Update: The Fresh Market Q2 Earnings

Aug.24.14 | About: The Fresh (TFM)


The Fresh Market reported Q2 '14 earnings that beat expectations.

Previous avoid recommendation is removed.

The stock was anticipated to struggle over the last year due to margin compression and low comps.

After the close on August 21, The Fresh Market (NASDAQ:TFM) reported that Q2 '14 earnings exceeded estimates sending the stock up 8% the next day. The fresh and organic grocer saw comp sales increase 2.9% in the quarter and net sales surge 19.0% YoY. Gross margins declined slightly to 34.0%, compared to 34.2% in the prior year period. Earnings reached $0.36 and exceeded the $0.32 reported in Q2 '13.

Though the earnings per share exceeded estimates of $0.35 by $0.01, the number is in line with analyst expectations prior to guidance from the Q1 '14 report back in May. The last quarter continues a trend of sector low comp sales with both Sprouts Farmers Market (NASDAQ:SFM) and Whole Foods Market (NASDAQ:WFM) greatly exceeding the numbers produced by The Fresh Market. In the case of Sprouts, comp sales grew 9.5% during Q2 this year and roughly 20% on a two-year stacked basis.

The original investment thesis in the previous article "The Not So Fresh Market" has mostly run its course now. At the time of the report, the stock was trading slightly above $47.50 with the suggestion that it would remain expensive even if it fell to the previous low around $38. Now with the stock trading around $33 after the rally following earnings, the stock trades at a more reasonable 18x forward earnings. With sector low comp sales growth, the stock appears to have the lowest upside of the group, but at least the downside risk appears over for now.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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