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The Fresh Market, Inc. Reports Second Quarter And First Half Fiscal 2012 Earnings

Those who wish to participate in the call may do so by dialing (877) 852-2928. Any interested party will also have the opportunity to access the call via the Internet at . To listen to the live call via our website, please go to the website at least fifteen minutes early to register and download any necessary audio software. For those who cannot listen to the live broadcast, a recording will be available for 30 days after the date of the event. Recordings may be accessed at .

About The Fresh Market, Inc.

Founded in 1982, The Fresh Market, Inc. is a specialty grocery retailer focused on providing high-quality products in a unique and inviting atmosphere with a high level of customer service. As of August 29, 2012, the Company operates 124 stores in 24 states, located primarily in the Southeast, Midwest, Mid-Atlantic, and Northeast.  For more information, please visit .

Forward Looking Statements:  This document contains forward-looking statements that reflect our plans, estimates, and beliefs and involve a number of risks and uncertainties. Any statements contained herein (including, but not limited to, statements to the effect that The Fresh Market or its management "anticipates," "plans," "estimates," "expects," "believes," and other similar expressions) that are not statements of historical fact should be considered forward-looking statements. The following are some of the factors that could cause actual results to differ materially from any forward-looking statements: accounting entries and adjustments at the close of our fiscal quarter and fiscal year; unexpected expenses and risks associated with our business; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service and convenience; the effective management of our merchandise buying and inventory levels; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence and spending; unexpected consumer responses to promotional programs; unusual, unpredictable and/or severe weather conditions including their effect on our supply chain and our store operations; the effectiveness of our logistics and supply chain model, including the ability of our third-party logistics providers to meet our product demands and restocking needs on a cost competitive basis; the execution and management of our store growth, including the availability and cost of acceptable real estate locations for new store openings, the capital that we utilize in connection with new store development and the time between lease execution and store opening; the mix of our new store openings as between build to suit sites and second-generation, as-is sites; the actions of third parties involved in our store growth activities, including property owners, landlords, property managers, contractors, subcontractors, government agencies and current tenants who occupy one or more of our proposed new store locations, all of whom may be impacted by their financial condition, their lenders, their activities outside of those focused on our new store growth and other tenants, customers and business partners of theirs; global economies and credit and financial markets; our ability to maintain the security of electronic and other confidential information; serious disruptions and catastrophic events; competition; personnel recruitment and retention; acquisitions and divestitures including the ability to integrate successfully any such acquisitions; information systems and technology; commodity, energy, fuel, and other cost increases; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings and the availability of insurance, indemnification and other third-party coverage of any losses suffered in connection therewith; tax matters and other factors as set forth from time to time in our Securities and Exchange Commission filings. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available.

