Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

The Fresh Market (NASDAQ:TFM)

UBS Global Consumer Conference

March 14, 2013 13:30 PM ET

Executives

Craig Carlock - President & CEO

Analysts

Jason DeRise - UBS

Operator

Jason DeRise - UBS

So I guess we will get started. So in case you don’t know me I’m Jason DeRise, I cover the Food and Drug Retailers and taking up the broadline space. I have here at Fresh Market here, the CEO, Craig Carlock is going to give a small presentation and then we’re going to do the typical fire side chat that we have been doing all conference if we’re going to do with the (inaudible) to make sure that anybody who is shy or wants to protect their anonymity in terms of the questions can feel free to ask those questions. One thing I actually wanted to tell about Craig that I like about him is that he is actually a CPG guy originally which is you know like me covers European Beverages but he started at Fresh Market in ’99 and actually started in marketing but he has got a finance background I think at P&G so has also moved up to the ranks to CEO but I think that having that I don’t know because like I said I used to cover CPG, I think I had CPG side and then coming at it without the sort of baggage that some of the traditionally poorly run supermarket tab, I think it's actually an edge.

But I will start rambling here, I will talk some of the Craig, he will do a presentation and then we will do the fire side chat. Thanks.

Craig Carlock

Thank you Jason, Ken and I are very glad to be here. I want to take your first minutes just make general comments and perhaps introduce some of you to our company and then we will move to the question-and-answer which I know is more dynamic. The first point is just the comments I will make today and the prepared remarks and the questions are subject to traditional safe harbor statement. I always have a need to say that and I think you all know that but anyway we’re very pleased to be here. First point I like to make when talking about company or industry is and where we fit is to talk about the industry in general and the grocery industry in general and we participate in this, it's moving toward healthier eating choices, fresh high quality offerings, regionally and locally sourced products and we’re certainly in a great position to participate in that and we participate now. Data would say perishable sales of food or growing it twice the rate as non-perishable sales and so you know our store is 2/3rds perishable so again we’re in a good position to participate in that and then as folks age and we sell to and do very well with middle age and older customers. So demographics age wise work in our favor as well.

A second point we would like to make is that customers are increasingly shopping at places that provide a better experience and we work very hard in our stores to provide a great shopping experience, where you to go in I think you will would see pretty immediately the store looks and feels different than a conventional grocery store and you really can have a better shopping experience. The stores is pleasing to the senses, when you walk in you’re going to be greeted with the aroma of freshly brewed coffee that we let you sample for free and carry throughout the store, our bakeries are intentionally designed to be open so as we bake bread or cookies or pies the aroma circulate throughout the store. We have four department right at the beginning, you get the aroma and the senses of multi-colors right there. So a little profile stores, you can see across the store and we talk about lighting of fences, the design is very intentional that way and has been for years.

It's also a small store so that makes it very convenient, our stores are about 20,000 square feet and have about 10,000 skews, so about 20,000 skews over the course of a year, a lot of seasonal in and out to 10,000 skews at any one time. So it's easy to get out, it's a filter added to the assortments so it's easy to shop and then it looks good and smells good as you’re in the store. Final point is that food quality, we intend to make outstanding I think where you two compare the products specifications of our food to other food retailers you have finally stacked up very favorably. We think the food experience at home actually begins in the store. We want you to have a great time shopping, we want you to enjoy picking out your food, we want you to enjoy the service interaction you have at our service counters and then when you eat it we want to say wow that was great tasting food.

So we work very hard at our precious food and great product specifications. Second point we want to make so we talked a little bit us and our industry. We have a history of growth, there is just no question about that and one of the reasons that we’re so confident that we can grow in the feature is because we have been so successful growing in the past. The top chart speaks to this, you can see that we’re including 2008 and 2009 in this five year CAGR but our sales have grown 13% over the last five years including two recession years and we had 20% growth last year.

So we came out of the recession we wanted to accelerate growth and in fact we have I would also point out that we have the last three years have comp to 5% or better, so we have had couple near 5s and the last year was a 5.7%. So good steady growth in comps, really good top-line sales. We have three areas for which we can report earnings per share where we have been public and you see that we have gone from $0.86 a share to a $1.07 to a $1.33 so that’s better than 20% profit growth for the last two years, the only two that are available.

