The Fresh Market Eyes an IPO

Almost exactly five years since it announced an acquisition by the private equity firm Apollo Global management, specialty grocer The Fresh Market is looking to go public again.

The Greensboro, N.C.-based retailer said March 12 that it had confidentially filed an S-1 stock registration statement with the U.S. Securities and Exchange Commission related to a public stock offering. The number of shares to be offered and the price range for the proposed offering have not yet been determined.  

The company said it expected to use the proceeds of the offering for general corporate purposes, which may include the repayment of indebtedness. The IPO is expected to take place after the SEC completes its review process, subject to market and other conditions. The move to file confidentially allows for the company to review its presentation of its financial picture with federal authorities and select institutional investors outside the eyes of competitors.

News of the filing follows a credit upgrade last month from the Moody’s Investors Service rating agency, which cited improving sales and profitability trends at the chain that have improved its debt-to-EDITDA leverage.

“Fresh Market’s top line and EBITDA has demonstrated an improving trend since 2019 and got a further boost from pantry loading during the pandemic as consumers increased transaction sizes while lowering the number of trips to the store,” Moody's VP Mickey Chadha said. “Although the recent unprecedented sales growth is expected to moderate in 2021 and the industry will remain highly competitive, we expect leverage to remain below 5.5x in the next 12 months.”

Moody’s improved its ratings in February on Fresh Market’s corporate family and its probability of default to B3 from Caa1—upgrading from what the agency defines as “poor credit quality” to “speculative.” A “stable” outlook assessed by Moody’s indicates its belief The Fresh Market will maintain its debt leverage below 5.5x despite anticipated sales declines as it laps last year’s pandemic-related sales gains.

According to Moody’s, same-store sales at The Fresh Market is expected to have improved by about 20% in 2020, while investments under Apollo’s watch have improved operating performance, including reductions in shrink, the addition of curbside and delivery and emphasizing quality improvements in fresh meat and perishables.

Apollo took Fresh Market private in 2016 for about $1.36 billion following the chain’s review of strategic alternatives and repercussions of an aggressive store-expansion strategy that saw it needing to reel in far-flung stores in California and Texas. Since the acquisition, the company has had three chief executives: Rick Anicetti was succeeded by Larry Appel in 2017, and Jason Potter succeeded Appel last March. Apollo at that time acknowledged that the chain had already begun seeing improved results under Appel, and saw Potter, a former Sobeys operator, a key to accelerating the operating turnaround.

Fresh Market operates 159 stores in 22 states. According to Moody’s, it recorded sales of $1.7 billion over the 12 months ending Oct. 25, 2020. The store, established in 1982, historically has specialized in service-forward presentation and assortment of perishable foods in a small format that analysts have said was appropriate for a market where staple grocery items are moving to online replenishment. However other fresh specialty stores have encountered financial issues in recent years, including Earth Fare and Lucky’s Market, each of which liquidated a year ago. Another, Sprouts Farmers Market, is in the midst of a brand transformation, with one analyst speculating it too might accomplish that work under the watch of a private holder like Apollo.

Apollo has been a frequent grocery investor. It also owns the Los Angeles-based Smart & Final chain.