US: Fresh Market Q3 earnings climb

By Michelle Russell | 30 November 2012

  • Net profit up 19%
  • Operating profit climbs 23%
  • Net sales grow 22.1%
Fresh Market said it remains "enthusiastic" about the consistency of its business

Fresh Market said it remains "enthusiastic" about the consistency of its business

US speciality retailer The Fresh Market has booked an increase is profit in the third quarter.

Earnings in the three months ended 28 October climbed 19% to US$10.9m, the company reported yesterday (28 November). CEO Craig Carlock said the company was "pleased" with its growth after the group opened six new stores and the number of transactions across its network rose for the period.

Operating profit amounted to $17.9m, a 23% increase on the prior year period. Sales increased 22.1% to $321.5m. Comparable store sales increased 5.6%.

"We remain enthusiastic about the consistency of our business, the portability of our concept, and the franchise we are building in the real estate marketplace," said CEO Craig Carlock.

The group reaffirmed its fiscal 2012 earnings guidance of $1.33 to $1.38 and sales growth of 5.5% to 6.5%.

Show the press release

The Fresh Market, Inc. Reports Third Quarter and Year to Date Fiscal 2012 Earnings

- Total sales increased 22.1% for the third quarter and 21.8% year to date

- Diluted earnings per share increased 18.5% for the third quarter and 30.8% year to date

- Company reaffirms earnings guidance for fiscal 2012

GREENSBORO, N.C., Nov. 28, 2012 (GLOBE NEWSWIRE) -- The Fresh Market, Inc. (Nasdaq:TFM), a high-growth specialty retailer, today announced unaudited sales and earnings results for its third quarter and fiscal year to date period ended October 28, 2012.

Financial Overview

In the third quarter of fiscal 2012, net sales increased 22.1% to $321.5 million and comparable store sales increased 5.6%, compared to the corresponding thirteen week period last year. Net income in the third quarter of fiscal 2012 increased 19.0% to $10.9 million, from $9.2 million in the corresponding thirteen week period in fiscal 2011. Diluted earnings per share in the third quarter of fiscal 2012 was $0.23, an increase of 18.5% over diluted earnings per share of $0.19 for the corresponding period in fiscal 2011.

Year to date fiscal 2012 net sales were $959.3 million, a 21.8% increase as compared to the corresponding thirty-nine week period in fiscal 2011, while comparable store sales increased 7.3%. Net income increased 31.2% to $43.5 million as compared to $33.1 million in the corresponding thirty-nine week period in fiscal 2011. Year to date diluted earnings per share for fiscal 2012 increased 30.8%, to $0.90, compared to diluted earnings per share of $0.69 for the corresponding thirty-nine week period in fiscal 2011. Items described below under "Items Impacting Comparability" impact the comparability of year to date results and should be reviewed by investors in order to assess the Company's ongoing operations on a comparable basis.

"We are pleased that our strong sales and earnings growth continued in the third quarter," said Craig Carlock, President and Chief Executive Officer. "Our comparable store sales grew 5.6%, and importantly, customer transactions grew nicely even as we cycled on solid transaction growth during last year's third quarter. Additionally, during the quarter, we opened six new stores, including our first California store. Subsequent to quarter-end, we entered into four leases for new stores in Houston, Texas that we expect to open in the latter half of fiscal 2013. Our store openings in Houston will mark our entrance into Texas, just as our store opening this quarter in the Sacramento area marked our entrance into California. We'll be excited to have operations in the two most populous states in the nation. Net, we remain enthusiastic about the consistency of our business, the portability of our concept, and the franchise we are building in the real estate marketplace. At this time, we affirm our fiscal 2012 earnings guidance. We anticipate that fiscal 2012 comparable store sales growth will be 5.5% to 6.5% and that our earnings per share will be $1.33 to $1.38, an increase of approximately 25% to 29% over fiscal 2011. These earnings growth rates include the absorption of equity offering transaction expenses and incremental legal costs incurred during the fiscal year."

