Will The Fresh Market Improve on Its Fiscal 3Q16 Earnings?



Fiscal 3Q16 earnings review

The Fresh Market (TFM) reported sales of $433 million in fiscal 3Q16 (which ended October 25, 2015), missing the consensus estimate by $3.1 million. The company saw a 3.3% year-over-year increase in sales, purely because of store unit growth. Comparable store sales were down 3.7%, entirely due to a 3.7% loss in traffic numbers. TFM has been unsuccessful in competing with the bigger grocery chains such as Kroger (KR) and value-based organic players such as Sprouts Farmers Market (SFM) on the other hand.

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Operating margin was down to 3.9% in fiscal 3Q16 compared to 5.8% in fiscal 3Q15 on account of higher store labor expenses due to lower comparable store sales and increased investments in marketing and store productivity programs. Adjusted net income was down 15% as compared to the same period last year. However, the company managed to beat the consensus EPS (earnings per share) estimate by $0.01 and reported 3Q16 EPS of $0.23.

Recent earnings updates of peers

TFM’s two major competitors, Whole Foods Market (WFM) and Sprouts Farmers Market (SFM), reported their earnings in February. Sprouts Farmers Market delivered a solid performance and registered a 7.8% increase in its same-store sales for the quarter ending December 2015. It topped consensus estimates for both sales and EPS by $20 million and $0.02, respectively.

Whole Foods Market, on the other hand, reported a 1.8% decline in same-store sales. However, the company’s performance was better than Wall Street’s estimates, as the company reported EPS of $0.46, beating the EPS estimate by $0.06.

Kroger (KR), which is believed to be involved in a bidding process to acquire TFM (per Reuters), will report its earnings along with TFM tomorrow.

The Fresh Market (TFM), Kroger (KR), Whole Foods Market (WFM), and Sprouts Farmers Market (SFM) are part of the SPDR S&P Retail ETF (XRT) and account for 4.1% of the index weight.

What next?

Fiscal 3Q16 was far from being a satisfactory quarter for TFM. Before the company releases fiscal 4Q16 and fiscal 2016 earnings tomorrow, move on to the next part of this series to read about the company’s guidance for fiscal 2016.


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