This press release, and access to our earnings call, is also available in the Investor Relations portion of The Fresh Market, Inc. website ( ).
The Fresh Market, Inc.
Consolidated Statements of Comprehensive Income
(In thousands, except share and per share amounts)
  For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
  July 29, 2012 July 31, 2011 July 29, 2012 July 31, 2011
Sales  $ 312,997  $ 259,543  $ 637,781  $  524,003
Cost of goods sold  206,255  174,578  418,348  349,464
Gross profit  106,742  84,965  219,433  174,539
Operating expenses:        
Selling, general and administrative expenses  74,032  58,830  144,497  117,805
Store closure and exit costs  152  109  725  239
Depreciation  10,846  9,032  21,415  17,372
Income from operations  21,712  16,994  52,796  39,123
Other expense:        
Interest expense  227  486  583  969
Income before provision for income taxes  21,485  16,508  52,213  38,154
Tax provision  8,156  6,001  19,614  14,167
Net income  $ 13,329  $ 10,507  $ 32,599  $ 23,987
Net income per share:        
Basic and diluted  $ 0.28  $ 0.22  $ 0.68  $  0.50
Weighted average common shares outstanding:        
Basic  48,057,232  47,993,336  48,051,741  47,992,190
Diluted  48,283,403  48,121,837  48,260,407  48,121,722
Other comprehensive income        
Net income  $ 13,329  $ 10,507  $ 32,599  $ 23,987
Interest rate swaps, net of tax expense of $0 and $113 and $0 and $120 for the thirteen and twenty-six weeks ended July 29, 2012 and July 31, 2011, respectively  --   49  --   188
Total comprehensive income  $ 13,329  $  10,556  $ 32,599  $ 24,175
The Fresh Market, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
  July 29, 2012 January 29, 2012
Current assets:    
Cash and cash equivalents  $ 11,139  $ 10,681
Accounts receivable, net  5,436  4,550
Inventories  36,682  37,796
Prepaid expenses and other current assets  7,457  5,595
Deferred income taxes  4,981  4,445
Total current assets  65,695  63,067
Property and equipment:    
Land  2,846  5,451
Buildings  14,992  15,077
Store fixtures and equipment  254,791  237,678
Leasehold improvements  155,694  141,391
Office furniture, fixtures, and equipment  11,011  10,175
Automobiles  1,311  1,211
Construction in progress  21,256  14,347
Total property and equipment  461,901  425,330
Accumulated depreciation  (187,597)  (168,518)
Total property and equipment, net  274,304  256,812
Other assets  6,880  3,461
Total assets  $ 346,879  $  323,340
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable  $ 35,894  $ 34,788
Accrued liabilities  45,888  46,354
Total current liabilities  81,782  81,142
Long-term debt  46,300  64,000
Deferred income taxes  30,160  31,053
Deferred rent  10,992  9,142
Other long-term liabilities  15,549  11,087
Total noncurrent liabilities  103,001  115,282
Stockholders' equity:    
Preferred stock – $0.01 par value; 40,000,000 shares authorized, none issued  --   -- 
Common stock – $0.01 par value; 200,000,000 shares authorized, 48,063,096 and 48,040,083 shares issued and outstanding at July 29, 2012 and January 29, 2012, respectively  481  481
Additional paid-in capital  101,203  98,622
Retained earnings  60,412  27,813
Total stockholders' equity  162,096  126,916
Total liabilities and stockholders' equity  $ 346,879  $ 323,340
The Fresh Market, Inc.
Consolidated Statements of Cash Flows
(In thousands)
  For the Twenty-Six Weeks Ended
  July 29, 2012 July 31, 2011
Operating activities    
Net income  $ 32,599  $ 23,987
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  21,526  17,470
Loss on disposal of property and equipment  61  187
Share-based compensation associated with equity awards  2,099  1,099
Excess tax benefits from share-based compensation  (74)  -- 
Deferred income taxes  (1,429)  8,159
Change in assets and liabilities:    
Accounts receivable  (886)  (1,146)
Inventories  1,115  193
Prepaid expenses and other assets  (5,391)  (2,223)
Accounts payable  1,106  4,784
Accrued liabilities and other long-term liabilities  2,164  (1,717)
Net cash provided by operating activities  52,890  50,793
Investing activities    
Purchases of property and equipment  (41,892)  (44,086)
Proceeds from sale of property and equipment  6,678  113
Net cash used in investing activities  (35,214)  (43,973)
Financing activities    
Borrowings on revolving credit note  233,193  258,890
Payments made on revolving credit note  (250,893)  (264,040)
Debt issuance costs  --   (1,056)
Proceeds from issuance of common stock pursuant to employee stock purchase plan  88  -- 
Excess tax benefits from share-based compensation  74  -- 
Proceeds from exercise of share-based compensation awards  320  -- 
Net cash used in financing activities  (17,218)  (6,206)
Net increase in cash and cash equivalents  458  614
Cash and cash equivalents at beginning of period  10,681  7,867
Cash and cash equivalents at end of period  $  11,139  $ 8,481
Supplemental disclosures of cash flow information:    
Cash paid during the period for interest  $ 497  $ 827
Cash paid during the period for taxes  $ 27,318  $ 8,160
The Fresh Market, Inc.
Calculation of Return Metrics (1)
Return Metrics - Trailing Four Quarters July 29, 2012 Calculated Using GAAP Net Income (2) July 31, 2011 Calculated Using GAAP Net Income (2) July 31, 2011 Calculated Using Adjusted Net Income (3)
Return on assets (4) 18.7% 5.4% 17.5%
Return on invested capital (5) 26.7% 8.0% 25.7%
Return on equity (6) 37.0% 14.5% 35.7%
(1) The return metrics do not represent financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). For a discussion of financial measures not prepared in accordance with GAAP, please see below. The Company's management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing financial results of the Company. The financial return metrics are calculated on a trailing four quarter basis giving effect to the recasting of 2010 quarters as a result of the Company's change in its fiscal year end.
(2) The return metrics in this column are calculated using net income determined in accordance with GAAP. Please see the footnotes below for the formulas used to determine these return metrics.
(3) The return metrics in this column are calculated using adjusted net income, which is a non-GAAP measure. Please see the reconciliation below for a summary of adjusted net income for this period to net income determined in accordance with GAAP. The adjustment of $17.6 million for the share-based compensation is related to the pre-IPO stock awards. We do not reflect subsequent share-based compensation as a recurring adjustment for our metrics calculation.
Trailing four quarters ended July 31, 2011  
Net income $ 14.1
Share-based compensation expense (net of tax) 17.6
Deferred tax adjustment 19.1
Pro forma income taxes (4.7)
Adjusted net income $ 46.1
(4) Net Income/Average Assets (for the column which presents metrics calculated using net income) and Adjusted Net Income/Average Assets (for the column which presents metrics calculated using adjusted net income).
(5) (1-Tax Rate)*(EBIT)/(Average Assets - Average Cash - Average Non-Interest Bearing Current Liabilities). EBIT, which is not presented as a stand-alone financial measure, is a non-GAAP financial measure and equals (i) net income plus interest expense plus provision for income taxes (for the calculation set forth in the column which presents metrics calculated using net income) and (ii) adjusted net income plus interest expense plus provision for income taxes (for the calculation set forth in the column which presents metrics calculated using adjusted net income).
(6) Net Income/Ending Equity (for the column which presents metrics calculated using net income) and Adjusted Net Income/Ending Equity (for the column which presents metrics calculated using adjusted net income).

Non-GAAP Financial Measures

In addition to reporting return metrics derived from measures prepared in accordance with GAAP, the Company provides return metrics derived from adjusted net income. The Company has utilized adjusted net income, which is a non-GAAP measure, for purposes of calculating these return metrics in order to eliminate the effect on operating results of certain expenses and charges incurred in connection with the Company's November 2010 initial public offering and related conversion to a taxable C-corporation, as well as pro forma income taxes as if the Company had been taxed as a C-corporation during the entire period presented. The Company believes that the use of adjusted net income to calculate these return metrics facilitates an understanding of the Company's operations without the one-time impact associated with the November 2010 initial public offering. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure. A reconciliation of GAAP to non-GAAP results has been provided in footnote 3 above.
CONTACT: Lisa K. Klinger
         EVP-Chief Financial Officer
         (336) 217-4070

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