Bank Of America: Get Out Of The Fresh Market

BofA Merrill Lynch analyst Robert F. Ohmes said that an industry shift to promoting perishables translated to increased risk to the sales and EPS outlook of

. The rating for the company was downgraded from Neutral to Underperform, while the price objective was cut from $35 to $25. "Recent proprietary pricing studies show the TFM's price gap vs. competitors has widened. We believe this reflects increased promotions on perishable items by rivals (including WFM), supported by greater produce abundance and quality along with lingering deflationary pressures in produce and dairy," Ohmes wrote. The Fresh Market's value proposition of higher prices for higher quality seemed to be "resonating less" with consumers since there were more and more lower-priced and improved quality natural and organic offerings available at conventional supermarkets and rival specialty grocers. The Fresh Market's comp growth outlook was at risk on account of the premium price positioning, while there was "potential margin pressures" in case the company decided to improve its price positioning and "drive traffic by increasing its promotional cadence & price investments," Ohmes pointed out. The EPS estimates for 2016, 2017 and 2018 had been reduced from $1.85 to $1.78, from $2.00 to $1.90 and from $2.20 to 2.10, respectively. "We also believe TFM will face continued comp headwinds from competitor openings in its core Southeast market over the next few years," the BofA Merrill Lynch report added.