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Fresh Market Beats 1Q Earnings, Rev Miss

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The Fresh Market, Inc. announced decent first-quarter fiscal 2013 results, beating earnings but missing out slightly on revenues; a turnaround from the weak results reported last quarter. The company also upped its comparable store-sales (comps) guidance after seeing better traffic trends this quarter.

The Fresh Market’s first-quarter adjusted earnings of 46 cents beat the Zacks Consensus Estimate of 44 cents by 4.5%. Earnings also improved 14.6% from the prior-year quarter driven by higher gross margins and improved comp growth, which made up for the increased operating costs.

Quarter in Detail

Total revenue of this specialty grocery retailer increased 12.9% to $366.6 million driven by higher comp growth. Revenue slightly missed the Zacks Consensus Estimate of $373 million.

Comparable sales growth was 3.0%, modestly better than 1.9% in the fourth quarter of fiscal 2012, due to an improvement in consumer traffic. The improving traffic trends showed some stability from the slowdown witnessed in the fourth quarter which the company blamed on a tremendous change in consumer behavior in the winter holiday season.

Fresh Market’s gross profit expanded 14.8% to $129.3 million in the quarter, while gross margins improved 60 basis points (bps) to 35.3% due to expansion of merchandise margins and decrease in LIFO expenses.

Selling, general, and administrative (SG&A) expenses increased 15.6% to $81.5 million. As a percentage of revenue, SG&A expenses increased 50 bps to 22.2% due to higher-than-normal employee healthcare claim costs and increased share-based compensation costs.

Operating margins increased 10 bps in the quarter to 9.7% as the tailwind from gross margin expansion was somewhat offset by higher SG&A costs.

Fresh Market opened two new stores in the quarter (one each in Virginia and South Carolina). As on Apr 28, 2013, the company operated 131 stores in 25 states.

Outlook for 2013

Fresh Market slightly increased its previously provided 2013 comparable store sales guidance from a range of 2% – 4% to a range of 2.5% – 4.5% based upon the increase in traffic and comps seen in the first quarter.

Operating margins are expected to either remain flat or grow modestly in fiscal 2013 as the company ramps up its store openings and invests in other growth plans.

Earnings guidance was maintained in the range of $1.51 to $1.58, representing an increase of 14% to 19% over fiscal 2012 earnings per share of $1.33. Second-half earnings growth is expected to be higher than the first half.

Fresh Market plans to open 19 to 22 new stores in 2013, most of them slotted to be opened in the latter half of the year. The company expects to remodel approximately 3 – 5 stores in the year but re-locate none. Capital expenditure is expected to range between $130 million – $150 million.

Other Stocks to Consider

TFM carries a Zacks Rank #3 (Hold). Other companies in the retail/supermarket segment that are currently doing well are Etablissements Delhaize Fr , Harris Teeter Supermarkets, Inc. and The Kroger Co. (KR - Free Report) , all carrying a Zacks Rank #2 (Buy).

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