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The Fresh Market Posts Higher Q2 Sales; Comps Down

The Fresh Market reported net sales of $442.1 million for its second quarter ended July 26, a 4.7 percent increase from the year-ago period, while comparable-store sales dipped 1 percent to $392.7 million. The company attributed the comps decline to a 0.7 percent decrease in the number of transactions and a 0.3 percent decrease in average transaction size.

The grocer's gross profit for Q2 grew 3.7 percent, or $5.3 million, to $149 million, compared with last year. Meanwhile, net income was $17.5 million, up from $11.4 million in the year-ago. Adjusted EBITDA was $46.4 million, versus $46.2 million last year, an increase of 0.5 percent.

"Our second-quarter results reflect changes in our pricing and promotional investments, which were less effective than anticipated in a more challenging macro environment," acknowledged Sean Crane, interim CEO of the Greensboro, N.C.-based specialty grocer. "However, the financial health of the business remains sound as we continue to deliver some of the strongest adjusted EBITDA margins and returns on invested capital in the industry. We are committed to increasing our profitability as we work to stabilize and improve our future comparable store sales. As we move forward, we remain focused on our initiatives to build The Fresh Market brand, elevate our in-store experience and food offering, and capture greater operational efficiencies."

First-half Results

For the 26- week period ended July 26, The Fresh Market's net sales were $904.1 million, a 6 percent increase from the year-ago period, while comps declined 0.6 percent. Net income was $32.6 million, compared with about $28 million last year. 

During Q2, The Fresh Market opened six new stores: two in Texas and one each in North Carolina, Georgia, Louisiana and New York. As of July 26, the company had 174 stores in 27 states. Management's outlook for the 53-week fiscal 2015 includes unit growth of about 18 new stores and the remodeling or refreshing of nine to 10 locations.

"We believe that our strategic initiatives will better position The Fresh Market to compete long-term," said Crane. "We remain focused on evolving our operating model to provide customers with a unique and differentiated grocery shopping experience, although we expect that it will take time to fully realize the benefits of our efforts. Based on year-to-date results and the current operating environment, we are lowering our previously issued sales and earnings guidance for fiscal 2015."

Stock Repurchase Program

Additionally, The Fresh Market's board of directors this month authorized a $200 million stock repurchase program, with the main source of funds to be cash flows from operations net of investing activities. Repurchases are expected to begin during or after September 2015.

"This stock authorization reflects our strong, debt-free financial position, continued confidence in our long-term growth opportunities and commitment to building shareholder value," said CFO Jeff Ackerman. "While investing in our growth initiatives and building The Fresh Market brand remain top priorities, our business generates a considerable amount of free cash flow even after funding these investments. This authorization will allow us the flexibility to achieve our growth objectives and best manage our free cash flow by allocating capital to stock repurchases and return cash to shareholders."

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