The Fresh Market’s Q3 Net Sales, Comps Rise

For its 13-week third quarter ended Oct. 27, The Fresh Market Inc. posted a 13.4 percent net sales increase to $364.5 million and a 3.1 percent comparable-store sales increase, compared with the year-ago period. Net income in the third quarter of fiscal 2013 was $11.1 million, versus $10.9 million last year, while diluted earnings per share in the quarter were 23 cents, the same as in the corresponding period of fiscal 2012.

“We continued to invest in our growth strategy this quarter as we opened 10 new stores in seven states, from Florida to California,” noted Craig Carlock, president and CEO of the Greensboro, N.C.-based specialty grocer, which currently operates 149 stores in 26 states. “Entering the final quarter of the year, I believe we are well positioned to deliver store unit growth in excess of 17 percent and open a record 22 new stores this fiscal year. Our base business continues to perform well, although we experienced increasingly challenging economic conditions as the quarter progressed. Even under these conditions, comparable-store sales growth exceeded 3 percent this quarter and gross margin continued to expand.”

The higher third-quarter comps were the result of a 2.8 percent increase in transaction volume and a 0.3 percent rise in average transaction size, according to The Fresh Market. During the latter part of the quarter, the company saw what it described as “an unanticipated sales slowdown” at its stores, which it attributed to shifting economic conditions and eroding consumer confidence. Sales at its stores in new markets were “mixed,” the grocer admitted.

The grocer’s gross profit grew 14.8 percent, or $15.7 million, to $122.1 million in the third quarter of fiscal 2013, compared with the year-ago period. For the same period, the gross margin rate rose 40 basis points to 33.5 percent over last year. According to the company, this rise was mainly due to improvement in the merchandise margin rate as a result of lower shrink expense, partially offset by higher occupancy costs as a percentage of sales.

Selling, general and administrative expenses for the third quarter of fiscal 2013 increased $12.3 million to $88.9 million from last year, with selling, general and administrative expenses as a percentage of sales up by 60 basis points to 24.4 percent for the period, versus 23.8 percent for the year-ago. The company attributed this increase in expenses as a percentage of sales primarily to higher store level compensation expense, among them employee health care claims costs and pre-opening costs related to the 10 new store openings during the quarter, compared with six last year.

For the 39-week period ended Oct. 27, The Fresh Market’s net sales were $1.09 billion, a 13.2 percent increase from the year-ago period, and comps grew 3.2 over last year. Net income rose 12.3 percent to $48.8 million, versus $43.5 million in the year-ago period. Diluted earnings per share for the first three quarters of fiscal 2013 increased 12 percent to $1.01, compared with diluted earnings per share of 90 cents for the corresponding period in fiscal 2012.

The Fresh Market anticipates that its recent comps and new-store sales performance and expense trends will continue for the rest of the fiscal year, and has accordingly revised its outlook for diluted earnings per share to $1.42 to $1.47. Additionally, the company expects to open 22 new stores, spend about $115 million to $125 million in capital expenditures, boost comps by 3 percent to 3.5 percent, and achieve operating margin as a percentage of sales consistent with the prior year, among other fiscal 2013 goals.