Items Impacting Comparability

During the second quarter of fiscal 2012, the Company completed a public offering of common stock impacting the comparability of year to date fiscal 2012 results to the corresponding results in fiscal 2011. Transaction expenses related to the offering, which in general are not tax deductible, are included in selling, general and administrative expense and totaled approximately $0.5 million, resulting in a reduction in diluted earnings per share of approximately $0.01 per share on a year to date basis. The costs associated with the offering include legal, printing, accounting and filing fees and expenses as well as other charges directly related to the offering. Additionally, the Company completed a public offering of common stock during the first quarter of fiscal 2011 and incurred approximately $1.1 million in transaction expenses, which resulted in a reduction in earnings per share of approximately $0.02 per share on a diluted basis and impacts year-to-date comparability.

The Company also resolved two legal matters during the second quarter of fiscal 2012. The net amount of the settlement payments made and received related to these matters is included in selling, general and administrative expense and totaled approximately $0.4 million on a pre-tax basis, which includes an additional final payment of $0.2 million received during the third quarter, resulting in a reduction in diluted earnings per share of approximately $0.01 per share on a year to date basis. Legal fees and related expenses incurred in connection with these matters have been expensed as incurred.

Operating Performance

The Company had strong sales and earnings growth and continued to improve its operating margin in the third quarter of fiscal 2012. Total net sales increased 22.1% to $321.5 million in the third quarter of fiscal 2012, and comparable store sales increased 5.6% to $266.7 million, in each case compared to the corresponding thirteen week period in fiscal 2011. The third quarter comparable store sales increase resulted from a 3.3% increase in the number of transactions and a 2.3% increase in average transaction size. For the year to date fiscal 2012 period, total net sales increased 21.8% to $959.3 million and comparable store sales increased 7.3% to $821.2 million, compared to the corresponding thirty-nine week period in fiscal 2011. The year to date fiscal 2012 comparable store sales increase resulted from a 4.8% increase in the number of transactions and a 2.5% increase in average transaction size.

The Company's gross profit increased 26.3%, or $22.2 million, to $106.4 million in the third quarter of fiscal 2012, compared to the corresponding thirteen week period of fiscal 2011. For the same period, the gross margin rate increased 110 basis points to 33.1% compared to the corresponding prior year period. This increase in the Company's gross margin rate was attributable to an increase in our merchandise margin rate, primarily as a result of improved supply chain expense and a reduction in shrink expense, and occupancy leverage achieved as the Company incurred less deferred rent expense versus last year. For the year to date fiscal 2012 period, the Company's gross profit increased 25.9%, or $67.1 million, to $325.8 million, compared to the corresponding thirty-nine week period of the prior year. For the same period, the gross margin rate increased 110 basis points to 34.0%, compared to the prior year period. The change in the Company's gross margin rate for the year to date fiscal 2012 period was mostly attributable to increased merchandise margin, as well as leverage in occupancy cost. For the third quarter and year to date periods, estimated LIFO expense was approximately $0.5 million less in fiscal 2012, compared to the corresponding periods in fiscal 2011, contributing slightly to the increased gross margin rate.

