The Fresh Market, Inc. Reports Fourth Quarter and Full Year Fiscal 2012 Earnings

- Net Sales Increased 15.3% in the Fourth Quarter and 20.0% for Full Year 2012

- Diluted EPS Increased 12.7% in the Fourth Quarter and 24.4% for Full Year 2012

- Company Provides Fiscal 2013 Guidance

GREENSBORO, N.C., March 6, 2013 (GLOBE NEWSWIRE) -- The Fresh Market, Inc. (Nasdaq:TFM), a high-growth specialty retailer, today announced unaudited sales and earnings results for its fourth quarter and fiscal year ended January 27, 2013.

Financial Overview

In the fourth quarter of fiscal 2012, net sales increased 15.3% to $369.9 million and comparable store sales increased 1.9%, compared to the corresponding thirteen week period ended January 29, 2012. Net income in the fourth quarter of fiscal 2012 was $20.6 million, compared to $18.3 million in the corresponding thirteen week period in fiscal 2011. Diluted earnings per share in the fourth quarter of fiscal 2012 were $0.43, an increase of 12.7% over diluted earnings per share of $0.38 for the corresponding thirteen week period in fiscal 2011.

Fiscal 2012 net sales were $1,329.1 million, a 20.0% increase as compared to the corresponding fifty-two week period ended January 29, 2012, and comparable store sales increased 5.7%. Net income increased to $64.1 million as compared to $51.4 million for the prior year. Diluted earnings per share for fiscal 2012 increased to $1.33, compared to diluted earnings per share of $1.07 for fiscal 2011, an increase of 24.4% over the corresponding period in fiscal 2011.

Craig Carlock, President and Chief Executive Officer, commented, "Fiscal 2012 was a terrific year for The Fresh Market. We achieved record annual sales and earnings on comparable store sales growth of 5.7% and opened a record number of new stores." Carlock added, "Though we executed well in the fourth quarter, we experienced a sudden slowdown in customer traffic and resultant comparable store sales that were consistent across our network. These effects were most pronounced during the holidays and our business improved modestly as we moved into the New Year."

Operating Performance

Fourth quarter total net sales increased 15.3% to $369.9 million and comparable store sales increased 1.9% to $314.7 million, compared to the corresponding thirteen week period in fiscal 2011. The fourth quarter comparable store sales increase resulted from a 2.0% increase in average transaction size, partially offset by a 0.1% decrease in the number of transactions. Fiscal 2012 total net sales increased 20.0% to $1,329.1 million and comparable store sales increased 5.7% to $1,135.9 million, compared to fiscal 2011. Fiscal 2012 total net sales benefited from approximately 27 weeks, on average, of revenue per new store opening and the comparable store sales increase resulted from a 3.4% increase in the number of transactions and a 2.3% increase in average transaction size.

The Company's gross profit increased 16.5%, or $17.8 million, to $125.9 million in the fourth quarter of fiscal 2012, compared to the corresponding thirteen week period of fiscal 2011. For the same period, the gross margin rate increased 30 basis points to 34.0% compared to the corresponding prior year period. This increase in the Company's gross margin rate was attributable to an increase in the merchandise margin, leverage in occupancy costs, and a reduction in LIFO expense. The increase in merchandise margin over the prior year includes the cycling of the Company's initial recognition of $1.4 million in gift card breakage income in the fourth quarter of 2011, which improved the 2011 fourth quarter merchandise margin by 30 basis points. For the fourth quarter of fiscal 2012, the Fresh Market realized a LIFO expense of $0.1 million, a decrease of $0.5 million, or approximately 20 basis points as a percentage of sales, over the corresponding thirteen week period of fiscal 2011. For fiscal 2012, the Company's gross profit increased 23.1%, or $84.8 million, to $451.7 million, and its gross margin rate increased 90 basis points to 34.0%, compared to the prior year period. The increase in the Company's gross margin rate for fiscal 2012 was primarily attributable to increased merchandise margin, as well as leverage in occupancy cost. For fiscal 2012, LIFO expense decreased by $1.0 million from $1.3 million in the corresponding prior year period, which positively impacted the gross margin rate by 10 basis points as a percentage of sales.

