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4-Traders Homepage  >  Shares  >  Nasdaq  >  The Fresh Market Inc    TFM

Delayed Quote. Delayed  - 08/31 03:35:48 pm
21.4 USD   +3.43%
08/25 FRESH MARKET : Palo Alto: Developer to face fines if grocery store i..
08/24 Choices abound in bustling Germantown grocery scene
08/22 FRESH MARKET : Wine Tastings
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FRESH MARKET : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/27/2015 | 05:04pm US/Eastern

Overview

The Fresh Market, Inc. is a growing specialty grocery retailer focused on creating an extraordinary food shopping experience for our customers. Since opening our first store in 1982, we have offered high-quality food products, with an emphasis on fresh, premium perishables and an uncompromising commitment to customer service. We seek to provide an attractive, convenient shopping environment while offering our customers a compelling price-value combination. As of July 26, 2015, we operated 174 stores in 27 states across the United States. We believe several key differentiating elements of our business have enabled us to execute our strategy profitably across our expanding store base. We believe that our differentiated shopping experience has helped us to expand our business. Within our smaller-box format, we focus on higher-margin food categories and strive to deliver a more personal level of service and a more enjoyable shopping experience. Further, our smaller-box format is adaptable to different retail sites and configurations and has facilitated our successful growth. Additionally, we believe our disciplined, comprehensive approach to planning and merchandising and the support we provide our stores allow us to deliver a consistent shopping experience and strong financial performance across our store base.


How We Assess the Performance of Our Business
In assessing our performance, we consider a variety of performance and financial
measures. The key measures that we assess to evaluate the performance of our
business are set forth below.
Sales
Our sales comprise gross sales net of coupons, commissions and discounts.
The food retail industry and our sales are affected by general economic
conditions and seasonality, as well as the factors discussed below, that affect
our comparable store sales. Consumer purchases of specialty food products are
particularly sensitive to a number of factors that influence the levels of
consumer spending, including economic conditions, the level of disposable
consumer income, consumer debt, interest rates and consumer confidence. In
addition, our business is seasonal and, as a result, our average weekly sales
fluctuate during the year and are usually highest in the fiscal fourth quarter
when customers make holiday purchases.
Comparable Store Sales
Our practice is to include sales from a store in comparable store sales
beginning on the first day of the sixteenth full month following the store's
opening. We believe that comparability is achieved approximately fifteen months
after opening. When a store that is included in comparable store sales is
remodeled or relocated, we continue to consider sales from that store to be
comparable store sales. When a store is closed it is removed from comparable
store sales in the period it is closed. There may be variations in the way that
our competitors calculate comparable or "same store" sales. As a result, data in
this Form 10-Q regarding our comparable store sales may not be comparable to
similar data made available by our competitors.

Various factors may affect comparable store sales, including: • overall economic trends and conditions, including general price levels in

the economy;

• consumer confidence, preferences and buying trends;


•     our competition, including competitor store openings or closings near our
      stores;

• our competitors expanding their offerings of premium/perishable products;


•     the pricing of our products, including the effects of inflation, deflation
      and our promotional activities which we evaluate and adjust in the ordinary
      course of our business;

• the number of customer transactions at our stores;


•     our ability to provide an assortment of distinctive, high-quality product
      offerings to generate new and repeat visits to our stores;



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• the level of customer service that we provide in our stores;

• our in-store merchandising-related activities;

• our ability to source products efficiently;

• our opening of new stores in the vicinity of our existing stores;

• the number of stores we open, remodel or relocate in any period; and

• severe or unfavorable weather conditions.




As we continue to pursue our growth strategy, we expect that a significant
percentage of our sales growth will continue to come from new stores not
included in comparable store sales. Accordingly, comparable store sales is only
one measure we use to assess our performance.
Gross Profit
Gross profit is equal to our sales minus our cost of goods sold. Gross margin
measures gross profit as a percentage of our sales. Cost of goods sold is
directly correlated with sales and includes the direct costs of purchased
merchandise, distribution and supply chain costs, buying costs, store supplies
and store occupancy costs. Store occupancy costs include rent, common area
maintenance, real estate taxes, personal property taxes, insurance, licenses and
utilities. Cost of goods sold is exclusive of depreciation, which is reported
separately. The components of our cost of goods sold may not be identical to
those of our competitors. As a result, data in this Form 10-Q regarding our
gross profit and gross margin rate may not be comparable to similar data made
available by our competitors.
Gross margin rates are driven by economies of scale from our store base,
inventory shrinkage as a percentage of sales, productivity through process and
merchandising programs, promotional activities, and pricing on select items.
Changes in the mix of products sold may also impact our gross margin rate.

