Will Fresh Market Ever Be in Whole Foods' League?

The Fresh Market (TFM) will release its quarterly report on Thursday, and investors haven't been entirely sure what to expect from the grocery chain. Although it's seeking out the same high-premium niche that Whole Foods Market (WFM) has used to drive its huge growth over the decades, Fresh Market's projected growth rates aren't all that much faster than Whole Foods or Sprouts Farmers Market (SFM 1.41%). That raises questions about how much further Fresh Market can rise before hitting a growth ceiling.

Fresh Market, Whole Foods, and Sprouts are all after the same basic demographic, looking to cater to high-end customers with disposable income to spend on high-quality food. But because Fresh Market is smaller than Whole Foods and Sprouts, it's natural for investors to expect Fresh Market to have a steeper growth trajectory than its more mature peers. The big question Fresh Market has to answer for shareholders is whether it can deliver on that growth promise. 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 report.

Stats on The Fresh Market

Source: Yahoo! Finance.

Can Fresh Market earnings keep growing?
In recent months, analysts have cut back on their views on Fresh Market earnings, cutting October-quarter estimates by $0.02 per share and full-year fiscal 2014 projections by double that. The stock has languished, falling 8% since mid-August.

Most of Fresh Market's declines came in the wake of its July quarter earnings report, in which the grocer posted somewhat lackluster results. Same-store sales growth of 3.4% wasn't as strong as many investors had hoped to see, and that growth rate was much slower than Whole Foods has posted despite its larger size. Sprouts even produced double-digit percentage gains in same-store sales. Moreover, Fresh Market has seen anemic increases in customer traffic, suggesting that it lacks the buzz that its competitors have.

But those results aren't stopping Fresh Market from moving ahead with ambitious plans. The company hopes to open more stores and remodeling existing locations for the remainder of the year, having expectations of 10 or 11 new stores this quarter.

Yet Fresh Market has to figure out where it wants to position itself to target its customer base. Sprouts has done a good job of attacking Whole Foods' "Whole Paycheck" reputation, pricing its produce 25% to 30% less expensively than Whole Foods. With Sprouts staking out the value end of the healthy-food spectrum and Whole Foods targeting premium shoppers, Fresh Market might find itself without a niche left to fill.

Another challenge Fresh Market faces is a lack of employee satisfaction. Recent survey results from Glassdoor found that Fresh Market was perceived to be among the worst grocery stores to work for, with employees pointing to a rising corporate culture and concern about investors over other stakeholders leading to weak ratings and a general expression that Whole Foods was a better place to work.

In the Fresh Market earnings report, watch to see whether the company can restoke its growth fires and accelerate gains in revenue and earnings. Without some dramatic moves, Fresh Market's recent tepid stock performance might well consider well into the future.

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