Selling, general, and administrative expenses for the fourth quarter of fiscal 2012 increased $13.4 million to $82.4 million, compared to the corresponding thirteen week period in fiscal 2011. Selling, general, and administrative expenses as a percentage of sales increased by 80 basis points to 22.3% for the period, compared to 21.5% for the corresponding thirteen week period in fiscal 2011. This increase in the selling, general and administrative expense rate was primarily attributable to higher store compensation and benefits expenses, partially offset by lower pre-opening expenses and insurance reimbursements of storm-related losses incurred in the second quarter of fiscal 2012. The Company opened two new stores in the fourth quarter of fiscal 2012 and opened six new stores in the corresponding prior year period. This reduction in new store openings and associated pre-opening expenses positively impacted selling, general, and administrative expenses as a percentage of sales by approximately 20 basis points. For fiscal 2012, selling, general, and administrative expenses increased $56.4 million to $303.5 million, or 22.8% as a percentage of sales, from $247.0 million, or 22.3% as a percentage of sales, for the corresponding fifty-two week period in fiscal 2011. The increase in expenses was primarily attributable to higher store level compensation costs and incremental expenses associated with the Company's share-based compensation program.

Operating income increased $1.5 million to $30.8 million for the fourth quarter of fiscal 2012, compared to $29.3 million for the corresponding thirteen week period of fiscal 2011. Operating income as a percentage of sales for the fourth quarter of fiscal 2012 decreased 80 basis points to 8.3%, compared to 9.1% for the corresponding period of fiscal 2011. This decrease was primarily attributable to higher compensation costs and an increase in depreciation expense, partially offset by improvement in gross margin rate. For fiscal 2012, operating income increased $18.6 million to $101.5 million, compared to $82.9 million in fiscal 2011. As a percentage of sales, operating margin increased by 10 basis points to 7.6% for fiscal 2012, compared to operating margin of 7.5% for the prior year. The primary driver of the increase in operating margin for fiscal 2012 was the increase in gross margin rate, partially offset by higher employee-related expenses and depreciation expense.

The effective tax rate for the fourth quarter of fiscal 2012 was 32.1% of pre-tax income and compares to 36.7% for the corresponding thirteen week period of fiscal 2011. The lower rate was due to higher permanent differences, primarily increased enhanced charitable food contribution deductions, higher state tax benefits and a slight benefit from the passage of the American Taxpayer Relief Act of 2012, which continued the work opportunity tax credit. For fiscal 2012, the income tax rate was 35.9% of pre-tax income compared to 36.6% in the corresponding fifty-two week period for fiscal 2011.

Balance Sheet/Cash Flow

During the fourth quarter of fiscal 2012, the Company generated $15.5 million in cash flow from operations and invested $18.4 million in capital expenditures, of which $13.7 million related to new, relocated and remodeled stores. For fiscal 2012, the Company generated $91.9 million in cash flow from operations and invested $81.1 million in capital expenditures, with $69.1 million spent on real estate activities. 

The Company's cash balance as of January 27, 2013 was approximately $8.7 million. Total debt as of January 27, 2013 was $42.0 million, down $22.0 million from a balance of $64.0 million as of January 29, 2012.

Average inventory on a FIFO basis per store at the end of the fourth quarter of fiscal 2012 increased 2.0%, compared to the corresponding period in fiscal 2011. The increase resulted from commodity cost increases in certain departments, such as meat and produce, as well as increased inventory investments in new product assortments and faster growing categories to support the Company's overall sales growth.

