The Fresh Market Inc.
) is a specialty grocery retailer that has returned 47% so far this
year. Furthermore, it appears to have enough potential for even
further upside, as is evident from its robust long-term earnings
growth projection of 23.1%.
Management's focus on expanding the store base, driving
comparable-store sales and improving margins are strengthening this
Zacks #2 Rank (Buy) stock. This is exemplified in The Fresh
Market's second-quarter fiscal 2012 results, which included
year-over-year earnings per share growth of 26.4%, a positive
surprise of 3.7% and a raised guidance for the full year.
Profit Surges, Guidance Up
On August 29, The Fresh Market posted second-quarter fiscal 2012
earnings of 28 cents per share, topping the Zacks Consensus
Estimate by a penny and jumping from last year's 22 cents.
Net sales of $313 million exceeded the Zacks Consensus Estimate of
$309 million and improved 20.6% from $259.5 million a year ago.
Comparable-store sales climbed 8%, attributable to a 5.3% jump in
the number of transactions and a 2.7% rise in average transaction
size. The Fresh Market opened 5 new outlets in the quarter, and
plans to open 14 to 16 new stores in fiscal 2012.
Gross profit grew 25.6% to $106.7 million, whereas gross margin
expanded 140 basis points (bps) to 34.1%. Operating income
increased 27.8% to $21.7 million, while operating margin increased
40 bps to 6.9%.
Buoyed by the strong performance, The Fresh Market raised its
outlook for the second time in fiscal 2012. Management now
envisions comparable-store sales growth between 5.5% and 6.5%, and
projects earnings of $1.33 to $1.38 per share. Earlier, the company
had forecasted a comparable-store sales increase of 4.5% to 6.5%
and earnings between $1.28 and $1.34 per share.
Earnings Estimates Climbing
The Zacks Consensus Estimate for fiscal 2012 rose 2.2% to $1.39 per
share over the last 60 days, implying year-over-year growth of
29.8%. The current estimate is a penny above the upper-end of the
company's guidance range. For fiscal 2013, the Zacks Consensus
Estimate is $1.73 per share, increasing approximately 3% over the
same time frame and marking year-over-year growth of 24.9%.
The Fresh Market currently trades at a forward P/E of 42.28x,
reflecting a substantial premium to the peer group average of
14.97x. Also, on a price-to-book basis, the stock trades at 17.41x,
a sizable premium to the peer group average of 1.54x. However, the
return on equity (ROE) for the stock looks very attractive. It has
a 1-year ROE of 44.1% compared with 12.4% for its peer group.
The 12-month EPS chart below indicates that the stock price has now
started to correlate with the increasing trend in estimates. The
current momentum appears to be driven by The Fresh Market's
outstanding performance in the first-half of fiscal 2012, and on
the belief that it will sustain the same rhythm in the second half
of fiscal 2012. The consensus estimates for fiscal 2012 and fiscal
2013 are portraying a steep upward trend. Currently, the stock
price is in the range of $55.00-$60.00, and has generated a solid
year-to-date return of 47%, significantly higher than the S&P
500's return of 13.1%.
Founded in 1981 and headquartered in Greensboro, North Carolina,
The Fresh Market is a specialty grocery retailer of perishable and
non-perishable products such as meat, seafood, produce, deli,
bakery, floral, traditional grocery and dairy products, as well as
specialty foods that include coffee and candy, and beer and wine.
As of July 29, 2012, the company operated in 24 states through 121
stores. The Fresh Market, which competes with The Kroger Co. (
) and Whole Foods Market Inc. (
), currently has a market cap of $2.82 billion.
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