fencing, corn for animal feed or petroleum for industrial lubricants—rose 9% during the fiscal fourth quarter from a year earlier, according to Mr. Barton. Early on in 2021, the company expected to face inflationary pressure of between 2% and 3% for the year, he said.

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Mr. Barton declined to share details about the company’s internal savings target. The company said its efficiency efforts do not include plans to cut jobs.

Tractor Supply last week said that it expects to increase net sales by between 6% and 7% annually over the next five years and maintain an operating margin of between 10.1% and 10.6%. That figure stood at 10.26% during the 2021 fiscal year.

"To be able to accomplish what we’re committing to, we’ve got to drive some savings," Mr. Barton said.

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Strong sales, particularly in areas such as pet supplies, gardening and grilling, have outweighed the company’s rising expenses as many consumers opted to spend more time outside as the pandemic continued. Net sales rose 20% during the fiscal year ended Dec. 25 from a year earlier, to $12.7 billion. Net income jumped 33% to $997.1 million. Cost of goods sold rose 20% to $8.3 billion, while selling, general and administrative expenses increased 17% to $2.9 billion.

"Their performance has been off the charts," said Anthony Chukumba, an equity research analyst at investment firm Loop Capital Markets LLC. He added that it’s unusual to see a retailer with fast-growing sales focus on cost control. "They’re not resting on their laurels."

Tractor Supply said it expects the recent surge in inflation to persist into the first half of the year and then increase at a slower rate toward the end of 2022.

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The company has put a greater emphasis on selling products that cater to changed consumer interests during the pandemic. For instance, it recently added greenhouses to 150 of its roughly 2,000 stores and has set a goal of adding them to as many as 70% of its retail locations by 2026. Tractor Supply, which also sells products online, now sells a larger selection of grills and recreational vehicles than it did before the pandemic, according to Mr. Barton.

The retailer expects changes in consumer habits that have taken place over the past two years, such as the emphasis on outdoor activities, are here to stay. "We believe habits and hobbies start to get really structurally ingrained and rooted after a period of time," Mr. Barton said.