New Stores Drive Fresh Market Q2, 1st-half Sales Surge

Buoyed by the performance of its recently opened stores, The Fresh Market Inc., the Greensboro, N.C.-based specialty grocer, posted a 19 percent net sales increase to $422.2 million for its 13-week second quarter ended July 27, 2014, versus the year-ago period.

Comparable-store sales for the quarter rose 2.9 percent to $357.3 million, which the company attributed to a 2.7 percent increase in the number of transactions and a 0.2 percent bump in average transaction size.

Earnings per share (EPS) in Q2 of fiscal 2014 were 24 cents, compared to 32 cents in Q2 of fiscal 2013. Q2 fiscal 2014 results include store closure and exit costs related to earlier store closings in California and Texas. Excluding the store closure costs of 13 cents per diluted share, adjusted diluted EPS were 36 cents for Q2 of fiscal 2014.

Gross profit grew 18.5 percent, or $22.4 million, to $143.7 million in Q2 2014, versus the year-ago period. Gross margin was 34 percent, compared with 34.2 percent last year. The Fresh Market explained that this slight decline "reflects higher occupancy costs and LIFO expense associated with the continuation of product cost inflation, partially offset by a modest increase in merchandise margin."

According to Craig Carlock, The Fresh Market's president and CEO, the company's Q2 results "demonstrate our ability to drive solid sales and expand merchandise margins in an increasingly competitive retail environment. The performance of our new stores exceeded our expectations, and we see tremendous expansion opportunities in our core markets. Based on a recent white-space analysis, we are raising our store growth potential in the southeastern United States to double our current store base in this region."

During Q2 2014, the grocer opened four new stores: two stores in Florida and one each in Texas and New York.

First-half Fiscal 2014 Results

For the 26-week period ended July 27, 2014, The Fresh Market’s net sales were $853.2 million, an 18.3 percent increase from the year-ago period, while comps grew 2.7 percent. Net income was $28 million, versus $37.8 million last year. Diluted EPS were 58 cents, compared with 78 cents for the corresponding period in fiscal 2013. Excluding store closure and exit costs of 22 cents per diluted share, adjusted diluted EPS were 79 cents for the first half of fiscal 2014.

"We are encouraged by our first-half results, and believe we are well positioned to achieve our strategic and financial objectives for the year as we further expand our store base and enhance our customer offerings," said Carlock.

"Given results thus far and our current assessment of business conditions for the remainder of the fiscal year, we are reaffirming our previously issued fiscal 2014 comparable-store sales, and adjusted earnings guidance" of $1.56 to $1.66 per diluted share, he further noted. "While we expect to see increasing competitive pressures relative to the prior year, we anticipate that the impact of competitive new store openings will increase in the third quarter and lessen slightly in the fourth quarter as our markets absorb the new square footage and our customers resume their shopping habits. As a result, we anticipate that comparable-store sales will be at the low to midpoint of our 1.5 percent-to-3.5 percent full fiscal year range in the third quarter."

The Fresh Market operates 160 stores in 26 states across the United States.