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The Fresh Market Sees Sales, Profits Grow

GREENSBORO, N.C. The ability to pass along inflation and drive bigger baskets while controlling costs helped The Fresh Market here post its seventh consecutive quarter of 4%-plus comparable-store sales last week. The 107-store chain beat analysts' expectations for the second fiscal quarter with net income of $10.5 million, vs. pro forma profits of $6.9 million a year ago, and a 13.6% increase in sales,

Donna Boss

September 5, 2011

2 Min Read
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MARK HAMSTRA

GREENSBORO, N.C. — The ability to pass along inflation and drive bigger baskets while controlling costs helped The Fresh Market here post its seventh consecutive quarter of 4%-plus comparable-store sales last week.

The 107-store chain beat analysts' expectations for the second fiscal quarter with net income of $10.5 million, vs. pro forma profits of $6.9 million a year ago, and a 13.6% increase in sales, to $259.5 million. Comps rose 4.6% in the period, including a 1% increase in transaction counts and a 3.6% increase in basket size.

New-store development also remained robust, with five new stores opened during the quarter and a total of 12 to 14 planned for the year.

“We continue to be encouraged by our new-store performance in both existing and new markets,” said Craig Carlock, chief executive officer, in a conference call with analysts.

During the second quarter, The Fresh Market opened new stores in Boca Raton, Fla.; Evansville, Ind.; Pawleys Island, S.C.; Montvale, N.J.; and Vienna, Va. It recently signed leases for stores in Milwaukee; New Orleans; Richmond, Va.; and Pinecrest, Fla.

“The primary risk to the [company's] story is that the company encounters execution issues with its rapid store expansion,” noted Edward Aaron, a Denver-based analyst with RBC Capital Markets, although he remains positive on the company's prospects.

“Stable sales trends, firm gross margins and good new-store productivity validate [The Fresh Market's] growth plans, in our opinion,” he said.

He cited the company's gross margins of 32.7%, which expanded 100 basis points year-over-year, and reduced operating expenses.

“As revenues grew, we also continued to expand our margins,” Carlock said. “In the second quarter, we increased our operating margin from 5.2% last year to 6.5% this year despite pressure from rising food and commodity costs and despite the additional costs incurred related to being a publicly traded company.”

Through the first half, net income totaled $24 million, vs. pro forma net income of $19.1 million a year ago. Sales totaled $524 million, up 11.8%, and comps rose 4.3%. The company projected comp-store sales gains of 4% to 5% for the full year.

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