So really a great tradition of growth and then where we had to talk about I would say our people are geared to thinking about growth. Let’s talk about the white space that because we can grow we can take advantage of it and I would think about it in a couple of different ways, the first point is that it's geographical I mean it's quite clear that we have only one store right now in the West Coast and we have done studies and the country can support 500 fresh markets, we’re sitting at a 130 today so we’re around 25% saturation so there is ample space to grow. The one of the ways we can take advantage of that space is that our box is very versatile. So we can go in to second generation space and that space can be configured any number of different ways than we can be successful there. We can take stores that are very narrow and deep and we call those bowling alleys, we can take stores that are shallow and wide and we call those tennis courts. We can go into parcels right on the hard corner, we can go in-line, we can certainly go into some place where developer is building something new. So there is really at 20,000 we’re very flexible and we can go in and take advantage of a lot of different spaces. We can go in behind retailers who are leaving and uprooting, we have gone into 5 to 10 former of book stores in the last couple of years, and we’re available to take advantage of things that are going on in the real estate marketplace. We’re trying to accelerate our unit growth to 15% per year, we slowed very intentionally our unit growth during the recession and I think you can see at the bottom chart points out that we added 8 stores in 2010 and then we had 13 stores in 2011 that’s 13% growth.

We added 16 stores last year we got the 14% and then we guided to something higher for this year I will get to that now, so great white space, great demographics that we can take advantage of and we have a long history of taking down and growing organically of sure count. Couple of thoughts on the year and then next year 20% sales growth, 5% comps, we’re guiding to 2 to 4 because of how we finished up in the fourth quarter, I think it's a realistic assessment based on the momentum we saw in the fourth quarter, we have improved our handsomely last year. We have a long history of growing margins, I think if you were to study the grocery space you would find our margins very, very compelling and we’re very proud of them, we have been able to do a good choices and do some smart things to get the right amount of perishable food into the right stores and have the right level of shrink and grow our margins. We’re forecasting less margin expansion this year than we experienced last year so fairly modest margin expansion and then we’re forecasting profit growth in the 14% to 19% range, that’s really a result of a couple of things. One is we’re projecting lower comps and the second point is that we’re projecting later in the year opening so we’re going to get our 19 to 22 stores open for the revenue and earnings from those stores will be less meaningful because we’re not going to be open as long as say the stores were this year. So we’re talking about 20 weeks next year on average for our new stores that will be opened it was close to 27 weeks last year.

You see the store count there, 16 last year we’re talking about 19 to 22, 3 to 5 remodels, capital spending goes up quite a bit next year, that’s related to a few things let me just pause and try to and knock those out. I want to say we have more stores are going from 16 to 19 to 22 the remodels has caused every bit as much as a new store and so in our capital forecast protects for all five remodels to occur. We’re going to spend capital in 2013 on stores that will open in 2014 because 2014 should be a more normalized schedule and that will be a little bit different than last year because we didn’t have as many new store openings in the front half of this year, we spent less last year in capital than we will at the end of this year and then there is more as is deals, as is deals caused us a little bit more in capital we get a back end rent so economically we get to a point of a difference in terms of our returns but the capital involved is a little bit higher and so we have more as is deals as a fraction of the total.

So those are comments on last year’s financial performance and the guidance and because I have referenced 2010 which was a year that was partially private and partially public. We got a reconciliation and I will just point you to the website if you want to get through the reconciliation I’m not going to go through that but that’s something we need to do, okay?

Question-and-Answer Session

Jason DeRise - UBS

So we will have the cards I believe that while that comes around I will start it off I guess obviously the let me get started, maybe I long term I have a feeling some people want to think about very immediate term but maybe we will start long term we will come back I’m sure it will come up but as you’re thinking about the square footage growth in the 15% range going forward how are you thinking about putting those stores in to get to that 500 in terms of are you trying to go near Whole Foods and Trader Joe’s and others or are you trying to stay away from them? How do you think about that 500 stores?

