How Should Investors Approach TSCO Stock After an 11% Dip in 3 Months?

Tractor Supply Company TSCO has seen its shares decline 11.4% in the past three months, underperforming the industry, the broader Zacks Retail – Wholesale sector, and the S&P 500, which fell 7.1%, 3.3% and 2.6%, respectively. This pullback reflects a combination of challenging macroeconomic conditions and company-specific headwinds.

TSCO Stock's Price Performance

Closing the trading session at $49.67 yesterday, TSCO remains below its 200-day and 50-day SMAs of $54.30 and $51.69, respectively, indicating a possible sustained downward trend.

TSCO Stock Trading Below 200 and 50-Day SMA

What’s Dragging on Tractor Supply’s Growth?

Tractor Supply’s growth in the first quarter of 2025 faced notable headwinds, primarily due to weather-related disruptions. The delayed onset of spring, particularly across key markets in the Midwest and Northeast, significantly impacted the performance of spring seasonal categories. This included big-ticket products such as riding lawn mowers, outdoor power equipment, and lawn and garden supplies, all of which experienced a sharp decline in demand. The delayed transition into spring reduced foot traffic and seasonal spending in a critical selling period, causing a tangible drag on top-line results.

In addition to weather impacts, discretionary spending weakness placed further pressure on the company’s big-ticket categories. As consumers grew more cautious amid an uncertain macroeconomic backdrop, purchases of high-priced items declined noticeably. Tractor Supply acknowledged that this softness in demand is expected to persist throughout the first half of the year. These high-value products typically carry higher margins, so the category’s underperformance had a disproportionate effect on both revenues and profitability.

Newly imposed tariffs, particularly on imports from China, are increasing costs across the supply chain. While Tractor Supply has responded proactively by establishing a cross-functional task force, diversifying sourcing, and negotiating with vendors, the full cost impact is still unfolding. Compounding these challenges was a 0.9% decline in comparable store sales due to a 2.9% drop in average ticket size. Despite solid transaction growth, the shift in product mix away from big-ticket items contributed to weaker performance.

Tractor Supply is reeling under higher depreciation and amortization, along with the costs related to the opening of a distribution center. Also, cost inflation is concerning. Due to these factors, selling, general and administrative (SG&A) expenses, including depreciation and amortization, as a percentage of sales, expanded 81 bps year over year to 29%. In dollar terms, SG&A expenses, including depreciation and amortization, rose 5.1% year over year.

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 5.3% decline in operating income and a 56-bps drop in operating margin to 7.2%, signaling potential pressure on profitability.

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.

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.

In the first quarter of 2025, Tractor Supply launched Tractor Supply Rx, a major initiative that integrates prescription pet and animal medications into its core offerings. This launch builds on the company’s acquisition of Allivet and enables customers to conveniently order pet medications online through the Tractor Supply website and mobile app.

TSCO’s Valuation Picture

Tractor 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 22.82X, significantly higher than the industry average of 16.07X.

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?

Following its recent share price decline, Tractor Supply faces intensifying challenges from evolving consumer behavior and a more uncertain economic backdrop. Despite its strong brand and long-term strategy, the company’s premium valuation relative to peers appears less sustainable in the current environment. Ongoing profitability pressures and a softening in discretionary spending further complicate the short-term investment case. Given the current outlook, investors may want to exercise caution, especially as near-term visibility remains constrained. TSCO presently holds a Zacks Rank #4 (Sell), indicating a bearish sentiment in the short run.

Three Picks You Can’t Miss

Some better-ranked stocks in the same space are Canada Goose GOOS, Allbirds Inc. BIRD and Stitch Fix SFIX.

Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Canada Goose’s current fiscal year’s earnings and sales implies growth of 10% and 1.4%, respectively, from the year-ago actuals. GOOS delivered a trailing four-quarter average earnings surprise of 57.2%.

Allbirds is a lifestyle brand with naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for Allbirds’ current financial year’s earnings implies growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.

Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for SFIX’s fiscal 2025 earnings implies growth of 64.7% from the year-ago actual. SFIX delivered a trailing four-quarter average earnings surprise of 48.9%.

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This article originally published on Zacks Investment Research (zacks.com).

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