The Fresh Market (TFM) Misses Lofty Sales Expectations

Shares of high-end specialty grocer The Fresh Market (TFM) plunged recently, after the company failed to meet lofty expectations for its second quarter earnings. The company's earnings per share rose 17% year-on-year to $0.17, as net income increased from $13.3 million to $15.6 million. Although the company's bottom line growth matched analyst expectations, its revenue, which rose 13.3% to $354.8 million, fell short of the consensus estimate of $356.8 million.

Most of the company's revenue growth was fueled by new store openings. Daily Chart
Same-store sales rose 3.4%, thanks to a 1.8% jump in the total number of transactions and a 1.6% increase in total units per transaction. Gross margins climbed 9 basis points to 34.19%, due to lower occupancy costs. Selling, general, and administrative (SG&A) expenses declined 40 basis points to 23.3% of total revenue. Operating income also climbed 40 basis points to 7.3% of total sales. In other words, the company attracted more customers, who purchased more goods, as it lowered costs. For most other grocers, those results would have been considered solid signs of growth. However, The Fresh Market is also considered a growth stock, rising nearly 50% over the past five years and trading with a trailing P/E of 33. Between 2009 and 2012, the company grew its top line by 36% to $1.33 billion as net earnings tripled to $64.1 billion. With that kind of track record, investors were expecting that robust growth to continue. Shares climbed from an IPO price of $22 to a peak of $60 in 2012, but have since cooled off considerably. Therefore, when a growth stock misses high expectations, shares generally get trampled. A weak outlook for the rest of 2013 also exacerbated the selloff. For the full year, The Fresh Market now expects to earn $1.50 to $1.55 per share, missing the consensus estimate of $1.57. Same-store sales are expected to rise between 3.0% to 4.5% and margins are expected to stay flat or marginally improve. The company intends to continue using new store openings to generate top line growth. For the remainder of the fiscal year, The Fresh Market intends to open 21 to 22 new stores, with 10 to 11 new locations opening in the third quarter. Shares of The Fresh Market currently trade with a 5-year PEG ratio of 1.55. The stock does not pay a dividend. It primarily competes with other specialty grocers, such as Whole Foods Market (WFM) and Kroger's (KR) Harris Teeter stores. Other News About TFM Why The Fresh Market Shares Went Bad Is The Fresh Market still overvalued? The Fresh Market Can't Put Margin Worries To Bed The Fresh Market's margins slip. Other Stocks in the News How Mobile EHR Apps Can Revolutionize and Mobilize Health Care Will these mobile EHR apps change healthcare? The Upcoming Convergence of the Health Care and TechIndustries Is Healthcare IT the next hot growth industry? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 9, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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