Whole Foods Market, Inc. (WFM) – The Fresh Market Inc (TFM) Earnings: Decent Company, Not-So-Great Stock

Source: The Fresh Market (NASDAQ:TFM).

Upscale grocer The Fresh Market Inc (NASDAQ:TFM) came out with earnings this week, and the verdict — both from myself and Wall Street — is pretty clear: This a decent company that’s significantly overvalued.

Before earnings came out, I identified three metrics that investors should keep their eyes on. Those metrics are listed below, as well as benchmarks that I thought would show healthy growth that matched the company’s stock price.

 Metric Benchmark Actual Met Expectations?
Profit margins 4.30% 4.41% Yes
Sales per square Foot $133 $122 No
Comparable-store sales 5% 3.4% No

Source: SEC filings.

In my opinion, these mixed signals lead me to two key conclusions: The stock is overpriced, and the company’s core message and offerings aren’t resonating with customers.

Pricey stock
It’s tough to get an apples-to-apples comparison for The Fresh Market Inc (NASDAQ:TFM). The company operates in 25 states and has 139 stores total. Though it has a much smaller store-format size, and slightly different offerings, Whole Foods Market, Inc. (NASDAQ:WFM) essentially goes after the same customers as The Fresh Market Inc (NASDAQ:TFM). Recently IPO’d Sprouts Farmers Market Inc (NASDAQ:SFM) could also be thrown into the same grouping.

When we look at Whole Foods Market, Inc. (NASDAQ:WFM), we see a company with a much larger presence — more than 350 locations — and a more mature store base. Despite this, the company has been able to achieve same-store sales increases of between 6.9% and 8.9% for the past six quarters — much higher than The Fresh Market Inc (NASDAQ:TFM)’s — with superior profit margins to boot.

Whole Foods Market, Inc. (NASDAQ:WFM) trades for 36 times earnings. Even after a 10% drop post-earnings, The Fresh Market Inc (NASDAQ:TFM) still trades for 34 times earnings. In other words, investors pretty much think The Fresh Market Inc (NASDAQ:TFM)’s prospects are as good as Whole Foods’ moving forward. Given recent results, that makes no sense.

If you want to get a look at a small grocer that’s growing in a way that might warrant such a valuation, Sprouts offers an interesting case study. Operating primarily in the American Southwest, the grocer released earnings this month showing same-store sales had increased an incredible 10.8%!

What’s at the core of this company?
I’ve already written before about how Fresh Market seems to be lacking a purposeful core. The stores are certainly nice, but traffic seems to be slow. When I visit the nearby location, I get the feeling that — since focusing on expansion — Fresh Market is nothing but a knock-off of Whole Foods, but without the impassioned focus on healthy eating, education, and sustainable/ethical sourcing.