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    The Fresh Market Posts Higher Q4 Net Sales, Comps

    Specialty grocer plans to exit California

    Net sales rose 12.8 percent to $480.5 million and comparable-store sales increased 3 percent to $412.3 million during The Fresh Market Inc.'s Q4 of fiscal 2014, the company disclosed this week in its quarterly financial report. The grocer also revealed plans to discontinue operations in California.

    The Fresh Market credited its higher comps to a 3.7 percent increase in the number of transactions, partly offset by a 0.7 percent dip in average transaction size. "The acceleration in the number of transactions was attributable primarily to the marketing activities and direct-mail campaign that the company launched in the quarter," the grocer added.

    Diluted earnings per share in The Fresh Market's Q4 were 42 cents, compared with four cents in Q4 2013. Adjusted diluted earnings per share were 55 cents, excluding asset impairment, leadership change and net store closure charges, for Q4 2014, versus 39 cents for the year-ago period.

    Net income in the company's Q4 2014 was $20.2 million, compared with $2 million in Q4 2013. Gross profit grew 15.4 percent, or $22 million, to $164.7 million, versus the year-ago period. Gross margin rose 80 basis points to 34.3 percent, compared with 33.5 percent in the prior year. According to The Fresh Market, the gross profit margin increase was mainly the result of “adjusting promotions and pricing, reducing supply chain costs, and leveraging occupancy costs as a percentage of net sales.”

    Additionally, The Fresh Market opened five new stores – two in North Carolina, two in Texas and one in Florida – in this year's Q4.

    "During the quarter, we successfully took steps to grow customer transactions, expand gross margin and leverage our cost structure," noted Sean Crane, interim CEO of the Greensboro, N.C.-based specialty grocer, which operates 171 stores in 28 states. Crane observed that the increase in customer traffic "is our highest year-over-year growth in the past 10 quarters."

    He continued, "Looking forward, we remain focused on our key growth strategies, including opening new stores in our core markets and continuing to increase shopper frequency."

    For the 52-week period ended Jan. 25, 2015, net sales were $1.75 billion, a 16 percent rise from 2013, while comps grew 2.9 percent over the same prior-year period. Net income was $63 million, compared with $50.8 million in the year-ago period. Diluted earnings per share were $1.30, versus $1.05 for 2013, and adjusted diluted earnings per share were $1.61, compared with $1.40 last year.

    Closing in California

    The Fresh Market said it made its decision to exit California "after careful consideration of expected future cash flows, the long-term strategic importance of individual stores, and the anticipated timeline of store openings in [the state] … to focus on higher growth opportunities." The grocer added, "This decision is consistent with the company’s previously announced strategy to concentrate its unit growth resources in the eastern half of the United States over the next three years. Despite the improving results of these stores in California, the company concluded that the pace of organic store growth was going to be slower than anticipated and believes it can achieve more consistent financial results and a better return on its investments by continuing to grow in markets within or closer to its existing markets at this time." The stores are expected to shutter their doors by the end of March.

    "For fiscal 2015, we expect to generate increased sales growth and expand operating margin as we execute our real estate strategy and work to drive greater promotional and operational efficiencies while making strategic investments for the long-term growth of the company," said Crane. "We plan to open approximately 19 new stores, with the majority of them opening in the latter part of the fiscal year. These stores will be within or located close to our existing markets in the eastern half of the United States. We are committed to building upon our strategic initiatives to continue to provide greater value for our customers, employees, and shareholders."

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