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The Fresh Market, Inc. Reports Third Quarter Fiscal Year 2015 Earnings

The following excerpt is from the company's SEC filing.

Sales Increased 3.3%; Reported GAAP Diluted Earnings Per Share of $0.21;

Adjusted Diluted Earnings Per Share of $0.23

Updates Fiscal Year 2015 Guidance

GREENSBORO, N.C. - November 19, 2015 - The Fresh Market, Inc. (NASDAQ: TFM), a specialty grocery retailer, today announced unaudited sales and earnings results for its thirteen-week third quarter ended October 25, 2015.

Third Quarter Financial Overview

Diluted earnings per share under U.S. generally accepted accounting principles (“GAAP”) were $0.21, compared to $0.31 in the third quarter of fiscal 2014. Third quarter fis cal 2015 results include net store closure and leadership change charges of $0.02 per diluted share and third quarter fiscal 2014 results include a $0.04 per diluted share net benefit from adjustments to previously recorded store closure and exit costs.

Adjusted diluted earnings per share were $0.23, excluding $0.02 per diluted share of net store closure and leadership change charges. Adjusted diluted earnings per share were $0.27 for the third quarter of fiscal 2014, excluding net benefits from adjustments to closed store reserves of $0.04 per diluted share. Adjusted diluted earnings per share is a non-GAAP financial measure. The schedules included in this press release reconcile this and other non-GAAP financial measures referenced to their comparable GAAP financial measures.

GAAP net income was $10.0 million, compared to $14.9 million in the third quarter of fiscal 2014. Third quarter fiscal 2015 GAAP net income includes pre-tax net store closure and leadership change charges of $1.7 million and third quarter fiscal 2014 results include a net pre-tax benefit of $2.9 million resulting from adjustments to previously recorded store closure and exit costs.

Adjusted EBITDA was $37.5 million, compared to $39.1 million in the third quarter of fiscal 2014. Adjusted EBITDA for the third quarter of fiscal 2015 was 8.7% of sales, compared to 9.3% of sales in the third quarter of fiscal 2014. Adjusted EBITDA is a non-GAAP financial measure.

Sales increased 3.3% to $433.1 million and comparable store sales decreased 3.7% to $386.5 million from the third quarter of fiscal 2014.

Gross profit increased 4.3%, or $5.9 million, to $144.0 million, compared to the third quarter of fiscal 2014. Gross margin was 33.2%, compared to 32.9% in the third quarter of fiscal 2014.

The Company generated $28.1 million in cash flow from operations during the third quarter of fiscal 2015, compared to $30.0 million in the third quarter of the prior fiscal year, and ended the quarter with a cash balance of $37.3 million.

Rick Anicetti, President and Chief Executive Officer, commented, “The Fresh Market is a unique brand with enormous untapped potential and I am excited about the opportunity to guide the company's future direction. As our management team and Board conduct a comprehensive strategic and financial review of the business, we are simultaneously moving forward aggressively with

a number of initiatives to strengthen our foundation, increase productivity, drive store traffic, and regain operating momentum. With the holiday season fast approaching, we are making changes as quickly as prudently possible to our productivity, price optimization and brand differentiation to help stabilize traffic trends and drive sales during this key shopping period.”

Third Quarter Operating Performance

Total sales for the third quarter of fiscal 2015 increased 3.3% to $433.1 million compared to the third quarter of fiscal 2014. Comparable store sales decreased 3.7% to $386.5 million from the third quarter of fiscal 2014 as a result of a 3.7% decrease in the number of transactions.

The Company’s gross profit increased 4.3%, or $5.9 million, to $144.0 million in the third quarter of fiscal 2015, compared to the prior fiscal year period. The fiscal 2015 third quarter gross margin increased 30 basis points to 33.2%, compared to the third quarter of the prior fiscal year. The improvement in gross margin was driven primarily by reduced supply chain costs, a favorable LIFO expense adjustment and reduced store supplies expenses, partially offset by an increase in occupancy costs.

Selling, general and administrative expenses for the third quarter of fiscal 2015 increased $8.8 million to $109.6 million, compared to the third quarter of fiscal 2014. Included in these expenses is $1.6 million related to the previously announced leadership changes at the Company. Selling, general and administrative expenses as a percentage of sales for the quarter increased to 25.3% from 24.0% in the third quarter of fiscal 2014, primarily due to increased store labor expenses on lower comparable store sales and investments in marketing and store productivity programs, partially offset by a decrease in incentive compensation expenses.

