Fairway's Reduced Visibility, Consistency of Earnings Shortfall Outweigh Long-Term Potential

Fairway Group Holdings Corp.

shares plummet amid organizational realignment and earnings. Five analyst downgrade shortly following three press releases on February 6. On Thursday, Fairway Group Holdings reported third quarter results and the company's restructuring. Fairway announced third quarter GAAP EPS of $(0.74) which may not compare with the estimates $(0.04). Revenue came in at $205.70 million versus the estimated $207.75 million. Third quarter net sales increases 22.9% and adjusted EBITDA increased from $12.4 million to $12.8 million. In the company's press release, Executive Chairman Charles Santoro focused on Fairway's strengthened leadership and promotions to enhance operations. Santoro commented, “During the quarter, we grew our revenues and market share, made progress on a number of long-term margin initiatives and enhanced the visibility of our real estate pipeline. While our business faced a number of headwinds during the quarter including a tougher comparison over last year, the compressed holiday shopping season and a generally softer retail backdrop, we remain excited about our long-term growth prospects.” Chief Executive Officer Herbert Ruetsch announced that he will retire after working with the company for fifteen years. William Sanford, President of Fairway Group will assume the role as the interim CEO. In a third press release on Thursday, the company announced that General Robert Magnus has been appointed to Fairway's Board of Directors. General Magnus worked for the United States Marine Corps for 39 years. He served as Deputy Commandment for Programs in Resources from 2001 to 2005 and held the position of the 30th Assistant Commandment of the Marine Corps prior to retirement. General Robert Magnus will join Stephen L. Key and Farid Suleman as independent directors on the Fairway Group Holdings Board of Directors. Despite management's optimism on long-term initiatives and restructuring, shares of Fairway hit a new 52-week low of $8.26. Credit Suisse, BMO Capital, BB&T, Guggenheim Securities, and Oppenheimer all downgraded Fairway Group Holdings. Credit Suisse analyst Edward Kelly commented on the combination weak third quarter results, the exit of CEO Herb Ruetsch, and increased competitive pressure. Reduced visibility and concerns over the consistency of earning shortfalls outweigh long-term potential. Shares of Fairway closed at $11.43 on Thursday and have fallen as low as $8.08, down 41.46%.