GREENSBORO, N.C. — Shares of The Fresh Market here tumbled Wednesday after the company reported weaker than expected third-quarter earnings.
The fast-growing chain reported net income growth of 19%, to $10.9 million, on sales gains of 22.1%, to $321.5 million, compared with the third quarter of a year ago. Income per share was 23 cents, vs. analyst expectations of 26 cents.
Edward Aaron, an analyst with RBC Capital Markets, Denver, said the stock sell-off — shares fell by more than 12% on the day of the earnings announcement — makes the shares “more attractive,” although he tempered his own outlook.
“While we see the long-term store-growth thesis as intact, we do not see an urgency to own the stock, as tougher comparisons lie ahead and earnings estimates for next year are likely too high,” he said in a research note last week.
Comparable-store sales were up 5.6% for the 13-week quarter, including a 3.3% increase in transactions and a 2.3% increase in average transaction size. The larger baskets were primarily driven by an increase in units per transaction and “modest” inflation, the company said.
The Fresh Market said its selling, general and administrative costs in the quarter increased $16.3 million, to 23.8% of sales, vs. 22.9% of sales in the year-ago third quarter. It attributed the increase in expenses primarily to “increased store compensation and pre-opening expenses” vs. the year-ago period. The increase was partly attributed to increased personnel costs to support growth, the company said.
Aaron described SG&A at the company as being “inherently lumpy,” and noted that it was influenced by the increase in new-store openings in the quarter.
The bigger concern, he said, were slowdowns in sales growth and gross margin expansion as the company begins lapping year-ago periods of high performance in those metrics.
During the third quarter The Fresh Market opened six new stores — including its first location in California, in Roseville. It also recently acquired the leases of four Rice Epicurean stores in the Houston market, and said it expects to sign additional leases in Texas.
For the 39-week span, The Fresh Market said net income was up 31.2%, to $43.5 million, on sales of $959.3 million, a 21.8% increase. Comps grew 7.3%.
Separately, the company said that its chief financial officer, Lisa Klinger, was leaving to join a privately owned apparel retailer. While The Fresh Market searches for a replacement, Sean Crane, executive vice president and chief operating officer, was named interim CFO.
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