Shares of the fresh food retailer, The Fresh Market (TFM, Financial), have surged by 22.3% in the last  year. The company has been an exemplary performer owing to its strong product portfolio. Products such as organic food and food made of natural ingredients have become very popular among customers. Therefore, retailers who provide such items are in vogue.
The company has registered higher sales and better profits from quite some time. Its recently reported fourth quarter results were not an exception. The numbers were ahead of the Street’s estimates, sending its shares higher.
An overview of the quarter
Revenue for the quarter surged 12.8% to $480.5 million, over last year. This was slightly below the analysts’ estimate of $483 million. Nonetheless, the top line did increase and was driven by same store sales growth of 3%. The expansionary efforts of the company paid off. Also, the addition of 5 new stores during the quarter contributed to the total revenue.
Customer traffic in stores was up by 3.7%, which was due to better promotions and marketing efforts, such as direct mail to the customers. But a decline of 0.7% in the transaction size partially offset the gains of higher store traffic.
Sales grew not only because of the marketing initiatives, but also because of its efforts to deliver better products. It offers upscale grocery items as well as fresh produced meat. Also, it provides a number of organic food options in its stores.
The organic food company is also focusing on higher margin prepared foods, which has resulted in an expansion in the gross margins. The gross margin expanded 80 basis points to 34.3%, despite an increase in food costs. This was due to lower supply chain costs and adjustment in promotions and pricing. Further, the bottom line also jumped 41% to $0.55 per share, as compared to the previous year. The earnings were also higher than the analysts’ estimate of $0.51 per share.
Future plans
The Fresh Market aims to further reduce supply chain costs, which will help in boosting the bottom line. Also, it plans to spend on better marketing campaigns and smarter pricing, which will help in attracting more customers.
The retailer plans to open 19 new stores in the core markets in 2015. These new stores will add to the top line of the company. However, the announcement of its plans to close its California operations for better growth opportunities took investors by surprise. It will be interesting to see how the company copes up from the store closures in California and new openings in the eastern parts of the U.S.
Moreover, it provided a decent outlook for the year, wherein it expects growth of 9% to 11% in revenue. The comp store sales are expected to grow between 2% and 4%, along with the bottom line of $1.77 per share to $1.85 per share.
Key takeaway
The organic food retailer is witnessing better days owing to its efforts to keep customers happy and cutting down costs. Its marketing initiatives, coupled with the expansionary moves, should help in registering growth. Furthermore, its efforts to reduce costs and focus on higher margin business look interesting. Given the bright outlook and the growing demand for organic food, this natural food retailer looks good to go.
