TSCO’s move from woke culture: A win for shareholders

tractor supply q1 earnings report

Tractor Supply Company (TSCO) announced yesterday that it was abandoning all of its “Diversity, Equity, Inclusion” (DEI) programs. What has made this development all the more interesting is that it has come during pride month, a cause that the company will no longer promote!

This shift in corporate strategy marks an interesting point in the company’s history. It has chosen to shun a popular policy to prioritize its shareholders, a move many companies are afraid of making.

The management has been subjected to criticism lately because of its focus on woke culture. Among some of its DEI policies were things like hiring people of colour, submitting data to human rights organisations, focusing on carbon emissions goals and other non-business related activities.

The shareholders were of the opinion that these goals were distracting the company from its main business. The company not only received backlash from its shareholders but was also subjected to criticism on social media.

Why was the woke culture policy bad in the first place?

TSCO is a company that mainly serves rural America. Its customer base is conservative and typically belongs to regions with a conservative political tilt. Moreover, the customers are mainly male.

This sets it apart from many other American companies like Google and Amazon which have a diverse customer base.

The company’s customers and shareholders did not have a strong opinion on climate or LGBTQ issues. Seeing their management focused on these issues therefore caused concern.

These concerns have now been validated and with the renewed operations-focused business plan, also stand resolved.

What has changed?

Here is how the company has realigned its priorities:

・Instead of submitting data to human rights organisations, the tractor supplier will now focus on offering mentoring, networking, and business support to its customers. This will have an indirect impact on improving the company’s operations.

・The focus will now shift towards offering support to causes like animal welfare and agricultural education instead of non-business activities like political campaigns and LGBTQ.

・Land and water conservation issues will now take priority over carbon emission goals.

・Instead of achieving DEI goals, the company will instead focus on creating a respectful work environment.

What are the financial implications?

Tractor Supply Company has a strong balance sheet and in general, its financial performance has remained strong in recent years.

The strength of its finances can be judged from the fact that it has hiked its dividend for 15 consecutive years now. Tractor Supply Company’s Q1 2024 earnings beat estimates comfortably and the company should be able to continue that performance.

But the main strength of the business is derived from its sale-leaseback model which not only protects its balance sheet but also provides the much-needed working capital to keep the business on a growth trajectory.

This is what the company management said in its earnings call earlier this year:

In 2024, we will continue our planned strategic sale-leaseback program to sell some of our existing owned stores. We anticipate these sales will occur in the second half of the year on a similar cadence to 2023 and with a similar EPS contribution. We continue to forecast these strategic sale leasebacks to be ongoing for the next 7 to 10 years.

The shareholders should therefore consider this a win, as less distraction generally results in better management, which in turn yields profits for the shareholders.

The stock is already up 25% YTD and there is no reason for it to stop in the second half of this year.