Selling, General and Administrative Expenses
Selling, general and administrative expenses include certain retail store and
corporate costs, including compensation (both cash and share-based), pre-opening
expenses, marketing and advertising, and other corporate administrative costs.
Share-based compensation expenses include those arising from grants made under
The Fresh Market, Inc. 2010 Omnibus Incentive Compensation Plan. Pre-opening
expenses are costs associated with the opening of new stores and include costs
associated with store labor, travel, recruiting, relocating and training
personnel and other miscellaneous costs. Pre-opening costs are expensed as
incurred.
Labor and corporate administrative costs generally decrease as a percentage of
sales as a result of an increase in our sales. Accordingly, selling, general and
administrative expenses as a percentage of sales are usually higher in lower
volume quarters and lower in higher volume quarters. Store-level compensation
costs are generally the largest component of our selling, general and
administrative expenses. The components of our selling, general and
administrative expenses may not be identical to those of our competitors. As a
result, data in this Form 10-Q regarding our selling, general and administrative
expenses may not be comparable to similar data made available by our
competitors. We expect that our selling, general and administrative expenses
will increase in future periods due to our continuing store growth.
Impairments and Store Closure Costs

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include a decision to close a store or negative operating cash flows. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many factors. An unexpected decline in sales or other factors could expose us to future impairment charges that could be material. We record a reserve for future lease obligations associated with stores that have closed or unopened leased locations that we decide not to pursue. The fair value of the lease liability is estimated using a discount rate to calculate the present value of the remaining noncancelable lease payments at the cease use date for the location, net of an estimate of subtenant income. Our expectations of potential subtenant income are based on various factors including our knowledge of the geographical area in which the property is located, the remaining lease term and existing conditions. We also seek advice from local brokers and


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agents, commercial market value analysts, and third-party fair value reports to
develop our assumptions. Changes in market and economic conditions could cause
us to change our assumptions and may require adjustments to the reserves.
Income from Operations
Income from operations consists of gross profit minus selling, general and
administrative expenses, impairments and store closure costs and depreciation.
Income Taxes
We must make certain estimates and judgments in determining income tax expense
for financial statement purposes. The amount of taxes currently payable or
refundable is accrued, and deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Deferred tax assets are also recognized for
realizable loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in income tax rates is
recognized in our financial statements in the period that includes the enactment
date.
Non-GAAP Adjusted Financial Results

In addition to presenting our financial results in conformity with GAAP in this Form 10-Q, we are also presenting results on an "adjusted" basis in order to exclude the impact of (i) charges associated with store closure and exit costs, impairments of certain real estate and store related assets for the thirteen and twenty-six weeks ended July 26, 2015 and July 27, 2014 and (ii) charges related to a change in leadership for the thirteen and twenty-six weeks ended July 26, 2015. Additionally, these charges reflect an estimated provision for income taxes for the thirteen and twenty-six weeks ended July 26, 2015 and July 27, 2014. Except where the context otherwise requires, the use of the term "adjusted" or "as adjusted" with reference to the financial results discussed in this management's discussion and analysis refers to the adjusted results described in this paragraph. These adjusted financial results are non-GAAP financial measures. These measures are not in accordance with, or an alternative to, GAAP and are reconciled to the Company's most recent GAAP financial statement in "Period to Period Comparisons - Thirteen Weeks Ended July 26, 2015 Compared to the Thirteen Weeks Ended July 27, 2014" and "Period to Period Comparisons - Twenty-Six Weeks Ended July 26, 2015 Compared to the Twenty-Six Weeks Ended July 27, 2014" below. The Company's management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to the Company's results of operations and financial condition. In addition, the Company's management uses these measures to review the Company's financial results and evaluate its business operations. We believe that the presentation of adjusted financial results facilitates an understanding of our operations without the impact associated with the charges referenced above. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.



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