On a trailing four quarter basis for the period ended January 27, 2013, the Company's return on assets was 18.4%, return on invested capital, excluding excess cash, was 25.9%, and return on equity was 32.4%. These financial return measures are non-GAAP financial measures. The schedules attached to this press release include a discussion of these non-GAAP measures, as well as the details of our calculations of these financial return measures.

Growth and Development

During the fourth quarter of fiscal 2012, the Company opened two new stores in Daphne, Alabama and Pensacola, Florida, as well as relocated one store in Spartanburg, South Carolina. As of January 27, 2013, the Company operated 129 stores in 25 states.

Through March 6, 2013, the Company announced the signing of leases for nine additional new stores in: Sacramento (Fair Oaks), California; Sacramento (Elk Grove), California; Lynchburg, Virginia; Ashburn, Virginia; South Naples, Florida; Brandon, Florida; Saratoga Springs, New York; Woodbury, New York; and Kansas City, Kansas. These nine stores are currently scheduled to open during or after fiscal 2013. 

The following table provides additional information about the Company's real estate and store opening activities through the fourth quarter of fiscal 2012 and leases signed as of March 6, 2013 for stores expected to open during or after fiscal 2013.

Note 1: Includes leases for stores expected to open after March 6, 2013 and such leases typically include customary leasing conditions. In general, we do not announce the location of a new store until all conditions to the lease are satisfied or our involvement in the property or project will be made public in connection with governmental permitting or approvals or in dealing with other third-parties. We generally identify a store as "coming soon" when we take possession of the property and commence our construction related activities. The Company's website sets forth the most current list of announced lease locations and stores that are "coming soon".

Note 2: Net of capital contributions, if any, received from landlords, and including building costs but excluding cost of land for owned stores. Lease inducement costs and similar prepayments in connection with acquiring or entering into new leases are not included in the capital cost per store and are included as a long-term asset and expensed over the primary term of the lease.

Fiscal 2013 Outlook

In addressing guidance, Carlock commented, "We enter fiscal 2013 with a balanced view. We are simultaneously taking a conservative view on consumer trends while remaining enthusiastic about the portability of our concept, and excited about our plans to accelerate square footage growth. We anticipate 19 to 22 new store openings in fiscal 2013, a record number for The Fresh Market. These openings will be weighted toward the second half of the year, somewhat dampening our EPS growth as we currently expect, on average, approximately seven fewer weeks of revenue per new store for fiscal 2013 as compared to fiscal 2012. With that in mind, we expect earnings per share to grow 14% to 19% in fiscal 2013. For comparative purposes, we estimate that fiscal 2013 earnings would grow an additional two percentage points if our 2013 class of new stores opened at the same cadence of our 2012 vintage stores."

For fiscal 2013, management expects the Company to:

• Open 19 to 22 new stores, with two new stores opening in the first quarter; 4 to 6 new stores opening in the second quarter; and, 13 to 15 new stores opening in the second half of the year
   
• Remodel 3 to 5 stores and have no relocations
   
• Spend approximately $130 million to $150 million in capital expenditures, primarily related to real estate investments 
   
• Increase comparable store sales 2% to 4%
   
• Achieve flat to modest growth in operating margin as a percentage of sales, as the Company continues to make operating expense investments related to its accelerated growth plans
   
• Generate diluted earnings per share of $1.51 to $1.58, assuming an effective tax rate of 37.0%, where earnings per share in the second half of fiscal 2013 exceed earnings per share in the first half of the year

2012 Fourth Quarter Earnings Conference Call

The Company will host a conference call today at 9:00 a.m. Eastern Time. During the conference call, the Company may answer questions concerning its business. The Company's responses to these questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.

The call will be broadcast via a live audio webcast at www.thefreshmarket.com, within the Investor Relations section of the Company website, and a recording will be available for 30 days following the date of the event. Investors and analysts interested in participating on the call may do so by dialing (877) 852-2928.

