This Food Giant Continues to Stay Fresh
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The food industry has been performing well recently with each industry player trying to offset the effects of inflation in their own way and keeping investors happy at the same time. Recently, J.M. Smucker (NYSE: SJM) posted great results in spite of cost hikes. Smucker managed to beat market expectations by its good quality products and its acquisition strategy. But the retailer is not alone. The Fresh Market (NASDAQ: TFM), a specialty food retailer, followed the industry trend and posted stellar second quarter results which beat analysts’ expectations. Let’s take a look at what happened.
The Quarter and its Advantages…
Customers’ attraction towards its stores and increased transaction size on each visit enabled the retailer to record a whopping 20.5% surge in revenue to $313 million. The Fresh Market has been new to the market but has attained a good reputation for itself since its inception. It has been on an expansion spree since it went public in 2010. The retailer’s efforts to grow has reaped rewards. It opened 5 new stores during the quarter which were flooded with shoppers, driving its revenue north.
Moreover, the company’s commitment to provide variety has been commendable. It launched 40 new products during the quarter and plans to have another 110 new products in the second half of the year. Even J. M. Smucker has been banking on new product launches to drive growth which reflected in its recent quarter.
The food retailer has played it well to capture the market with its smaller sized stores compared to other competitors which maintain large format supermarkets that weigh heavy on the cost structure. Also, its focus on higher margin products has helped the retailer sustain healthy profits. Services such as butchers in the store ready to help customers won customer loyalty. In fact, this time The Fresh Market went a step further to negotiate terms with its vendors and supply chain and managed to reap benefits in terms of widening margins. All these factors taken together helped the bottom line to grow 26.4% to 28 cents per share.
The Fresh Market’s strategy has been different from its peers in terms of inorganic growth. The company is new and has a lot of potential to grow by itself. It is exploring opportunities in new geographic regions and mainly through its product innovation whereas its peers have been following the acquisition strategy for faster growth. B&G Foods’ (NYSE: BGS) acquisition of Culver specialty brands helped the retailer clock in higher revenue and a better outlook. Without the acquisition B&G’s top line would have been flat. However, Fresh Market has done it without that and has been remarkably successful which makes it more attractive.
The Road Ahead…
The retailer looks bright due to its plans it has for the future. It intends to open more stores in the second half of the year and has more than 100 new product launches in its kitty. This will surely enable the food giant to experience more customer traffic and higher revenue.
Moreover, it plans to spend on increased promotion of its products which will create more awareness among customers and will stir demand. Huge marketing of products and other promotional events will also be helpful during the holiday season where consumer spend is even higher.
The company gave a bright outlook with an expectation of a 25% to 30% jump in earnings. This comes at a time when the economic situation is not very healthy. Uncertainties in Europe and the election make it a little difficult to predict growth for any company.
The Fresh Market’s results have been topping expectations in spite of the prevailing market conditions where customers are largely budget conscious. People want variety in their daily food choices and the ones who can live up to their mood swings and provide various kinds of offerings will always prove to be successful. The company has been a great performer till now with a year to date appreciation of 44% in its stock price.
Along with a remarkable past the retailer has a bright outlook and a host of growth plans to look forward to. Overall, The Fresh Market looks steaming fresh and a strong company for a long term perspective. Investors should definitely give it a thought.
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