Whole Foods Market (WFM) has made name a name for itself in the upscale grocery space, but there's another name in the group worth watching, not only because it's a new issue but also because of fantastic execution in recent quarters and bright growth prospects.
A lot of folks were betting against The Fresh Market (TFM) when it reported earnings early Wednesday. As of May 15, 4.1 million shares were held short, giving it a lofty days-to-cover ratio of 14.3 based on its average daily trading volume of 286,000 shares.
The shorts ran for cover Wednesday after The Fresh Market reported outstanding first-quarter results. Shares soared 14.9%, to $56.15, on volume of 2.6 million shares. Short-covering was clearly going on, but I also believe that new institutional money was coming into the stock for the first time. Headed into earnings, I have no doubts that The Fresh Market was on the radar of several growth fund managers, who wanted to see what the quarter looked like before starting a position. The Fresh Market's results were strong enough that Wednesday's big move was a combination of short-covering and new money coming into the stock.
Quarterly profit rose 33% from a year ago, to $0.40 a share. Sales growth accelerated nicely from the fourth-quarter, rising 23%, to $324.8 million. The results easily topped the Thomson Reuters consensus estimates of $0.36 in EPS and sales of $310.4 million. Same-store sales -- or sales at stores open one year or longer -- rose 8.2% and the operating margin increased to 9.6%. Total debt at the end of the first quarter was $39.1 million, down 39% from $64 million at the end of fiscal 2011.
As of April 29, the company operated 116 stores in 21 states, predominately in the Southeast, Midwest, and Mid-Atlantic regions of the U.S. The company plans to open 14 to 16 stores in 2012. It only has one store in California at this point but plans to open locations in Santa Barbara and Palo Alto in the coming months.
When investing in growth stocks, it's always preferable to buy a stock in the early stages of a price move rather than the later stages of a move. I believe The Fresh Market is still in the early stages of a move after coming public in November 2010 at $22. It broke out over a swing point of $54.97 on Wednesday.
The Fresh Market isn't the only upscale grocer acting well. Whole Foods Market is the best-known name in the space. It also brings a lot to the table in terms of fundamental and technical strength. As of Wednesday's close, Whole Foods was only 2.2% from a 52-week high.
But I can't fully embrace Whole Foods here because of the stock's huge price move already. I can't help but think that the big money has already been made. It's a well-run company that's firing on all cylinders at the moment, but since December 2008, the stock has gained more than 1,100%.
Whole Foods Market and The Fresh Market are both solid companies, but The Fresh Market is the better stock play here. The Fresh Market looks like it could still be in the early stages of a price move, while Whole Foods has been running higher for some time now. Buying early-stage breakouts is much more preferable than buying late-state ones.