Items Impacting Comparability

During the second quarter of fiscal 2012, the Company completed a public offering of common stock impacting the comparability of fiscal 2012 results to the corresponding results in fiscal 2011. Transaction expenses related to the offering, which in general are not tax deductible, are included in selling, general and administrative expense and totaled approximately $0.5 million, resulting in a reduction in earnings per share of approximately $0.01 per share on a diluted basis. The costs associated with the offering include legal, printing, accounting and filing fees and expenses as well as other charges directly related to the offering. Additionally, the Company completed a public offering of common stock during the first quarter of fiscal 2011 and incurred approximately $1.1 million in transaction expenses, which resulted in a reduction in earnings per share of approximately $0.02 per share on a diluted basis and impacts full year comparisons with fiscal 2012.

About The Fresh Market, Inc.

Founded in 1982, The Fresh Market, Inc. is a specialty grocery retailer focused on providing high-quality products in a unique and inviting atmosphere with a high level of customer service. As of March 6, 2013, the Company operates 130 stores in 25 states, located in the Southeast, Midwest, Mid-Atlantic, Northeast, and West. For more information, please visit www.thefreshmarket.com.

Forward Looking Statements: This document contains forward-looking statements that reflect our plans, estimates, and beliefs regarding future business and financial performance and financial condition, and include those in the "Fiscal 2013 Outlook" section above. These statements involve a number of risks and uncertainties. Any statements contained herein (including, but not limited to, statements to the effect that The Fresh Market or its management "anticipates," "plans," "estimates," "expects," "believes," and other similar expressions) that are not statements of historical fact should be considered forward-looking statements. The following are some of the factors that could cause or contribute actual future results to differ materially from those expressed in any forward-looking statements: accounting entries and adjustments at the close of our fiscal quarter and fiscal year; unexpected expenses and risks associated with our business; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service and convenience; the effective management of our merchandise buying and inventory levels; the quality and safety of food products and other items that we may sell; our ability to anticipate and/or react to changes in customer demand; changes in economic and financial conditions, including the outcome of negotiations surrounding U.S. fiscal policy which, even if resolved, may be adverse due to tax increases and spending cuts, and the resulting impact on consumer confidence; other changes in consumer confidence and spending; unexpected consumer responses to promotional programs; unusual, unpredictable and/or severe weather conditions including their effect on our supply chain and our store operations; the effectiveness of our logistics and supply chain model, including the ability of our third-party logistics providers to meet our product demands and restocking needs on a cost competitive basis; the execution and management of our store growth, including the availability and cost of acceptable real estate locations for new store openings, the capital that we utilize in connection with new store development and the anticipated time between lease execution and store opening; the mix of our new store openings as between build to suit sites and second-generation, as-is sites; the actions of third parties involved in our store growth activities, including property owners, landlords, property managers, contractors, subcontractors, government agencies, and current tenants who occupy one or more of our proposed new store locations, all of whom may be impacted by their financial condition, their lenders, their activities outside of those focused on our new store growth and other tenants, customers and business partners of theirs; global economies and credit and financial markets; our ability to maintain the security of electronic and other confidential information; serious disruptions and catastrophic events; competition; personnel recruitment and retention; acquisitions and divestitures including the ability to integrate successfully any such acquisitions; information systems and technology; commodity, energy, fuel, and other cost increases; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings and the availability of insurance, indemnification, and other third-party coverage of any losses suffered in connection therewith; tax matters; numerous other matters of national, regional and global scale, including those of a political, economic, business, and competitive nature; and other factors as set forth from time to time in our filings with the Securities and Exchange Commission. Any forward-looking statement, including any contained herein, speaks only as of the time of this release and we do not undertake to update or revise them as more information becomes available or to disclose any facts, events or circumstances after the date of this release that may affect the accuracy of any forward looking statement.

This press release, and access to our earnings call, is also available in the Investor Relations portion of The Fresh Market, Inc. website (http://ir.thefreshmarket.com/).