Craig Carlock

The way we think about it is we identify Trader is where we like to be and some of those trade areas are going to have specialty competitors and some won't it tends to be that the trade areas without specialty competitors are smaller towns and so we will be getting a large share of a smaller pie but then there are trade areas that have lots of competitors but the trade area is so dynamic and the population density is so high that there is room for us to get our share. So there are really aren’t trade areas that we say are too competitive or this or that. I mean we’re going to go into Palo Alto and California very competitive, Trader Joe’s, there is Whole Foods in the year, there are some Northern California, independents in the area and we’re going to try to get our share of a pretty big pie next week we’re going to open an Aiken, South Carolina, many of you haven't heard of Aiken, South Carolina and we’re going to be heroes in that town because we will get, we will be the only specialty competitor in a pretty small southern town. So we can both places so to us that’s the great thing about the model is that it's small enough to break even as low enough but we can go to lots of different places and we get our share.

Jason DeRise - UBS

Part of what you said about who are targeting obviously it's higher income, higher education which I think is similar to what those other chains talk about but you also talk about maybe an older demographic and I guess Aiken is I guess from what I understand is an older demographic there. So, I don’t know if there is any way to share of the 500 goal is that something that you just feel is different than what the others are doing that you have some white space that they are not looking at or?

Craig Carlock

I think it relates to the economic so our average volumes are probably less than theirs, our capital is less theirs and so we can get into these places and still achieve a good return and so that’s what we try to do.

Jason DeRise - UBS

And don’t be shy with the cards that the number of people writing down but just also to follow-up on these like geographic competition idea, when you’re in a market and let’s say you’re first to be in that market and then a Whole Foods opens up or a Trader Joe’s opens up what is the impact on your stores and let’s flip it around the other way if you’re the third of a market for example the store that we toured back in September (inaudible) referred to that market how do the economics differ?

Craig Carlock

Well I think that we would rather our competitors not open on us but we recognize it's inevitable and I think we see a range of competitive a range of responses from our customers, so there are some markets where we have the best site, we’re executing well. They open five miles away and there is literally no impact and so that’s a great scenario for us. There are other times where we’re here, the principal part of the trade area is here and a competitor opens in a middle and cuts us off from the trade-area and that’s where we feel a substantial impact but in no cases there is a competitor opening really move us from profitable to unprofitable or ever make us regret having open the store what happens is like in the case I described is the painful ones is our sales will drop and then they will begin the comp from there, we comp up from a lower base. It doesn’t happen that they open, we drop and we drop again.

So at the best there is no impact at worst there is some significant impact but not enough to make us change our prices or change our deliver model or change our margin structure. It drops us down and we grow from there.

Jason DeRise - UBS

Okay.

Craig Carlock

I mean our best stores are in trade areas with specialty competitors because those are great trade areas. So, if we were to run from our competitors we will be running from some of our very best stores. I think three of our top five are markets for the whole foods for six of our top 10.

So it's not as if we can’t succeed quite well with competitors in the area. Again we rather not save them but I think my plan is we’re competitors in every single trade area and we’re just lucky for now. I mean it's (inaudible) so we’re not going to cross our fingers and hope it doesn’t work. We’re preparing every day for it.

Jason DeRise - UBS

I think this is a common question I know it's came up this morning but your comps around 5%, I think the long term guidance is 3% to 5% maybe there is benefits as you open up the stores to that. But yeah we have Whole Foods talking about 8%, there is a chain on the West Coast that was at ICR briefly talking about very high growth rates you know how do you explain the difference I mean in your model versus their model in terms of the comps but…

Craig Carlock

I think that you know what we focus on is what frankly we know how to do and so what we’re trying to do is open units and then open them very profitably and grow the chain. So we struggle to explain exactly why we don’t comp as well I mean one explanation is that our stores open closer to their eventual run-rate so they open more productive in the 80% to 90% level and I have heard and you have all helped (inaudible) made Whole Foods and others open at a lower level of productivity, we open 80% to 90% so we don’t quite get the same tail-win when stores enter the comp set. I think that’s plausible.

