Founders Retain Control in Fresh Market IPO

MARK HAMSTRA

GREENSBORO, N.C. — The long-anticipated initial public stock offering for The Fresh Market will be smaller than anticipated and will leave the current ownership in control of the company, according to documents filed with the Securities and Exchange Commission last week.

Fresh Market said its founders and some executives would seek to sell about 13.2 million shares at an expected price range of about $18 to $20 per share, or about $264 million. The company itself will not sell any shares, however, so the funds would not be used to fund growth or to pay down debt.

“Usually that's a big, fat no-no on Wall Street to do an IPO without using the proceeds for corporate purposes,” said Gary Giblen, an analyst with Quint Miller & Co., New York. “The most popular use of proceeds from an investors' standpoint would be expansion capital.”

Creating a market for the stock does pave the way for the chain — a far-flung network of 100 upscale, small-format stores across 20 Eastern and Midwestern states — to eventually return to the public market for additional funding, observers said.

Giblen called the decision by the founding Berry family and others to cash out some of their investments now an “intelligent, opportunistic play,” given the strength of the stock market and the fact that other similar companies — including Whole Foods Market and United Natural Foods — are trading at or near all-time highs. Providence, R.I.-based United Natural last month raised about $138.4 million in an offering of 4.4 million shares.

After the Fresh Market IPO, scheduled for Nov. 4, founder Ray Berry, his family and other executives participating in the sale would retain control of more than 63% of the shares. The Berry family itself would retain more than 50% of the voting shares for the purpose of electing directors.

Founder Ray Berry, his son Brett Berry and son-in-law Michael Barry collectively own about 86% of the current shares and are each selling about 20% to 30% of their holdings through the IPO.

When the company first declared its intention to file an IPO in May, the offering was expected to net about $345 million.

In April 2008, the company had retained Goldman Sachs to explore the possibility of a sale, but later that year took itself off the sales block. Sources at that time told SN the company was seeking $800 million for the enterprise. The current IPO would value the company at about that amount.

Based on recent financial filings, the chain has been performing well in 2010.

The company said it expected to report net income of $41 million on $685 million in sales for the nine-month period through Sept. 26. Those are increases of 45% and 13%, respectively, over year-ago levels. Comps rose 5.1% for the third quarter and 4.6% for the nine-month span.

Gross margins were anticipated to be 32.4% of sales for the nine-month span.

“On the surface, it is performing kind of like Whole Foods,” said Giblen, citing the margin and same-store sales performance. “The question is, is that sustainable?”

The company could face increasing competition from fast-growing Whole Foods and other operators, he said.

Currently Fresh Market operates 24 stores in Florida, 15 in North Carolina and 10 in Georgia, with the rest scattered from Louisiana up to the Chicago area and across to Massachusetts.

Stores average about 21,000 square feet and are all located on leased sites. They feature extensive perishables offerings, which generate about two-thirds of total sales.