Was The Fresh Market (TFM) Earnings Report All That Fresh? SVU & WFM

Yesterday after the market closed, small cap supermarket stock The Fresh Market Inc (NASDAQ: TFM) reported earnings and began rising more than 10% in after hours trading, meaning its worth taking a closer look at the stock along with the performance of other supermarket stocks like SUPERVALU Inc (NYSE: SVU) and Whole Foods Market, Inc (NASDAQ: WFM) that have had or are having their share of troubles.

What is The Fresh Market Inc?

Founded in Greensboro, North Carolina in 1982, small cap The Fresh Market is a specialty grocery retailer focused on perishable product categories, which include meat, seafood, produce, deli, bakery, floral, sushi and prepared foods. The company operates 157 stores in 26 states across the United States, primarily in the Southeast, Midwest and Mid-Atlantic United States.    

As for potential peers when it comes to troubles in the supermarket space, small cap SUPERVALU Inc's roots are in supply chain and wholesale distribution plus the company offers a network of approximately 3,420 stores composed of 1,900 stores serviced primarily by the company's food distribution business, 191 traditional retail stores and 1,334 hard-discount stores (of which 957 are operated by licensee owners while large cap Whole Foods Market, Inc is now a leading retailer of natural and organic foods with 374 stores in the United States, Canada and the United Kingdom.

What You Need to Know or Be Warned About The Fresh Market Inc

The Fresh Market reported that fiscal Q1 net sales increased 17.6% to $431.0 million, comparable store sales increased 2.5% and GAAP net income of $16.6 million verses $22.1 million (First quarter fiscal 2014 GAAP net income includes pre-tax store closure and exit costs of $7.0 million related to previously store closings in California and Texas). The company also affirmed its fiscal 2014 guidance of comparable store sales growth of 1.5% to 3.5% and adjusted earnings of $1.56 to $1.66 per diluted share.

In the earnings call (the transcript is available on Seeking Alpha here), the President/CEO commented:

With the exception of the first few weeks, growth in customer traffic remained steady throughout the quarter but growth in basket size was more modest. We continued to invest in thoughtful promotions and new customer offerings as we work to broaden our appeal to new and existing customers.

He also talked about how The Fresh Market opened seven stores (three in Florida, two in North Carolina, one in Illinois and one in Virginia) with six of these seven new stores having had first day sales that rank in the top one-third of all new store openings for the company. Since the end of the quarter, they have opened three more new stores (one in Florida, one in New York and one in Texas) and all three had solid day one sales and opened in line with expectations with the Houston location looking like it will be a particular winner. There are also fiscal 2014 plans to open 23 to 24 new stores

In addition, the President/CEO noted:

We have observed and recent extensive third-party customer research has confirmed that consumers come to us because of our unique combination of outstanding food quality, engaging customer service and an inviting store environment…. We have found and research confirms that consumers are increasingly shopping at more than one food store, which supports our belief that our success is not contingent on providing one-stop shopping for consumers.

In the Q&A when asked about the competitive landscape and what Whole Foods Market, Inc is doing, his reply was:

We are going to watch this very carefully. We are going to be exceptionally mindful of what our competitors are doing. But I would tell you that our research, our view is that people are coming to us for the quality of the service, the quality of the food and a different shopping experience. They don't see us as an organic all natural retailer. There's a couple others out there that are organic all natural retailers. People are coming to us for something different. So we think that gives us a little bit of different platform on which to compete and may make our customers less prone to price sensitivity of what our competitors do.

Top 5 Specialty Retail Companies To Invest In Right Now

When asked about what categories are doing well or not, the President/CEO said:

People continue to turn to us and enjoy perishable offerings. Sea food has been a struggle; the price increases and cost increases that we've all been through have affected us in sea food.

Latter, the EVP/CFO commented about food inflation:

And where we've seen the increases have really been -- the biggest driver was sea food and then kind of meat and produce and a little bit of dairy as we mentioned.

While the President/CEO said:

But I think our point in saying that our margins were compressed this quarter is to say that this is -- food retail prices are high for some people and it's tough to pass all of the cost on. So that's certainly the general point.

Otherwise and heading into earnings, it should be mentioned that The Fresh Market had a trailing P/E of 27.33 and a forward P/E of 15.51 – meaning its not exactly undervalued nor hugely overvalued.

Share Performance: The Fresh Market Inc vs SVU & WFM

On Thursday, small cap The Fresh Market fell 2.35% to $28.70 (TFM has a 52 week trading range of $28.60 to $57.17 a share) for a market cap of $1.39 billion plus the stock is down 29.9% since the start of the year, down 37% over the past year and down 10.6% since November 2010. Here is a look at the long term performance of The Fresh Market, SUPERVALU Inc and Whole Foods Market, Inc:

As you can see from the above performance chart, large cap Whole Foods Market, Inc has been a clear winner – up until recently while SUPERVALU Inc seems to have turned things around and The Fresh Market has more recently been trending downward.

Finally, here is a look at the latest technical charts for The Fresh Market, SUPERVALU Inc and Whole Foods Market, Inc – note the trend lines:

The Bottom Line. Small cap The Fresh Market's earnings report looks pretty good, but I don't know if it justifies a double digit rise when the market opens latter this morning. With that said, it does appear the company is in a much better position than some of its competitors like Whole Foods Market, Inc.