Fresh Market Q3 Results Miss Estimates, Trims 2014 Earnings Outlook

(RTTNews) - Specialty grocery retailer Fresh Market Inc (TFM) reported Thursday a profit for the third quarter that grew from last year, reflecting improved operating margins and double-digit sales growth.

Both adjusted earnings per share and quarter sales missed analysts' expectations. The company also trimmed adjusted earnings guidance for the full-year 2014, while raising same store sales outlook.

"We are pleased with our fiscal third quarter results. We generated a 3.3% increase in comparable store sales as we benefited from our efforts to drive customer traffic and grow basket size in a more competitive environment," President and CEO Craig Carlock said in a statement.

Greensboro, North Carolina-based Fresh Market posted net earnings of $14.88 million or $0.31 per share for the third quarter, higher than $11.06 million or $0.23 per share in the prior-year quarter.

Excluding store closure and exit costs of $0.04 per share, adjusted earnings for the latest quarter were $13.02 million or $0.27 per share.

On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $0.28 per share for the quarter. Analysts' estimates typically exclude special items.

"We delivered a 17.6% increase in adjusted earnings while proactively choosing to absorb rising cost inflation and continuing to promote key product categories that we know our customers value most," Carlock noted.

Sales for the quarter increased 15.1 percent to $419.45 million from $364.46 million in the same quarter last year, but missed eighteen Wall Street analysts' consensus estimate of $413.25 million.

Comparable store sales Increased 3.3 percent to to $350.3 million, driven by an increase in the number of transactions and a 0.3% increase in average transaction size.

Operating margin for the quarter improved 60 basis points as SG &A expenses as a percentage of net sales decreased 40 basis points.

Gross margin for the quarter contracted 60 basis points to 32.9 percent, primarily due to the company's decision to absorb higher cost inflation and continue promotions in key product categories.

The lower margin pressures were partially offset by an improvement in occupancy cost as a percentage of net sales amid a drop in pre-opening rent on higher sales.

During the third quarter, the company opened six new stores, including stores in New Jersey, Virginia, Tennessee, Florida, California and the company's first store in the state of Iowa. As of October 26, the Company operated 164 stores in 27 states.

Looking ahead to fiscal 2014, Fresh Market trimmed adjusted earnings guidance to a range of $1.56 to $1.64 per share from the prior forecast in the range $1.56 to $1.66 per share. Same store sales growth is now expected between 2.5 percent and 3.5 percent, up from the previous projection of 1.5 to 3.5 percent. Street is currently looking for full-year 2014 earnings of $1.57 per share.

The guidance excludes anticipated store closure and exit costs of about $0.17 per share related to the previous store closings.

"As we look to the fourth quarter, we are focused on providing exceptional food shopping experiences to our customers during the holiday season," Carlock added.

TFH closed Thursday regular trading session at $39.71, up $0.17 or 0.43%, on a volume of 1.72 million shares. However, the stock lost $0.71 or 1.79% in after-hours trading.