The Fresh Market, Inc
) announced soft second-quarter fiscal 2013 results, wherein it
managed to meet the earnings estimate but missed on revenues as
the improving trends seen in the first quarter could not be
sustained. Further, the company lowered its earnings guidance for
the year due to higher store opening costs.
The Fresh Market's second-quarter adjusted earnings of 32
cents were in line with the Zacks Consensus Estimate. Earnings
improved 17.0% from the prior-year quarter as soft revenues and
gross margins were offset by a lower tax rate and selling,
administrative and general (SG&A) ratio.
Quarter in Detail
Total revenue of this specialty grocery retailer increased
13.3 % to $354.8 million due to comp growth. However, revenues
declined sequentially and missed the Zacks Consensus Estimate of
$356 million by 0.3%.
Comparable sales growth was 3.4%, modestly better than the
3.0% growth reported in the first quarter and 1.9% in the fourth
quarter of fiscal 2012, due to an improvement in consumer
The Fresh Market's gross profit expanded 13.6% to $121.3
million in the quarter. Gross margins improved only 10 basis
points (bps) to 34.2% as headwinds from rising product costs
(most notably seafood) were offset by leverage on occupancy and
other fixed costs. Gross margins declined 90 bps
SG&A expenses increased 11.5% to $82.5 million in the
quarter. As a percentage of revenues, SG&A expenses declined
40 bps to 23.3% due to easy year-ago comparisons which included
certain transactions and legal expenses that were not present in
the second quarter of 2013. However, SG&A ratio increased 110
bps sequentially due to higher-than-normal employee healthcare
claim costs and increased share-based compensation costs.
Operating margins increased 40 bps in the quarter to 7.3% as
soft gross margins were somewhat offset by lower SG&A costs.
However, operating margins also declined sequentially.
The Fresh Market opened five stores in the quarter bringing
the store count to 136 stores in 26 states as on Jul 28,
2013 Earnings Guidance Lowered
The Fresh Market lowered its earnings outlook for 2013 from
its previously provided expectations. Earnings are now expected
to range between $1.50 and $1.55, lower than the prior
expectation of $1.51 to $1.58, due to higher costs related to
accelerated store openings in the second half. Also, the company
has some store construction planned for fiscal 2014, which are
expected to increase new store opening costs in fiscal 2013.
However, Fresh Market slightly increased its previously
provided 2013 comparable store sales guidance from a range of
2.5%-4.5% to a range of 3.0%-4.5%. Comps are expected to
accelerate slightly in the back half of the year as comparisons
Operating margins are expected to either remain flat or grow
modestly (maintained) in fiscal 2013 as the company ramps up its
store openings and invests in other growth plans.
Fresh Market plans to open 21 to 22 stores in 2013, up from
prior guidance of 19 to 22 stores. Of these, 10 to 11 stores are
expected to be opened in the third quarter and four in the fourth
quarter. The company expects to remodel three stores in the year
but re-locate none. Capital expenditure is expected to range
between $120 million-$140 million (previously $130 million-$150
Other Stocks to Consider
TFM carries a Zacks Rank #4 (Sell). Other companies in the
retail/supermarket segment that are currently doing well are
Etablissements Delhaize Fr
Koninklijke Ahold N.V.
The Kroger Co.
). All these stocks carry a Zacks Rank #2 (Buy).
AHOLD N V ADR (AHONY): Get Free Report
DELHAIZE-LE (DEG): Free Stock Analysis Report
KROGER CO (KR): Free Stock Analysis Report
FRESH MARKET (TFM): Free Stock Analysis
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