I think that we have measured our comp performance in markets with Whole Foods and frankly we comp better around Whole Foods, we suggest there is a geographic explanation that some so we actually are seeing, our sale store sales rise more as we’re in the same market so that’s kind of interesting but I’m hard pressed to explain you know why and beyond that.

Jason DeRise - UBS

I mean if you’re opening up stores well this year I think the average, I don’t think you said it on the quarter but you know we get the numbers I think it was 90% productivity or your stores for the year. I mean does that affect the comps going forward that you’re closure to 100% and?

Craig Carlock

Well that’s what I’m trying to suggest. I think opening higher does that but you know that’s the best explanation I know that covers the whole explanation.

It's essentially what’s your opening level relative to your eventual run-rate or your company average run-rate.

Jason DeRise - UBS

So I will think about on revenue per square foot on non-comparable versus comparable stores whatever company definitely. All right to keep those cards coming in so let’s talk about the last quarter, so obviously comp sales were below 1.9%, you had difficult comps but the commentary around what caused that was that the traffic really was under pressure in November and December, I know you tried to explain on the conference call but maybe what would you add to what was said on the conference call maybe people don’t quite understand about that.

Craig Carlock

So what we have trying to paint a picture of on the conference call, as came into the quarter with great momentum in the business, we had 8% comps the first two months of the year 5.5 or so the third quarter so we’re like 7% running really strong and things changed for us pretty suddenly in early November so the first week of November if you remember it was Hurricane Sandy it was all disruption, the second week of November will be election and I was careful because I don’t want to make part of the comments but just factually I will just remind everybody that the Dow Jones industrial average dropped about 700 points five to seven trading days after the election and that’s exactly when our traffic dropped. I mean there was a reaction among people who have middle to high income which is our customer to the prospect of the fiscal cliff and the higher marginal income tax rates and so we saw our traffic drop pretty universally across the chain and then we saw that kind of be difficult for November and December and we saw some stabilization in January once the legislation was passed and there was more certainty about things.

Let’s careful on the call I’m not a political scientist, I’m not an economist but factually that’s what we saw, we saw the drop the second week in November it was rough going through November and December it improved in January and that’s a little more color maybe we tried to point people in that direction on the call without stretching too forward and you know political commentary.

It was pretty sure we checked regionally, we checked by city, I mean we checked a lot of things. We saw a drop pretty universally on timing and so but that make sense, I mean if you think about our customer and who is shopping with us for two or three out of a 100 if you skittish about a discretionary seasonal purchase and it's very conceivable.

Jason DeRise - UBS

When you think about your business model I mean would you say it's more cyclical than just the competitors you compete against conventional and high end I mean if you go back to the history of fresh market when there is concerns of the high end obviously mostly on negative comps during the last recession.

Craig Carlock

It's a good hypothesis but I don’t know that we have enough data because everybody was so moved around in 2008 and ’09 it's probably too hard to compare but certainly this time around I think there is no question that our trend was arrested more than other people’s.

Jason DeRise - UBS

I think a lot of people have asked this same questions and have you so hope you can just talk about improving their value proposition they got a (inaudible) that’s a relation of the build they are pay check of the individual. You feel that that has an effect on you maybe, maybe it's not the individual items but because you’re premium and you have you know you don’t obviously you can buy groceries anywhere you need to eat. So you don’t need to shop at the fresh market, is that really what’s happening here why wouldn’t need to make a response to that?

Craig Carlock

Well I think that there is two reasons why we don’t want to just jump in behind them, the first one is that our prices we believe are fair and in my cases lower than theirs and I can point you to a couple of examples the way we monitor our prices relative to conventional competitors specialty competitors we also monitor customer perceptions of our prices. So regardless of what they are really are what do people think they are and we need to both of those things. So we monitor those when we’re satisfied with the position we have let’s just talk about thanks giving turkey. So Whole Foods, Fresh Market were both carried an antibiotic free turkey of fresh never frozen turkey, vegetarian diet so it's two items very similar product attributes. I will be hard pressed to say ours better than theirs I wouldn’t say theirs is better than ours.

