The Fresh Market (TFM, Financial) reported solid numbers for the third quarter, which was mainly driven by its efforts to grow store base and drive customer traffic. Although EPS was below estimates but revenue topped the street expectations with both revenue and net income reporting year over year growth. Led by its strong numbers the stock is currently trading near its 52-wek high with better prospects in the days ahead. Lets have an in depth analysis of this stock.
Gaining ground
The retail industry has been very active lately on the back of holiday season, which was followed by Christmas and New Year. And this was evident in Fresh Market’s results as well. During the quarter its comps increased 3.3% driven by 3.0% growth in customer traffic and 0.3% increase in basket size. The company continues to benefit from its weekly Center of the Plate promotions coupled with incremental promotions of complementary items. This has enabled the company to achieve its highest quarterly transaction growth in two years.
Even in the wake of a tough competitive environment its strong top line performance was quite encouraging, which helped the gourmet supermarket chain to leverage its SG&A expenses and partially offset the lower gross margin in the quarter. And now with the opening of six new stores during the quarter, the company seems to be track to continue its growth momentum. It even opened its first store in the state of Lowa and received a good response from its customers.
Going forward, one of its main focus would be to establish itself in the minds of its customers as the best choice for special shopping trips. Not only this, but the management will launch new initiatives that will inspire them to shop more often, to increase their special food experiences. Its weekly meal deals and weekend specials act as catalysts in this direction and Fresh Market will also deepen its engagement with its customers.
The direct mail campaigns introduced in the beginning of the year were intended for this purpose and as a result of its success the company has expanded these efforts in the fourth quarter. With these initiatives in place, we could expect the customer traffic to improve in the days ahead further adding to both its top and bottom line.
Conclusion
All in all the company seems to be well on track to deliver another year over year growth in the upcoming quarters. The company currently has a trailing P/E of 44.26 but its forward P/E looks impressive at 22.5, reflecting improvement in its earnings. Moreover, the stock has risen considerably in the past few months and considering its future prospects we cold see more upside to this stock.
