Friday, August 25, 2006

Calls of Note Part 1

- Piper Jaffray comments on Tractor Supply (NASDAQ:TSCO) saying they believe 3Q sales trends remain sluggish, lowering FY06 revenue estimate. Checks point to continued softness in outdoor power equipment, big-ticket items. Firm remains confident in their 3Q EPS of $0.48, however, they are modestly lowering their same- store sales forecast to 2.5%. They believe that gross margin trends remain healthy as the company continues to benefit from a favorable product mix shift and increased private label and direct sourced product. For the full year, they are forecasting total sales near the low end of the company's guidance range to reflect a challenging consumer spending environment for big-ticket items.

In recent circulars and store visits, the firm noticed an increased emphasis on smaller- ticket and higher-margin categories like apparel and pet/equine, which they believe will provide sales stability in a slower consumer spending environment. The company has expanded its apparel set in 165 stores and it appears to be receiving a greater emphasis even in stores that have not been reset.

Firm maintains Outperform rating saying they are modeling an acceleration in comp- store sales growth and margin expansion in FY07 as the company comes up against easier comparisons and the product mix continues to shift toward higher-margin categories.

Tgt goes to $58 from $63.

Notablecalls: Look, you have a retailer that's trading 18-19x 06 EPS and 15-16x 07 EPS and then you have a firm saying things are starting to slow down. It's a bad combo for the bulls. The stock has gotten hit lately and is trading near 52 wk lows. Today, it will see some pressure. Then it will bounce bc there are some that will be covering into this weakness. But overall, there is very little upside to this stock. Short any bounces.

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