They were 2.49 a pound we were 2.29 a pound. So about 10% less, standing over us the prime or the major holiday item if you’re buying beef is (inaudible) for 7.99 a pound for one of them for Hereford (ph) line and 8.99 a pound for top choice that is more than $10 a pound. So I’m not suggesting that we’re always lower on every item but key items key holidays we have really good prices. So I’m reluctant to say we had three great quarters with 60 tough days, pricing is all wrong at the fresh market. I mean I’m just not but I do think we’re on very open minded is that they have done a great job communicating, so not only are they lowering their prices or and/or changing the specifications I mean they are hitting a monthly sales three day sales, one day sales so there is a message that’s going out and so we’re asking ourselves is our message relevant is it keeping up so it's between your message and drawing attention to it and getting the facts out and actually dropping your price level and so.

No actually we have been pleased we’re perceived to have prices pretty close to where we have them.

The one disconnected works against is you would be surprised that our prices compared with conventional grocery stores is more favorably than that’s perceived. I think people they think when they walk into our fresh market or specialty store but they might be paying a little bit more and for like items and I mean identical items that just wouldn’t be the case.

Jason DeRise - UBS

So not everybody can ask and there is a lot by the firms do not allow test questions probably I would rather probably take to just to the cards I know there is obviously lot type of questions so we will try to go through them all but so in terms of maybe just coming back to the real estate are you finding it too difficult to find real estate or is there is it as easy as it's been in the tough part of the…

Craig Carlock

I would kind of go in the middle. I would never real estate is easy because we set pretty high standards and our returns are very good, we want to maintain them. I would say we’re satisfied with what we’re finding, the pipeline has never been better; we have 30 leases that we have put in our latest press release. We’re talking about 19 to 22 which for us is a big number so for perspective if you were to go back to some other specialty competitors and look at their organic growth when they were our size I think you will find our growth as outpacing theirs.

So we’re very happy with the pipeline, we’re finding good deals we’re able to achieve the returns we want but I would also tell you landlords are rational they create an auction if they have a real good estate you don’t sneak in, you don’t steal it, they call us, they call (inaudible) I mean there aren’t secrets on real estate. So it's competitive and the other thing that makes it difficult is not a lot of real estate formation, it's not a lot of land development going on in most of the country. So what we’re getting access to is second generation and so that’s it would be nice to have access to both.

Jason DeRise - UBS

Okay we’re talking about real estate obviously, well there has been two high profile people in the company that have left recently I mean we have obviously talked about the CFO in the past but recently there has been an announcement that you had a real estate so I just want to give you an opportunity to talk about maybe behind the press release what’s happened.

Craig Carlock

Sure I think the points I have made inside, outside the company are identical. The first is I think these are unrelated okay so Lisa Klinger was our CFO she was recruited to do an IPO, she came in she did the IPO she did two secondary’s, Lisa did an LBO at Michael’s with Bain and Blackstone before, so she is a deal person she had three deals with us she was there for five years frankly that’s how long she has worked at lot of different places and she went to do an IPO for another company, great. Wish her the best, she still lives in Greensborough, she still shops, we’re friends.

Randy is leaving to do something very entrepreneurial, he has had a real estate, he is going to move to the beach, build a house, work with two partners and when you’re in retail real estate there is more prestige in moving toward land development and so he is kind of try his hat at that with a couple of partners and so we’re on good terms, Randy is still working I’m going to be traveling with him to California in a couple of weeks, he wasn’t forced out he didn’t quit abruptly. He feels like he is going out a winner. We just did 16 stores; we got 19 to 22, three in the pipeline. So Randy is excited about what he has done for the company. Probably the most important point is for both of them as my job and their job to build teams of people so that we’re not too dependent on anyone personally. So where I valued Randy, he didn’t originate any further, he was a supervisor at real estate group. We have a construction group, he supervised both he did a good job but the people running those groups have tenure between 5 and 10 years, the people working for the people running those groups have that tenure. We have added a lot of people and that construction group would last couple of years it's never been better. The folks in our real estate team our managers of the North East, Mid-West, our South-East couple in California; those are the people with relationships, the tenure, the knowledge of the knowledge of the intersection.

