Why The Fresh Market Must Grow Faster

On Wednesday, The Fresh Market (NASDAQ: TFM  ) will release its latest quarterly results. As the company named to follow in the high-growth footsteps of Whole Foods Market (NASDAQ: WFM  ) , can The Fresh Market manage to live up to the expectations investors have of it?

Given the success of Whole Foods, it was inevitable that companies like The Fresh Market would come along to try to replicate its success. So far, the growth path that The Fresh Market has followed has been impressive, but can it keep up the pace long enough to reach critical mass as a serious threat to its rival? Let's take an early look at what's been happening with The Fresh Market over the past quarter and what we're likely to see in its quarterly report.

Stats on The Fresh Market

Analyst EPS Estimate

$0.44

Change From Year-Ago EPS

10%

Revenue Estimate

$369.69 million

Change From Year-Ago Revenue

13.8%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will The Fresh Market have healthy earnings this quarter?
Analysts have reined in their expectations of The Fresh Market's earnings lately, cutting a nickel per share from their April-quarter projections and cutting more than twice that from their full-year consensus for the current year. The stock has also languished, falling about 5% since late February.

The key reason for The Fresh Market's challenges lately was its last quarterly report back in March. In that report, the grocery retailer said same-store sales rose only 1.9%, less than half what analysts had expected. Moreover, the company guided down estimates for the full year, with most of its planned new-store growth coming in the second half of 2013. As Whole Foods has also been moving aggressively to boost its store count, investors worry that The Fresh Market could be hitting a point of diminishing returns within the high-end grocery industry.

But more recently, investors seem to have realized that what's good news for Whole Foods is also good news for The Fresh Market. When Whole Foods reported favorable earnings earlier this month, The Fresh Market also gained ground, as it indicated a general willingness among customers to spend more on premium-quality food. In particular, as The Fresh Market gears up to challenge Whole Foods in the key markets of California and Texas, the grocer stands to get a lot of new growth opportunities. If the company can focus more on winning business from Kroger (NYSE: KR  ) , Safeway (NYSE: SWY  ) , and other traditional grocers rather than on trying to crush Whole Foods, then The Fresh Market should be able to find its niche and keep its prospects moving in the right direction. Even as Safeway and Kroger have tried to embrace organics and other healthy products, they can't match The Fresh Market's margins, and that's a key advantage The Fresh Market should maintain for a while.

In The Fresh Market's report, look for the company to follow up on its guidance from last quarter. If the grocer can't report improving conditions among its customer base, then it could have further problems keeping its share price up.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. So make sure to claim your copy today by clicking here.

Click here to add The Fresh Market to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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