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SEC filingQ1 delivered modest revenue growth from accelerated new store openings, but profitability declined due to SG&A deleverage on fixed costs and comparable store sales performance, compounded by seasonal inventory buildup driving negative free cash flow.
Net sales increased 3.6% to $3.6 billion in Q1 FY2026 from $3.5 billion in the prior year quarter, primarily driven by accelerated new store openings. Capital expenditures for the first three months included the opening of 40 new Tractor Supply stores compared to 15 in Q1 FY2025, with the increase primarily driven by new store openings and construction of owned, fixed-fee development stores. This expansion contributed to topline growth but contributed to margin pressures through fixed cost deleverage.
Gross profit grew in line with sales at 3.6% to $1.3 billion, maintaining gross margin at 36.2%. The gross margin rate benefited from disciplined product cost management and continued execution of an everyday low price strategy, offset by higher tariffs and delivery-related transportation costs. Companion animal performance was below the Company average, reflecting softer demand trends, category shifts, and an unfavorable product mix, which management addresses through strategies to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends.
Operating income declined 6.3% to $233.4 million from $249.1 million, with operating margin contracting to 6.5%. The increase in SG&A as a percent of net sales was primarily attributable to deleverage of fixed costs given the comparable store sales performance and an accelerated new store opening cadence, partially offset by an ongoing focus on productivity and cost discipline. Net income decreased 8.3% to $164.5 million, with diluted EPS falling 8.8% to $0.31 from $0.34.
Net cash provided by operating activities fell to $91.1 million from $216.8 million, primarily driven by management of inventory and accounts payable. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support higher sales volume of the spring and cold-weather selling seasons, respectively. This seasonal working capital demand, combined with elevated capital expenditures of $202.6 million, resulted in negative free cash flow of -$111.5 million.