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The Fresh Market Posts Q1 Gains

GREENSBORO, N.C. — The Fresh Market here, propelled by an 8.2% increase in comparable-store sales and several new store openings, last week reported double-digit profit gains for its first fiscal quarter and boosted its performance outlook for the year.

“We are encouraged by these results and believe positive estimate revisions are likely to continue in the quarters ahead,” said Edward Aaron, a Denver-based analyst with RBC Capital Markets, in a report.

The Fresh Market said net income for the quarter, which ended April 29, was up 43%, to $19.3 million, on a 22.8% gain in sales, to $324.8 million. The 8.2% comparable-store sales gain included a 5.7% increase in transaction count and a 2.5% increase in basket size.

Excluding a one-time charge of $1.1 million in the first quarter of a year ago related to a secondary stock offering, The Fresh Market said net income rose 32.2%.

2012 SN Top 50: The Fresh Market Ranks No. 1

The company increased its comp-store sales guidance for the year to a range of 4.5% to 6.5%, up from previous guidance of 4% to 6%, and boosted earnings guidance for the year to a range of $1.28 to $1.34 per share, up from $1.26 to $1.31.

The Fresh Market, which currently operates 116 stores in 21 states, also said it expected to open 14 to 16 new stores in the current fiscal year and has signed leases for its first three locations in California.

“Our real estate pipeline continues to strengthen and gain momentum,” said Craig Carlock, president and chief executive officer, in a conference call with analysts. “We have recently signed five leases for new stores, including two additional stores in California, one at Santa Barbara and the other in Palo Alto, and we expect to sign several more leases related to stores throughout our target markets in the coming weeks.”

The Fresh Market previously announced plans for its first California store in Roseville, which is slated to open late this year or early next year.

In the most recent quarter, The Fresh Market noted that product-cost inflation was variable across categories, and was about 2.5% overall. Meat, coffee and candy prices were up, while dairy and produce costs were down overall.

The company was able to increase its gross margin rate in the period by 80 basis points, to 34.7% of sales. The company attributed the gains to increased sales and reduced shrink, as well as benefits from the renewal of the company’s distribution agreement with its supplier, Burris Logistics.

Selling, general and administrative expenses for the first quarter increased 19.5% to $70.5 million. Excluding the one-time charge associated with the 2011 stock offering, SG&A expenses as a percent of sales decreased 20 basis points to 21.7% for the first quarter of 2012 vs. an adjusted 21.9% for the corresponding 13-week period in fiscal 2011.

“This decrease in rate resulted primarily from expense leverage achieved from the strong increase in comparable-store sales, particularly in store-level compensation, offset somewhat by higher store opening expenses, as the company opened three stores during the quarter compared to one new store during last year’s first quarter,” explained Lisa Klingler, executive vice president and chief financial officer, in the conference call.

The company’s stock was up about 15% following the report.

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