The Fresh Market Inc (TFM) Has a Stumble, but Not a Fall

When your company has three excellent quarters and one not-excellent quarter, you say things on your conference call like, “I don’t want one quarter’s results to diminish what was otherwise an excellent year of growth.” That’s a line right out of the mouth of The Fresh Market Inc (NASDAQ:TFM)‘s CEO, Craig Carlock. His disappointment and the disappointment of investors in general stemmed from the company’s drop in comparable-store sales growth. Last quarter, the supermarket chain only hit 1.9% in comp growth. Compared to the third quarter’s rate of 5.6%, that was a big misstep.

Shares of The Fresh Market Inc (NASDAQ:TFM) fell almost 10% over the course of the day, putting the stock down 20% since the beginning of the year. The company couldn’t pinpoint the weakness, implying that there was extra caution in consumers’ purchasing that drove comps down. Management specifically said that they didn’t see any weakness compared to competitors over the season, suggesting that the whole industry may have felt the pinch.

The effects of the macro environment
There probably some truth to the assumption that consumers were more cautious over the last quarter. Fresh Market’s closest rival, Whole Foods Market, Inc. (NASDAQ:WFM), also saw a drop in comparable-store sales growth, although it only fell from 8.5% to 7.2%. On its most recent call, Whole Foods’ management team agreed that the macroeconomic environment was uncertain, and that it may have a drag on comps in the short term.

One part of this that hurts more for The Fresh Market Inc (NASDAQ:TFM) is that it’s not as geographically diverse as Whole Foods, and as a result regional impacts can make a bigger difference. The company is currently concentrated on the East Coast, with most stores in the South. While no one region seems to be clearly winning the recovery, the South continues to struggle with housing issues and high unemployment, even more so than many other parts of the country. The comparison only goes so far, though. California is also being hammered and Whole Foods has a lock on that one. If macro were the only issue, then both companies should have been damaged in similar magnitude.

The damage from within