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.
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
The Fresh Market Inc (NASDAQ:TFM)’s wounds are likely self-inflicted. That sounds like a condemnation of the company but it’s really not. Fresh Market has done very good things and consumers clearly love the place. The reason it’s getting hit more than Whole Foods is probably due to the success of its branding. When you walk into Whole Foods, it’s clear that you’re going to pay a premium for food, but it’s also clear that the place was meant to be laid back. The wood is rustic looking, the employees are covered in tattoos, and there’s a juice bar near the cafe.
The Fresh Market exudes an expensive vibe, which is supposed to be classy and make you feel like you’re in a grocery store from the mid-twentieth century. As it turns out, it’s not more expensive than Whole Foods, but it’s done a good job tricking people into thinking that it’s more exclusive. As a result, it’s easy to understand why customers would pull back more on visits to Fresh Market than they would to Whole Foods — you feel like you’ll spend more money at Fresh Market.
The bottom line
Normally, I’m pretty dismissive of CEOs when they rant about the economic environment and how it’s holding them back, but in this case I’m inclined to give management a little room. As a final point in Fresh Market’s favor, The Kroger Co. (NYSE:KR)‘s comparable sales inched up to 3.5% in the last quarter from 3.2% in the previous quarter. While that’s mainly evidence of Kroger running a very solid business and executing its plan like a champion, it’s also probably driven by customers searching out lower-cost alternatives to the high-end grocers. Only time will tell if The Fresh Market is really riding the waves of the economy, but I still have faith that management will be able to pick things back up this year.
The article The Fresh Market Has a Stumble, but Not a Fall originally appeared on Fool.com.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Fresh Market and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market.
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