Specialty retail is quite in vogue recently. People generally prefer to have food that is good for health and reach out to specialty retailers for such things. Natural food, in particular, is something that has become very popular these days. Health conscious people prefer to have organic and natural food to the customers.
However, due to the rising popularity of this segment, there has been an increase in competition, too. There is a large number of players who offer natural and organic food to the customers, trying to make the most of growing demand. The Fresh Market (TFM, Financial) is one of the prominent players that is performing well due to its products and well-made strategies. It managed to beat the Street’s estimates in two of the last four reported quarters. Even the recently reported third-quarter results were ahead of the estimates, enabling its shares to rise. Let’s understand further.
The quarter in detail
Sales for the quarter jumped 15.1% to $419.5 million, over last year. This was higher than the analysts’ estimate of $413.2 million. The retailer witnessed a great demand for its products, which resulted in a 3.3% jump in same store sales. There was an increase of 3% in the number of transactions and a jump of 0.3% in the average transaction size. Further, Fresh Market opened six new stores during the quarter, which helped the revenue grow.
The gross margin of the company fell to 32.9% from 33.5% in the previous year. This decline was due to cost inflation, which was not passed on to the customers but was absorbed in the company’s costs. Also, the company continued to promote its products heavily despite an increase in costs. These factors resulted in shrinkage in the margins. Nonetheless, adjusted earnings of the company rose 17.6% to $0.27 per share, over the prior year’s quarter. The bottom line slightly missed on the analysts’ expectations.
Competition
The retailer promoted its products heavily in order to attract more and more customers. This is important since it faces stiff competition from other similar players in the industry. For instance, Whole Foods Market (WFM, Financial) is a prominent rival, which offers organic food to the affluent part of the society. Through measures such as providing discounts, opening in-store wine bars and opening new stores, the retailer has managed to attract more customers. Therefore, its revenue surged 9% in its last reported quarter. Also, its earnings jumped higher, surpassing the analysts’ estimates.
Future
The Fresh Market expects to have a smoother quarter and an impressive fiscal year. It announced that the company expects to register same store sales growth of 2.5% to 3.5%. Also, it plans to open 20 new stores during the fiscal year. This shows that the company is optimistic about its future.
My take
It is obvious that the company is on the right path and is moving towards growth. Higher promotions, expansion of products, great numbers and a bright future makes Fresh Market an interesting pick. Furthermore, the upcoming holiday season is something to look forward to. This is the peak season for any retailer, wherein it makes most of its money for the fiscal. Thus, investors should continue to hold on to this organic food retailer.