Operating income was $16.7 million, or 3.9% of sales, for the third quarter of fiscal 2015, compared to $24.3 million, or 5.8% of sales in the third quarter of fiscal 2014. The Company’s third quarter of fiscal 2015 operating income includes $1.7 million in net store closure and leadership change charges and the Company’s third quarter 2014 operating income included a net benefit of $2.9 million as a result of adjustments to previously recorded store closure and exit costs. Excluding these items, adjusted operating income was $18.5 million, or 4.3% of sales, for the third quarter of fiscal 2015 and $21.4 million, or 5.1% of sales, for the third quarter of fiscal 2014. Adjusted operating income is a non-GAAP financial measure.

Fiscal Year to Date Operating Performance

GAAP diluted earnings per share for the first thirty-nine weeks of fiscal 2015 were $0.88, flat with the corresponding thirty-nine week period in fiscal 2014. Excluding store closure and leadership change charges of $0.21 per diluted share, adjusted diluted earnings per share were $1.09 for the first thirty-nine weeks of fiscal 2015. Excluding store closure and exit costs of $0.18 per diluted share for the first thirty-nine weeks of fiscal 2014, the Company generated adjusted diluted earnings per share of $1.06. Adjusted diluted earnings per share is a non-GAAP financial measure.

For the thirty-nine week period ended October 25, 2015, sales were $1.34 billion, a 5.1% increase compared to the corresponding thirty-nine week period in fiscal 2014, while comparable store sales decreased 1.6% from the prior year period. GAAP net income was $42.6 million for the thirty-nine week period ended October 25, 2015, compared to $42.8 million in the prior year period. GAAP net income for the first thirty-nine weeks of fiscal 2015 includes net pre-tax store closure and leadership change charges of $16.6 million, and GAAP net income for the first thirty-nine weeks of fiscal 2014 includes pre-tax store closure and exit costs of $13.9 million.

Balance Sheet and Cash Flow

During the third quarter of fiscal 2015, the Company generated $28.1 million in cash flow from operations and invested $26.3 million in capital expenditures, of which $21.9 million related to new and remodeled stores. For the year-to-date fiscal 2015 period, the Company generated $105.5 million in cash flow from operations and invested $80.6 million in capital expenditures, with $70.2 million spent on real estate activities.

During the third quarter of fiscal 2015, the Company repurchased 1.6 million shares of its common stock at an average price of $23.28 per share for a total expenditure of $37.6 million. As of October 25, 2015, the Company had $162.4 million available for future stock repurchases under its previously announced $200 million stock repurchase program.

The Company had $37.3 million of cash and no outstanding debt in connection with the Company’s revolving credit facility at the end of the third quarter of fiscal 2015, compared to $48.5 million in cash and no outstanding debt under the credit facility at the end of fiscal 2014.

On a trailing four quarter basis for the period ended October 25, 2015, the Company’s return on assets was 11.3%, return on invested capital, excluding excess cash, was 17.6%, and return on equity was 18.5%. Excluding the impact from store closure and exit costs, as well as asset impairment and leadership change charges recognized in the last quarter of fiscal 2014 and the first three quarters

of fiscal 2015, the Company’s adjusted return on assets was 14.0%, adjusted return on invested capital, excluding excess cash, was 21.2%, and adjusted return on equity was 22.3%, all on a trailing four quarter basis for the period ended October 25, 2015. These financial return measures are non-GAAP financial measures. The schedules included in this press release include a discussion of these non-GAAP financial measures, as well as the details of the Company’s calculations of these financial return measures.

Growth and Development

During the third quarter of fiscal 2015, the Company opened six new stores, including two stores in Florida and one each in South Carolina, Georgia, Alabama and Connecticut. As of October 25, 2015, the Company operated 180 stores in 27 states.

The following table provides additional information about the Company’s real estate and store opening activities through the third quarter of fiscal 2015. Leases signed as of October 25, 2015 are for stores expected to open during or after fiscal 2015.

Stores Opened

in FY 2015

Leases Signed for Future Store Locations

Number of new leased store locations

Average capital cost per store

$3.5...


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