Fresh Market still growing, but how much?

The Fresh Market says its planned exit from California led to higher costs and lower profit in the first quarter, but analysts say the company may be in trouble.

“Overall, the business appears to have slowed as inflation has moderated and management is resistant to drive unprofitable traffic via increased promotional activity,” said Credit Suisse analyst Ed Kelly. “Comp guidance for the back half of the year is aggressive, in our view, and the lack of a full-time CEO could hinder internal productivity initiatives. We continue to rate the stock Underperform. We believe the concept lacks differentiation versus other specialty peers, a growing issue given competitive openings, and that pricing overall is at risk longer-term.”

Fresh Market lowered its guidance for the year ended Jan. 31, saying it now expects same store sales of 1% to 3% instead of its original 2% to 4% projection.

Net sales for the first quarter of fiscal 2015 increased 7.2% to $462.0 million and comparable store sales decreased 0.1% to $404.2 million from the first quarter of fiscal 2014. For the period ended April 26, Fresh Market reported a profit of $15.2 million, or 31 cents a share, down from $16.6 million, or 34 cents a share, a year earlier. Revenue rose 7% to $462 million.

Sean Crane, interim CEO, said: “We achieved adjusted diluted earnings per share growth of 16.8%, reflecting the expense and operating improvements we have implemented in a challenging environment. These results demonstrate our ability to leverage expenses with relatively flat comparable store sales and we believe this flexibility will enable us to invest in initiatives and help increase customer frequency and attract new customers as we grow our store base and position The Fresh Market for long-term growth.”

The Fresh Market operates nearly 200 stores in 25 states.