Selling, general, and administrative expenses for the third quarter of fiscal 2012 increased $16.3 million to $76.6 million as compared to the corresponding thirteen week period in fiscal 2011. Selling, general, and administrative expenses increased by 90 basis points as a percentage of sales to 23.8% for the period as compared to 22.9% for the corresponding thirteen week period in fiscal 2011. This increase in the selling, general and administrative expense rate was primarily attributable to increased store compensation and pre-opening expenses, both as a result of more new stores opening in the third quarter of this year versus last year, as well as higher corporate expenses, driven by approximately $0.8 million of incremental expenses mostly attributable to the Company's share-based compensation programs. Also, the increase in corporate expenses was partially attributable to our investment in personnel and expenses associated with their hiring to support our growth.For the year to date fiscal 2012 period, selling, general, and administrative expenses increased $43.0 million to $221.1 million, or 23.0% as a percentage of sales, from $178.1 million, or 22.6% as a percentage of sales, for the comparable thirty-nine week period in fiscal 2011. These expenses included higher corporate expenses, driven by approximately $2.1 million of incremental expenses mostly attributable to the Company's share-based compensation programs, as well as approximately $0.4 million related to legal settlements, which together adversely impacted selling, general and administrative expenses as a percentage of sales by approximately 20 basis points during the year to date fiscal 2012 period, as compared to the corresponding thirty-nine week period for fiscal 2011. Higher store pre-opening and store compensation expenses also contributed to the increase as they both grew faster than sales. In addition to these higher corporate expenses, the Company also had transaction costs associated with the Company's public offering of common stock in the second quarter of fiscal 2012 totaling approximately $0.5 million, compared to approximately $1.1 million of transaction costs incurred in connection with the Company's public offering of common stock in the first quarter of fiscal 2011.

Operating income increased $3.4 million to $17.9 million for the third quarter of fiscal 2012, compared to $14.5 million for the corresponding thirteen week period of fiscal 2011. Operating income as a percentage of sales for the third quarter of fiscal 2012 increased by 10 basis points to 5.6%, compared to 5.5% for the corresponding period of fiscal 2011, which includes approximately a 20 basis point negative impact of incremental expenses primarily related to share-based compensation expense. For the year to date fiscal 2012, operating income increased $17.1 million to $70.7 million, compared to $53.6 million in the corresponding thirty-nine week period for fiscal 2011. As a percentage of sales, our operating margin increased by 60 basis points to 7.4% for the year to date fiscal 2012 period, compared to an operating margin of 6.8% for the corresponding period in fiscal 2011. The primary drivers of the increase in operating margin for the year to date fiscal 2012 period were the increase in gross margin rate and a year-over-year decrease of transaction expenses incurred in connection with our public offerings of common stock, off-set by additional new store pre-opening expenses, higher corporate expenses and depreciation.

Balance Sheet/Cash Flow

During the third quarter of fiscal 2012, the Company generated $23.5 million in cash flow from operations and invested $20.9 million in capital expenditures, of which $17.9 million related to new, relocated and remodeled stores. For the year to date fiscal 2012 period, the Company generated $76.4 million in cash flow from operations and invested $62.8 million in capital expenditures, with $55.5 million spent on real estate activities.

The Company's cash balance as of October 28, 2012 was approximately $15.3 million, an increase of $4.6 million compared to the cash balance at January 29, 2012. Total debt as of October 28, 2012 was $46.9 million, down $17.1 million from a balance of $64.0 million as of January 29, 2012.

Average inventory on a FIFO basis per store at the end of the third quarter of fiscal 2012 increased 3.1%, compared to the corresponding period in fiscal 2011. The increase resulted from commodity cost increases in certain departments such as Meat and Produce and increased inventory investments in new product assortments and faster growing categories to support our overall sales growth.

On a trailing four quarter basis for the period ended October 28, 2012, the Company's return on assets was 18.5%, after-tax return on invested capital, excluding excess cash, was 26.3%, and return on equity was 35.3%. These financial return measures are non-GAAP financial measures. The schedules attached to this press release include a discussion of these non-GAAP measures, as well as the details of our calculations of these financial return measures.

Growth and Development

During the third quarter of fiscal 2012, the Company opened six new stores in Miami (Pinecrest), Florida; Bradenton, Florida; West Chester, Ohio; Richmond (Carytown), Virginia; Athens, Georgia and Roseville, California, our first store in the state of California. As of October 28, 2012, the Company operated 127 stores in 25 states.

The Company announced the signing of leases for eight additional new stores in: Delray Beach, Florida; Fishers, Indiana; Lincolnshire, Illinois; Laguna Hills, California; and 4 sites in the Houston, Texas market, through November 28, 2012. These eight stores are currently scheduled to open after fiscal 2012.

 

Original source: The Fresh Market

Sectors: Financials, Retail

Companies: The Fresh Market

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