In the right place at the right time

In 2020, when COVID-19 hit and Americans found themselves social distancing at home, many found solace in new pastimes. Some began checking off renovation tasks on the to-do list, but many turned to other home-based projects like beekeeping and gardening to help pass the time. Deemed an essential retailer, Tractor Supply never had to close its stores and benefited from the COVID-induced DIY boom.

“They’ve seen a big change in their customer base since the pandemic and it’s skewing younger now,” says Pratt.

Consumers have switched heavily to online purchases as a result of the pandemic, but Tractor Supply can compete against behemoths like Amazon because it’s also able to immediately fulfill farmers’ non-discretionary needs such as feed or fertilizer, and therefore has some advantages in challenging market environments, Pratt says. Furthermore, under the leadership of a new CEO, Tractor Supply has adopted several new growth initiatives including plans to convert a number of side lots into higher margin garden centers.

Taking a pause on price

And the story isn’t finished. Tractor Supply has plenty of runway left, Pratt says. The company was slower to adopt omnichannel selling than its competitors. Ordinarily that might be a red flag, but in this case it’s a benefit. Tractor Supply has been making up for lost time with investment in a new mobile app and the deployment of artificial intelligence and machine learning to identify shopping trends and product fulfillment.

“They’ve been behind the curve on digital, but they’ve been able to get away with it because of their unique customer base, which they’ve nurtured,” Pratt says. “We expect they are going to get the kind of growth from e-commerce that some companies had five or ten years ago.”

Collaborative to the core

While the investment team believes that Tractor Supply is well-loved, the stock’s run-up in early 2022 gave the investment team pause. “Our approach ensures that we’re not just holding on to a stock because one person loves the company and has covered it for five years,” Calamar says.

For Jensen, collaboration and discipline means selling a stock, even when it hurts.

For a listing of this strategy’s current holdings, please visit www.jenseninvestment.com/mid-cap-composite-holdings.

The company discussion in this article is solely intended to illustrate the application of our investment approach and is not to be considered a recommendation by Jensen. The specific security identified is taken from a representative account of the Jensen Quality Mid Cap Composite and does not represent all of the securities purchased and sold for the Strategy. Our views expressed herein are subject to change and should not be construed as a recommendation or offer to buy or sell any security and are not designed or intended as a basis or determination for making any investment decision for any security. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein. Performance results shown reflect the reinvestment of dividends and other earnings. Individual account characteristics and performance returns may differ from those of the representative account due to the size of the portfolio, client-specific constraints, tax considerations or other factors.

Indices are unmanaged and do not incur investment management fees.  An investor is unable to invest in an index.  Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how the Jensen Quality Mid Cap Strategy will continue to be operated in the near term; however, management’s plans and policies in this respect may change in the future. In particular, (i) policies and approaches to portfolio monitoring, risk management, and asset allocation may change in the future without notice and (ii) economic, market and other conditions could cause the Strategy and accounts invested in the Strategy to deviate from stated investment objectives, guidelines, and conclusions stated herein.

Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements.

This information is current as of the date of this material and is subject to change at any time, based on market and other conditions.

Jensen Investment Management, Inc. is an investment adviser registered under the Investment Advisers Act of 1940.  Registration with the SEC does not imply any level of skill or training. Although taken from reliable sources, Jensen cannot guarantee the accuracy of the information received from third parties.

On September 30, 2024, the Jensen Quality Value Strategy was renamed the Jensen Quality Mid Cap Strategy.

© 2023 Jensen Investment Management