So we will miss Randy but there is an awful lot of capability on the teams that are staying. So in both cases I feel fine, I think a fair question is why can’t your company retain. So there is a good reason to leave maybe and maybe not worry about the team but it is kind of hard that two of your tops will leave. Well I think our company and our board needs to look at the retention programs that we have and ask ourselves that they are sufficient. I think that will be a fair question but that’s not a need, that’s something you look at and think about over a period of time.

Jason DeRise - UBS

Okay there is two questions from the audience that are related, one is asking what you think you’re market share is, how you measure that and then the other question is just talking about what are the drivers to drive same store sales because of market share and then particularly that person was asking about traffic, is it items, is it in pricing.

Craig Carlock

Our market share where it's even measurable is 1% to 2%, so conventional grocery stores get the vast majority of the market share in the grocery business. We get 1% to 2% where it's measured. We have always thought that was a strength because we’re such a (inaudible) in the market share arena that no one’s going to come after us and try to kind of do no conventional store. It wouldn’t be rational for them to leave their core business and try to do what we do, so conventional grocery stores are essentially leave us alone and then specialty for all kind of competing in different ways and kind of overlapping ways but still distinct way so they are going to keep competing. How we build our share the way the company has been built, the way the history of the company is very simple. It's an operationally driven company, we want you to go in we want you to have a great experience. We want your shopping to be good, we want the food to taste good, we want to the lines to be short the store to be clean the parking to be easy, we want to be friendly when you’re there and you walk out and you say that was great, you go hope and you quick it you say that was really good food. That’s better food than I get on other places. I’m going to go back there. That’s the history, the history isn’t in every company has their own history but that’s our history and that’s what worked overtime, over 25 states, 31 years, 130 stores that’s what worked.

So things we can do are just to do those things really well to have the best managers we can, the best store conditions we can the best in stock conditions we can that’s the way we try to do. Now like any company we say well that’s a great tradition but are the things you want to do going forward are there initiatives and I think a couple of we do things we think about nothing that I can say this will be a big deal in 2013 but I think getting messages out to our customers is interesting. I think thinking about it because word of mouth is our history but word of mouth has changed to what people holding their hands tight. So having a digital strategy, being able to take advantages of things like that or things we’re going to ask ourselves. So messages to customers that’s important, another important that we have mentioned is regional pricing, so we have essentially have not literally but essentially have (inaudible) pricing through the chain and what we typically found is that other parts of the country can support higher prices and I think that’s one way retailers recoup higher real estate cost or higher you know medical or worker’s comp cost in some areas, as they are able to look at the pricing in the area and look at what people are willing and able to pay and fall that into the thinking. So we have purchased the software and hardware, we have purchased the price data. We have hired somebody who used to do this at another company, another grocery company and so now we have seen about the processes in place. So we have the people I think we have the IT systems when you do the process, there are things we’re going to work on but the main thing we can do to drive our business is to do what we have done and we’re very committed to that execution.

Jason DeRise - UBS

Do you have a sense of how often your shopper shop you know like what is excess in that area if you get you know they do whatever the big holidays for each quarter and you get poor visits, is that success or are you expecting more…

Craig Carlock

I think we have different customer types, there are those who shop well almost literally daily but multiple times a week, it's a small store, easy to shop in, call European style shopping I will get fresh seafood, I will get fresh meat, I will get this I will get I mean several times a week. There are others that come to load upon on the Saturday, there are others double income no kids that come in on their way home from work and pickup prepared foods but I think in general you’re talking about people shopping multiple times a month not just four times a year but in general two or three times a month that kind of thing. So we ask ourselves if you can get something twice a month or three times a month then that would be incredible but we haven't found our way to do that regularly or consistently or profitably. I mean one of the things I have made the point I’m saying is that I know there are so much focus on our sales in the last 60 to 90 days we could buy sales, if we had a 5% comps we can have until tomorrow but the discipline in our company is we want profitable growth that’s not gimmicky, it's sustainable it's based on customer satisfaction. So we’re open minded about things we test things but we’re trying very hard to do things that are in the long term health of the franchise and not going to create something that’s kind of at our line with our brand and our image.

