Natural and organic food retailers are indeed having a great time since the growing popularity of such foods is bringing in more revenue. People have become health conscious and they look for healthy offerings even if they come at a higher price. Moreover, such retailers seem to be less affected by the macroeconomic conditions such as lower consumer spending and colder winters.
This is exactly what happened with The Fresh Market (TFM), a natural and organic food retailer, which posted a blockbuster quarter, sending its share price higher.
Onto the Results
Revenue for the quarter stood at $431 million, an increase of 18% over last year. The top line was driven by same store sales increase of 2.5%. This is indeed remarkable since most of the retailers are finding it difficult to even register positive same store sales. Sales at existing stores increased as both number of transactions and average transaction size grew over last year’s quarter. Average basket size grew 0.7% and the number of transactions increased 1.8%.
The retailer also added seven new stores during the quarter, which contributed to the surge in revenue. Higher promotions and marketing efforts during the Easter holiday lured more customers to the retailer, resulting in higher sales.
However, earnings for the quarter dropped 7% to $0.43 per share mainly because of higher costs. The company witnessed an increase in input costs, which led to shrinkage in gross margin. Also, costs related to store closures, reduced the bottom line by $0.09 per share. Moreover, Fresh Market’s efforts into heavy promotions resulted in higher costs.
The Competitive Front
The Fresh Market faces stiff competition from retailers such as Whole Foods Market (WFM) which is one of the leading industry players. It provides premium organic food to the affluent customers. The retailer has a much larger presence with a revenue base of $3.3 billion. Also, its recent quarter witnessed better gains than Fresh Market, though it failed to meet the estimates. Its revenue surged 10% over the prior year and same store sales grew a whopping 4.5%. Moreover, its earnings were flat over last year as higher cost of promotions weighed on the bottom line. Whole Foods plans to expand its presence further by opening a total of 400 new stores by 2015. This will make the retailer grow bigger in size and stature.
Positives to Be Considered
Nonetheless, Fresh Market too has some plans to grow its business. Even Fresh Market plans to open 23 to 24 new stores during the year, which will give more exposure to the retailer. This is in addition to the program of remodelling old stores to make it more attractive. The company will be remodelling 4 to 5 stores during the year.
Additionally, the organic food retailer has reaffirmed its outlook for the year, which shows as a bright spot. It expects same store sales to grow in the range of 1.5% and 3.5%. Also, it expects earnings to be in between $1.56 per share and $1.66 per share.
Organic and natural food industry have grown over the time and continues to resonate well with customers. Therefore, retailers who provide such products should benefit from this uptrend. Moreover, these retailers posted great results despite the harsh winters which affected store traffic. Therefore, Fresh Market is set to do even better when spring season sets in. For the simple reason that people would continue to eat to stay healthy, retailers such as Fresh Market should be invested in.