The Fresh Market Rated Overweight – its Consumers? Not So Much
Crisp veggies and ripe fruits have deep-pocketed consumers heading to The Fresh Market (NYSE: TFM) to spend cash on quality groceries. Truckloads of organic foods and growing store locations have helped the company to achieve a position so venerable that Piper Jaffray upgraded it today from Neutral to Overweight.
The Fresh Market has been seeing positive results from a better shopping environment as of late. Whether it's the summer months or the pesticide-free foods that have brought about increased earnings, Piper Jaffray has eaten its words when it comes to its November downgrade.
"As a reminder, we downgraded shares on 11/17/11 primarily on concerns about slowing transaction counts and the company's ability to successfully expand into new markets while maintaining operating margins. This thesis has not proved to be correct as we underestimated the earnings potential and consumer demand for fresh products in a better shopping environment," Piper Jaffray said in the report.
"We believe our recently completed consumer survey demonstrates people want to increase spending on organic food and believe TFM is a good way to play this trend."
Underestimate they did, as their customer survey attested to the fact that U.S. consumers want to purchase organic foods - or at least 50 percent of them do. The survey also helped researchers to conclude that 38 percent of shoppers are planning to spend more in the coming months on groceries as opposed to the six percent that hope to spend less.
Taking a page from Wrigley's playbook, The Fresh Market has become the fresh maker, as the company has begun to place itself in the running next to mega grocery store chain Whole Foods Market (NASDAQ: WFM). While the two are still a bit too far apart in profit to be considered competition, (The Fresh Market brought in $500 in sales per square foot in fiscal year 2011, while Whole Foods Market generated $878), the upgraded food retailer has certainly shown that it is willing to put up a good fight.
For those that sell more of a mixture between organic and commercially-produced foods, growth has been slow but steady. According to Jefferies, Kroger (NYSE: KR) is expected to see EBITDA monetary growth in the second half of fiscal 2012, with square footage likely to expand and boost sales.
It appears Americans, whether they are organically inclined or generic-brand groupies, are part of a demand so high that grocery chains must expand physically and economically in order to meet consumer wants. Luckily, The Fresh Market, Whole Foods Market and Kroger are willing and able to feast on the challenge throughout 2012.
The Fresh Market traded at $53.12 Friday, up about 33% year-to-date. Comparatively, Whole Foods Market traded at $96.20, up almost 39% year-to-date. Kroger traded at $22.86, down approximately 5.5% year-to-date.
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