We survey customers on price and all the time I’m (inaudible) more important to me the lines be short, more important the store be clear, more important that you have a quality thing I want, quality item I want and so you just never hear your apples should have been 219 or so 229 a pound, I mean you just that’s not what’s on people’s mind and I trade free lunch meat that’s on people’s mind and antibiotic free chicken that’s on people’s mind.

Who is the first one to get clementine’s in the season, if it us or somebody else that’s what people want to know and that’s what we get fired up to try to execute against.

Jason DeRise - UBS

In terms of the analytics that you have, I know that that came up on the call and we actually did last night about the analytics but one of the things that you might be able to access from what you have is all your shoppers you have a share of shoppers how much do they actually give you of their monthly basket, I mean say you have 1% to 2% share of all but for your shoppers they are doing in order.

Craig Carlock

We periodically survey our customers and we ask them where else do you shop? How much you spend with us and how much do you spend other places and in general we’re getting a minority of the business and in general we’re at second place they shop and not for every customer but if you were to say in general we’re getting a minority of their business and so I don’t think that’s surprising because if we got to get some staple items whether maybe whether it's food or whether it's paper goods and plastics and things like that you know plastic they are going to get to that other places and so we’re at second shop and so we have that data. I’m just, we have an awful lot of data and I wouldn’t want people to think we’re not pretty rigorous about it. I think we’re very disciplined and read our data but we don’t have is a loyalty card and I think our specialty competitors don’t have loyalty cards.

We have never know exactly what we would do with the data precisely to act, we’re afraid we will trivia, we will get knowledge but there is nothing to do. The other point I would make is most grocery companies that have those kinds of cards use a price discount as a vehicle to get to the user, we want everybody in here to pay the same price, less gimmicky, more transparent and so that’s couple of the reasons we have shied away from cards and gathering even more data.

Jason DeRise - UBS

So if we go from this current year term period where we have tough comps, you’re not opening as many stores yet to the back half I think what you formerly said is that the EPS in H2 and actually the numbers are going to be higher than H1 but then as we start thinking about the next year I know you have (inaudible) but there should be some sort of carry over effect from that and you should getting these easy comps, I mean would you expect this sort of this kind of what we saw back to what you did last year well dynamics looked more like you had a bunch of openings in the beginning of the year and then…

Craig Carlock

I think one of the things about our profit trajectory is it's heavily influenced by the number and the timing of new stores and not only timing of which quarter but where in the quarter. So let me just talk about the first quarter so that like it will be transport all this is available publically but let’s talk and this is a long answer to your question but let’s just talk about the first quarter and then we will get to the 2014. The first quarter of this year we have two stores that are opening and one opened early in the quarter and the one is going to middle of the quarter next week and in the fourth quarter of last year we had two openings. So this year’s first quarter is getting a benefit of let’s call four new stores, last year we had six stores open in the fourth quarter of 2011 and we had three stores open in the first 17 days of the year of 2012 so we had nine stores kind of getting a full quarter of sales and earnings, this year you’re going to get four stores for the full so that kind of change creates a difficult trajectory or unsmooth trajectory anyway with respect to profit growth and now to go to your question for 2014 and I do think you will have the phenomenon you described where all the late year openings in ’13 you’re going to get a full year effect in ’14 and then ’14 we should have more normalized openings and more openings so ’14 feels like the winds are blowing in a very good direction, our internal plans will say that too.

Without giving numbers the timing it just makes sense that if it's late year this year this year’s profit you get a full year effect next year and that’s kind of a rocket feel.

Jason DeRise - UBS

Okay. We have got about five minutes so if there is any more questions coming in we obviously have to keep taking them. Let’s see what else do I have on my list so there is plenty of questions from the industry you know. When actually on this whole pricing and regionally that you didn’t see -- I think as you said this doesn’t grants (inaudible) everywhere but it's pretty close so you price it relative low in the North East, but as you start going to the Mid-West I think they are relatively high you didn’t see a disproportion of fact I know you only have a handful storage.

Craig Carlock

The new stores they are first you know Christmas Hanukkah, New Year season, Thanksgiving it's hard, I will tell you we have been pleased with the performance in the mid-west and I would tell you we’re very pleased that January was better than November and December which means one because the economy thing is settled but it also means we did a good job in the November December when we had a lot of new business retaining some of that business. So no big easily discernible swings based on prices.

