Checking In On the "Markets"

The Fresh Market (NASDAQ: TFM  ) , Whole Foods Market (NASDAQ: WFM  ) , and Sprouts Farmers Market (NASDAQ: SFM  ) have all been growing their top lines since January 2013:

TFM Revenue (TTM) Chart

TFM Revenue (TTM) data by YCharts

However, not all of these companies are performing well on the bottom line. Of these three companies, one offers fiscal dominance and stability, another offers a high-risk/high-reward opportunity, and the third, while offering some positives, lags behind its peers.

Source: The Fresh Market.

Not fresh enough
The Fresh Market is the one that is lagging its peers. However, there are many positives for the company.

For instance, fourth-quarter net sales jumped 15.1% year over year to $425.8 million. Comps improved 3.1%, impressive given the challenging consumer environment and severe winter weather. This was possible primarily thanks to promotions, which helped drive fourth-quarter average transaction size up 1.6% and transaction volume up 1.5%. On the other hand, when you have promotions, you often have a hit to margins and the bottom line.

Fourth-quarter net income declined $2 million (includes pre-tax charge of $27.6 million). If you look at The Fresh Market's bottom-line performance since January 2013, it doesn't impress:

TFM Net Income (TTM) Chart

TFM Net Income (TTM) data by YCharts.

The majority of the pain began last October. Fortunately, The Fresh Market struck quickly to alleviate the problem: It has already closed four underperforming locations. It has also deployed a new analytics and forecasting method to better help predict sales at future locations. The Fresh Market has learned that it should be more aggressive east of the Mississippi River.

As far as those store closings go, the four of those stores combined led to a total loss of $2.7 million in the fourth quarter and a total loss of $6.9 million for fiscal-year 2013. Shedding that weight should help.

The Fresh Market still plans on opening a record number of stores this year (23 to 25), with the majority of the earnings-per-share growth related to these openings to be seen in the second half of the year. For fiscal year 2014, The Fresh Market expects to deliver diluted earnings per share of $1.30-$1.43 and comps of 1.5%-3.5%.

The Fresh Market believes that its fresh food, customer service, and warm and inviting atmosphere will help drive growth. While that's possible, and even likely, that's the same thing that Whole Foods Market and Sprouts Farmers Market offer. The former possesses more fiscal strength, however, and the latter offers more differentiation by selling natural and organic food for discounted prices. 

Being fresh
Over the past year, The Fresh Market and Sprouts Farmers Market generated operational cash flow of $140.37 million and $160.59 million, respectively. Whole Foods Market generated operational cash flow of $1.04 billion over the same time frame.

On top of that, Whole Foods Market has $1.04 billion in cash and short-term equivalents versus just $32 million in long-term debt. Comparatively, The Fresh Market has $11.74 million in cash and short-term equivalents versus $50.77 million in long-term debt. Sprouts Farmers Market has $77.65 million in cash versus $430.81 million in long-term debt.

While cash flows for The Fresh Market and Sprouts Farmers Market are strong enough to help support growth and manage debt, they won't have as much maneuverability as Whole Foods Market. This pertains to reinvesting capital into its business as well as returning capital to shareholders. For example, Whole Foods Market currently offers a dividend yield of 0.90%. Not terrific, but better than nothing, especially for a company that's still growing.

Whole Foods Market recently delivered record first-quarter sales of $4.2 billion, which was a 10% improvement over the year-ago quarter. It also opened 10 new stores and signed 21 new leases. Comps improved 5.4%.

Looking ahead, Whole Foods Market expects fiscal-year 2014 sales growth of 11%-12%, and comps growth of 5.5%-6.2%. It has 303 locations now, but 107 more are in the pipeline, and Whole Foods Market has a long-term game plan of 1,200 domestic locations. Therefore, plenty of growth potential still exists.

Sprouts Farmers Market is the fastest-growing of the three. It delivered a 27% year-over-year sales increase in its fourth quarter to $608.2 million. Comps improved a whopping 13.8%, indicating tremendous loyalty.

For fiscal-year 2013, Sprouts Farmers Market saw sales jump 26% to $2.44 billion, with comps increasing 10.7% over the prior year. Net income also increased $67.4 million. Sprouts Farmers Market opened 19 new stores in 2013, and based on results at its existing locations, this should only be the beginning.

The Foolish takeaway
If you're looking for fiscal dominance in the organic and natural food grocery store space, which should lead to more growth opportunities and capital returns to shareholders, then you might want to consider Whole Foods Market.

If you're looking for tremendous growth potential, then you might want to dig deeper on Sprouts Farmers Market. However, it should be noted that Sprouts Farmers Market is trading at 104 times earnings, whereas Whole Foods Market is trading at 36 times earnings.

As far as The Fresh Market, it's only trading at 36 times earnings, and it's growing on the top line and making moves to improve its bottom line. It doesn't offer more fiscal stability than Whole Foods Market or more growth potential than Sprouts Farmers Market, though. 

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