The shares of this upscale grocer are gaining momentum on rumors of a possible private equity buyout. Insiders have also been adding to their shares in recent months.
The Fresh Market (TFM)
from The Turnaround Letter
Founded in North Carolina in 1982, The Fresh Market (TFM) is an upscale food retailer that describes itself as “providing high quality products in a unique and inviting atmosphere with a high level of customer service.”
About two-thirds of sales come from perishable products such as fresh produce, meat and baked goods. The company now operates 176 stores in 27 states, primarily in the Southeast, Midwest and Middle Atlantic.
Sales have grown rapidly since the company went public in 2009, but earnings began to level off in 2012. The stock began to decline in mid-2012, but the sell-off has increased in recent months with the result that the stock is down about 45% in 2015.
At the beginning of 2015 the Board fired the CEO. After being rudder less for the first eight months of the year, Fresh Market recently announced the hiring of Rick Anicetti as CEO. Anicetti has more than 30 years of experience in the grocery industry, first at Hannaford and then as CEO of Food Lion. At Food Lion, Ancetti led a successful transformation of the chain’s business model.
The company began taking steps to improve profitability even before Anicetti came aboard. In March, Fresh Market announced that it would be closing its California stores in order to focus on the stores in its core geographic region. It is also upgrading internal systems to improve efficiency. We expect Anicetti to make other moves to rekindle bottom line growth. And the timing may be fortuitous because Whole Foods, the leader in the upscale grocery segment, is showing signs of stumbling in some areas.
Fresh Market has a strong balance sheet with essentially no debt, and cash flow remains strong. The company recently announced that it would devote some of its cash flow to increasing shareholder value with a $200 million stock repurchase program.
We believe that the upscale grocery market still has robust growth potential, and that with its new leadership The Fresh Market will be able to take good advantage of that potential. The recent slide in the stock price values the company very cheaply, and we recommend buying the stock up to 30.
George Putnam III, The Turnaround Letter, www.turnaroundletter.com, 617-573-9550,October 2015