Organic and natural food company The Fresh Market (TFM, Financial) reported better-than-expected results for the second quarter 2014. Its results were mainly driven by the exceptional performance of its new stores and turnaround strategies that the company is executing for quite some times now. In addition, the company continues to see tremendous growth prospects in its core markets that should drive its sales and merchandise margins in the second half. This strong results and growth prospects led its stock to gain nearly 6.2% to $30.43 aftermaths.
The grocery store operator for the second-quarter reported revenue of $422.2 million, an uptick of 19% from $354.8 million last year in the same quarter, beating the analysts’ estimates of $411.85 million in revenue for the quarter. However, net profit declined approximately 27% to $11.4 million or earnings of $0.36 per share as compared to $15.6 million or earnings of $0.32 per share in a year earlier quarter. The significant drop in its net profit was due to the higher cost of $9.8 million associated with the closure of stores in California and Taxes. The analysts had forecasted earnings of $0.35 per share for the quarter.
Growth-oriented initiatives
Looking forward, the company is focusing on the various strategic moves such as opening up new stores, packaging, marketing and sales forecasts tool that should increase its sales in the second-half of the year. The Fresh Market is effectively engaged in rolling over new stores and increasing sales capabilities at its existing stores to match the farfetched opportunity it has in the organic and natural food market.
In fact, the organic food market has huge potential in the United Sates. As per one the reports , the organic food market in the United States is expected to grow at a compounding average growth rate of 14% from 2013 to 2018. The reports further states that there remains huge demand for organic food market in the Western Part of United States that should certainly drive The Fresh Market’s revenue in the remaining half of the year as the growing awareness and strong domestic production are rising in the region.
The Fresh Market anticipates inaugurating approximately 22 new stores this year, which fell short from its earlier forecasts of 23 to 24 new stores openings. The company has opened 13 new stores so far this year. It inaugurated 4 new stores during the second-quarter one in Upstate New York, one in Houston, Texas and two in Florida. Its new stores are gaining tremendous market traction.
The Fresh Market observed approximately 2.7% growth in its comp stores during the second-quarter. Both the new stores as well as the comp stores continue to grow at a healthy pace. The company witnessed an improvement of 93.8% to 310 basis points in stores which are less than a year as compared to 160 basis points it had a year earlier in the same quarter.
More initiatives
The grocery store operator is also seeing great momentum in its new stores in the Southeastern United States, which are relatively producing better results. In addition, The Fresh Market is busy in promoting its brand capabilities through various modes such as word of mouth, brand equity and strengthen in customer loyalty. These efforts should drive its sales in the region in the remaining half of the year.
The company now operates about 104 of its 160 stores in the Southeast. Also these stores are now looks pretty attractive as the company has raised the store growth potential of these stores to almost double the store growth in had earlier in the region. Also, these stores now remain quite strong in terms of competitive openings, site availability, and excess cannibalization that should enhance its profit and operating profit margins in the future.
All-in-all the company looks good to invest as the company is making various turnaround that should advance its chances of growth in the future. It is also offering a differentiated style of packaging that outdates the legacy method of packaging products like can soup, cereals, or detergents that were quite apparent to compare them on the basis of prices.
Also, the company should benefit from the unmatched position it has earned in the fresh produced meat, stable groceries , prepared foods and various other natural and organic food options it has undertaken in most of its stores in order to engage customer service and appealing atmosphere. Besides, the company is also concentrating on the quality, taste and service that should certainly create a unique selling proposition for the company in the future.
Wrapping it up
The Fresh Market is currently trading at the trailing P/E of 41.11 and forward P/E of 19.20 that indicate that the stock has potential of delivering an improved yield going forward. Moreover, its PEG ratio of 1.43 expected for the five years continues to support its growth prospects. Also, the analysts have estimated a CAGR of 15.55%, which is greater than average industry CAGR of 13.17% for the next five years, which reveals remarkable potential for the company in the long run.