Jason DeRise - UBS

And in terms of these stores that you’re opening up in new markets for you, you’re still hitting the 80% to 90% range but I mean is that just heavily dominated by okay you have opened a few stores in Florida that people already know the brand and maybe they are 100% or more and then you got maybe some 50s in there or how…

Craig Carlock

So I get the question and I shy away from giving a real specific answer on that one because we have seen an open stores called the frontier for the fresh market, the North East, the Mid-West for stores have exceeded our expectations and better than average and we have mentioned in the past, in Latham, New York it's our first store in State of New York we have no brand equity, it's a best opening in the history of the company, Westport, Connecticut great opening, great store. We talked about having in Massachusetts, first opening Boston below average. So we said we get above and below average in frontier markets. In the South-East we get above and below average stores, many open above, some open below and so while brand equity and time and market is important there are other attributes that are very, very important to what’s the level of co-tenancy, what’s the level of competition, what’s the visibility, how big is the parking, are we drive home side or the drive to work side. I mean there are so many variables that are going to making a great real estate site that I would just say focusing only on geography limited. I wish it was that predictable well it's not, it's frustrating actually.

Jason DeRise - UBS

The last question coming in, I may try to paraphrase this a little bit but if the comps continue to come in weak.

Craig Carlock

They are softening in our too.

Jason DeRise - UBS

But if the comps continue to be weak is there a sort of tipping point that would – you feel like you have to start going from more market share and that you can’t just sit back and have your profits be good and (inaudible) base.

Craig Carlock

Well I think that there is two things that we would look at before we may any kind of fundamental change. The returns on our new stores are still very good and acceptable, if we open stores and nobody came and we’re spending capital and we didn’t have sales yeah we say holy cow what’s going on here, we become irrelevant what has happened.

So you have that question and another question will be on your comp stores, stores that are already open, are you losing share to other people and if so why? I think we have become alarmed if what we saw on the fourth quarter occurred for a protracted period of time but…

Jason DeRise - UBS

But you did the Tuesday promotions last year and I guess that’s a fine line, Tuesday is a low day for you so you want to get more traffic in and then you’re getting into high low instead of just consisting well everyday low price.

Craig Carlock

Right but I think what the Tuesday promotions if you’re not familiar with those were something we tried because Tuesday is the lowest volume day of the year and we thought we can sell some it's all perishable so it's not as if feel can stock up and avoid a Saturday trip. I mean the killer would be if we cannibalize the Saturday or Sunday but we really found that we did not and so we have tried some promotions on Tuesdays and those were successful and because of that success we ordered some creative things we can do on Saturdays and we tried some Saturday promotions in January and February but that’s not us investing in price or reacting to bad comps that’s just us trying to be smart and think about our business and try to learn something’s.

Jason DeRise - UBS

So are you willing to like just let that last, so we’re going to start wrapping that roll-out and that’s part of why the comp guidance is lower there, okay we’re not going to try to outdo Tuesday promotions with bigger promotions on Tuesday it's just…

Craig Carlock

We continue to do them on Tuesday; we’re not deepening the discount. We’re not on the death spiral thought, 2.99 Tuesday and Thursday’s and all those stuff. We don’t want to do that but if we can find targeted promotions to bring people in expose a broader set of people to the food and generate incremental trips, traffic and profit that seems smart and we would want to do that but where it gets tricky is if you’re selling what you would otherwise sell at a lower price or if you’re bringing in people who aren’t buying enough other things in the store to kind of make up for it but that’s easy to measure I mean that’s not a hard equation to figure out.

Jason DeRise - UBS

Okay zero on the clock, I’m just going ask you a quick need just one word answer. In the guidance are you assuming the same consumer environment, improving consumer environment or deteriorating consumer environment?

Craig Carlock

I think I would say it's assuming the same as we have sort of saw on January and February.

Jason DeRise - UBS

Okay all right very good. Thanks everybody for attending and thank you for coming.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: The Fresh Market Management Presents UBS Global Consumer Conference (Transcript)
This Transcript
All Transcripts