As Affluent Consumers Pay Up, High-End Grocers Pay Out

The Fresh Market
The Fresh Market

The economic recovery may not be ripe yet, but affluent shoppers apparently aren't having a problem paying a premium for high-end groceries.

Shares of upscale supermarket operator The Fresh Market (TFM) hit fresh highs on Wednesday after the company posted blowout quarterly results. The Fresh Market saw its revenue climb 23% to $324.8 million in its fiscal first quarter, fueled by brisk expansion and a healthy 8.2% spike in same-store sales.

Adjusted earnings climbed 32% to 40 cents a share as the foodstuffs retailer expanded its profit margins, already milking more out of every dollar in sales than larger traditional grocers.

Analysts only figured that The Fresh Market would earn 36 cents a share on $310.9 million in revenue.

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The Fresh Market has an Old World theme with fresh produce on display that would put larger supermarket chains to shame. The throwback butcher shop is there, only it serves up prime cuts of meat and exotic seafood. The chain's typical store is also much smaller than conventional supermarkets, allowing the company the flexibility to open in the heart of an affluent neighborhood where a larger chain would flop.

The end results are impressive. After closing out fiscal 2011 with net margins of 4.6%, the metric rose to 5.9% during the last three months to kick off fiscal 2012. Put another way, nearly 6 cents of every dollar in sales at The Fresh Market makes it all the way down the income statement as an after-tax profit.

Traditional grocery stores typically check in with net margins between 1% and 3%. Whole Foods Market (WFM) -- the slightly upscale organic grocer -- has delivered net margins of just 3.7% over the past year.

Yes, The Fresh Market is that good.

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Fresher Produce on the Way

The Fresh Market is still early in its growth cycle. There are just 116 stores open as of the end of April, and the chain is eyeing 14 to 16 openings for the entire fiscal year.

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Heartened by its strong quarter, The Fresh Market is increasing its outlook.

Stack up The Fresh Market's strong quarter on top of a better-than-expected report by Whole Foods, and it's clear that consumers aren't shying away from paying more for high-quality, "good for you" groceries.

Investors are apparently following suit. Whole Foods Market and organic distributor Hain Celestial (HAIN) have also hit new highs this month.

%Gallery-154210%Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this story. The Motley Fool owns shares of The Hain Celestial Group. Motley Fool newsletter services have recommended buying shares of Whole Foods Market, The Hain Celestial Group, and The Fresh Market.

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