While some positive signs are emerging for large equipment sales in the production segment of the agricultural industry, sales of small equipment and other rural lifestyle products is where the real action is these days. In addition to the record-setting sales of compact tractors, other segments of this market are also booming.

TSCO Sales Soar

On Oct. 22, Tractor Supply Co. (NASDAQ: TSCO), which calls itself the largest rural lifestyle retailer in the U.S., reported its third quarter 2020 sales were up 31.4% to $2.61 billion vs. $1.98 billion in the same period of 2019. Comparable store sales increased 26.8%, compared to an increase of 2.9% in the prior year’s third quarter.

“The COVID-19 pandemic continued to have a significant impact on consumer demand in the third quarter of 2020 across all of the company’s major product categories as customers focused on the care of their homes, land and animals,” the company said. Comparable store sales for the third quarter 2020 were driven by comparable average transaction count and ticket growth of 14.3% and 12.5%, respectively.

In addition, the company reported that “The comparable store sales results also reflect a strong demand for everyday merchandise, including consumable, usable and edible products, and robust growth for summer seasonal categories. All geographic regions of the company had robust comparable store sales growth. In addition, the company’s ecommerce sales experienced triple-digit percentage growth.”

Gross profit increased 36.6% to $948 million from $694.2 million in the prior year’s third quarter and gross margin increased 138 basis points to 36.4% from 35% in the prior year’s third quarter. “The increase in gross margin was driven by lower depth and frequency of sales promotions, less clearance activity and lower transportation costs as a percent of net sales,” the company said.

Net sales for the first 9 months of 2020 increased 25.7% to $7.74 billion from $6.16 billion in the first 9 months of 2019. Comparable store sales increased 21.5% vs. a 3.6% increase in the first 9 months of 2019. Gross profit increased 29.9% to $2.77 billion from $2.13 billion, and gross margin was 35.7%, compared to 34.6% for same period of 2019.

Small Equipment Sales Boom

Sales of small tractors are also contributing to the rural lifestyle market’s good times. Earlier this month, the Assn. of Equipment Manufacturers (AEM) reported that sales of small tractors (under 40 HP) were up significantly in both the U.S. and Canada.

In the U.S., compact tractor year-over-year sales in September increased by nearly 27%, to 16,237 units sold from 12, 806 the previous year. Through the first 9 months of 2020, sales of small tractors are up 18%. During the January-September period of this year, 154,252 units were retailed compared to 130,743 in 2019.

Canadian sales of compact tractors in September rose by nearly 25% to 1,463 units vs. 1,172 in September 2019. Year-to-date sales of small tractors through the first 9 months of the year  in Canada are up 15.5% to 12,811 units compared to 11,092 units for the same period of 2019.

Resilient Rural Lifestyle Markets

In an investor note regarding Deere & Co. this past July, Mircea (Mig) Dobre, analyst for RW Baird, wrote, “Multiple datapoints emerged showing, unlike prior recessions, consumer behaviors have shifted with demand proving remarkably resilient, which has positive implications for the second half of 2020 and into fiscal year 2021.”

In his report, Dobre noted the several pertinent trends that have emerged during the stary at home/work at home trend resulting from the onset of the COVID-19 pandemic.

  • Homeowners have redirected spending toward outdoor and home-related durable goods (e.g., Deere’s Gator, turf, hobbyist under 40 horsepower tractors), noted by Baird's RV/Powersports research team across a wide spectrum of equipment categories — marine, powersport and RV. In Turf, Husqvarna provided a positive update (July 8) with demand for lawn and garden equipment accelerating into June. Interestingly, consumer resilience is not just about outdoor “toys,” it's also seen in other home-related purchases such as appliances.
  • We note the above as context for strong retail sales in small ag observed the past 3 months, which combined with Deere Gator and Turf business lines where demand is likely running well ahead of lowered expectations embedded in guidance provided with second quarter 2020 earnings.