It's been a rough year for The Fresh Market (NASDAQ: TFM) investors. Shares of the natural/organic grocer are down 35% since last summer, and almost 45% since hitting an all-time high in late 2012.

I can't say I'm all that surprised by the grocer's struggles. Starting in August of last year, I began to wonder out loud what -- if anything -- The Fresh Market really stood for. In a field of conscious capitalist grocers -- primarily Whole Foods Market (NASDAQ:WFM) and Natural Grocers (NYSE:NGVC) -- it's becoming ever more important for these industry players to stand for something.

I was also wary of the fact that The Fresh Market was trading for roughly 40 times earnings -- which was on par with Whole Foods -- but was growing at a much slower pace than its bigger rival.

But some things have since changed. The Fresh Market's stock now trades for a much more reasonable 25 times earnings. To see whether or not that price is justified, there'll be three key variables to watch when the company reports earnings on Thursday.

First, just the numbers
While we Fools generally think Wall Street pays too much attention to one quarter's earnings and revenue numbers, we also don't deny that they provide a data point -- and an important one at that. Here's what investors are expecting when The Fresh Market reports:

Expected Revenue (millions)

Expected EPS

2014 Revenue Guidance

2014 EPS Guidance





Source: E*Trade.

If The Fresh Market is able to hit these targets, it would represent flat earnings growth on a 16% bump in revenues. Flat earnings would be significant because the company expects to open 22 new stores this year, and it will be a while before those stores will bring in noticeable revenue.

Second, the most important metric in the industry
Any company can grow sales by simply opening new stores. But the sign of a truly great business -- and investment -- is that it is able to increase in popularity year after year. That's why many investors focus on same-store sales as much -- or more -- than overall revenue growth.

One of the most puzzling things about The Fresh Market is its general inability to increase its popularity with customers. Whole Foods, for instance, has a much bigger base of stores than The Fresh Market, and yet it has been able historically to increase same-store sales by more than 6% per year. The Fresh Market, with far fewer stores, is only able to accomplish half of that feat.

In fact, here are the store counts of four of the key players in the natural/organic industry.


Number of Stores

Same-Store Sales


The Fresh Market




Whole Foods




Sprouts Farmers Market (NASDAQ:SFM)




Natural Grocers




Source: SEC filings. All numbers from the most recent reportable quarter.

As you can see, the closest comparison in terms of size is Sprouts -- and the growth between the two couldn't be any more different. Of course, that difference is now accounted for by the fact that Sprouts trades for roughly three times more than The Fresh Market.

In order for The Fresh Market's price to be justified, it will need to report same-store sales growth of at least 3% -- although 3.5% would be even better.

Finally, something to listen for on the conference call
No sector has shown as much potential in the food industry as that of natural and organic goods. While some of the country's largest grocers have more than 2,000 locations, the chart above shows how small the natural/organic players are.

Because of that, each is trying to balance rapid expansion with the trade-off of financing that expansion and making sure all of the stores represent quality locations that are worth going to. The Fresh Market hasn't announced how many stores it intends to open in 2014, but over the last fiscal year, it added 22 new locations.

Pay attention to where these stores are, and how many of them are being built, and the rationale behind these decisions. Management often lets you know, via these figures, what they think about business prospects moving forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.