Fresh Market Earnings Call Insights: Traffic Drivers, Growing Categories

On Wednesday, Fresh Market, Inc. (NASDAQ:TFM) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Traffic Drivers

Mark Wiltamuth – Morgan Stanley: So, this is your second strong quarter of same store sales power. Are there any specific merchandising programs that are driving the traffic into the stores that you could outline or do you just feel like consumers are feeling better?

Craig Carlock – President and CEO: Well, this is the point we were trying to hit on in the prepared comments that we think we derived same store sales from great execution and so that execution is on-time delivery, product that’s fresh, stores that are clean, employees that are well-groomed and serving customers well. So there’s no specific initiative or project or product I can point to. So, we would say its execution and there probably is an element of economic tailwind.

A Closer Look: The Fresh Market Earnings Cheat Sheet>>

Lisa Klinger – EVP and CFO: The growth that we saw was really pretty broad based across geographies, across categories and back to Craig’s comment about the consumer, we do think that the consumer is probably feeling a bit more confident especially in our middle and upper income demographic and certainly we believe that comparable sales, composition skew towards traffic as an indication that we continue to gain share by broadening – our concepts appeal to a wide range of both income education and age. So, we think it’s both.

Mark Wiltamuth – Morgan Stanley: On the California expansion, I guess congratulations on getting up to three stores now. How much are you planning on investing there? You talked a little bit about in your guidance that there is some margin investment going in there for supply chain and I was just curious if there’s also some new store margin drag in there also?

Lisa Klinger – EVP and CFO: It’s not necessarily new store margin drag. What it is, is we’ll start incurring expenses associated with rents, relocating employees, about six months before we opened those stores. So, we will start to experience those expenses in the second and third quarter and we won’t receive any sales until late in the fourth quarter or even early next year.

Mark Wiltamuth – Morgan Stanley: Lastly Lisa, there were some debt reduction there in the quarter, is that going to be permanent or is that just a temporary reduction?

Lisa Klinger – EVP and CFO: Some of that is certainly seasonal. We did have a large pay down in debt in the first quarter of last year, little around $30 million, so this year is around $26 million, so a lot of that is seasonal. However, we were very encouraged with the overall free cash flow given the fact that we are ramping back up our development pipeline.

Growing Categories

Priscilla – JPMorgan: This is actually (Priscilla) side filling in for Ken today. Congrats on the quarter.

Craig Carlock – President and CEO: Thank you.

Priscilla – JPMorgan: I was just wondering in your press release, you talked about increasing inventory investments in faster growing categories and could you give us little more detail on what those categories are?

Craig Carlock – President and CEO: Well, the categories that are growing handsomely for us and other retailers in our prepared foods and that would be the one we were kind of referring to. But we continually bring in new items and test new items and there is a level of inventory investments that’s being supported by rising sales right now.

Priscilla – JPMorgan: And then my second question is, we know you’ve called down and explained your dead rent issue in the past, but how should we think about what the cycling impact will be in the next few quarters?

Lisa Klinger – EVP and CFO: So, we reiterated our 14 to 16 new stores this year and we did highlight the fact that it was going to be fairly balanced between the first half and the second half. So, if you kind of imply what that means for the remaining three quarters it should be pretty consistent amount of new stores in the second quarter, third quarter and fourth quarter. So, we will have some choppiness versus last year where our third quarter we only opened one new store so we will certainly have to take that into account.