The Fresh Market, Inc
) third quarter adjusted earnings of 23 cents missed the Zacks
Consensus Estimate of 26 cents by 11.5% due to slower comparable
sales growth and high operating expenses. Earnings however
improved 18.5% from the prior-year quarter.
The third quarter earnings included impact of 2 cents related
to transaction expenses for equity offering (1 cent) and legal
settlement costs (1 cent).
The company also maintained its financial guidance for fiscal
2012 and announced the departure of its Chief Financial Officer
(CFO) Lisa Klinger.
Quarter in Detail
Total revenue of this specialty grocery retailer increased
22.1% to $321.5 million, driven by comparable sales growth of
5.6% and strong new-store productivity level. However, we note
that comparable sales growth was slower than 8% in the second
quarter and 8.2% in the first. Revenue slightly beat the Zacks
Consensus Estimate of $320 million.
Gross profit expanded 26.3% to $106.4 million in the quarter,
while gross margins improved 110 basis points to 33.1% due to
expansion of merchandise margins and leverage of occupancy
Selling, general, and administrative expenses (SG&A),
including expenses related to the equity offering and legal
settlement, increased 27.1% to $76.6 million. As a percentage of
revenue, SG&A expenses increased 90 basis points to 23.8% due
to higher corporate expenses, including those related to
share-based compensation program and incremental store opening
Operating margins increased only 10 basis points in the
quarter to 5.6% as tailwind from solid gross margins was offset
by higher SG&A expenses.
Fresh Markets opened six new stores in the quarter including
its first store in California. As on October 28, 2012, the
company operated 127 stores in 25 states.
Outlook for 2012
Despite the third quarter miss, Fresh Market maintained its
financial guidance for 2012.
Fresh Market maintained its comparable store sales growth
guidance in the range of 5.5% to 6.5% for 2012 despite expected
benefits from the upcoming holiday season due to tough year over
year comparison expected in the fourth quarter. Though comparable
sales growth are expected to continue to benefit from higher
customer traffic and increase in transaction size, the company
remains apprehensive about macroeconomic uncertainty.
Operating margins are expected to continue to increase 30 to
50 basis points over 2011 margin of 7.5%, as gross margin
expansion will be partially offset by higher operating expenses.
The operating margin guidance includes the impact of equity
offering and legal settlement costs incurred in the third
Earnings are expected to range between $1.33 and $1.38, also
in line with the prior guidance. The earnings guidance represents
an increase of 25% to 30% over fiscal 2011 earnings per share of
Fresh Market plans to open 16 stores and relocate one store in
2012. It has already opened 15 stores till date this year and
hopes to open its 16
store in December this year.
Capital expenditure is expected to range between $90 million
and $100 million, down from prior guidance of $95 million to $105
The company announced in a separate press release that current
CFO and Vice President, Lisa Klinger, has resigned from her
position, effective from December 7. Lisa will take up a similar
position with a private apparel retailer. The company will
immediately begin its search for a new CFO and in the meantime
Sean Crane, the company's Executive Vice President and Chief
Operating Officer will act as interim CFO.
We currently have a Neutral recommendation on Fresh Market.
The stock carries a Zacks #3 Rank (a short-term 'Hold' rating).
The company competes with
Whole Foods Market, Inc
), which carries a Zacks #3 Rank.
FRESH MARKET (TFM): Free Stock Analysis
WHOLE FOODS MKT (WFM): Free Stock Analysis
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