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The Fresh Market (TFM) Misses Lofty Sales Expectations

By: , dated September 9th, 2013

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.

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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.

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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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