A Fresh Start for Fresh Market?

11/11/2015 7:00 am EST

Focus: STOCKS

George Putnam

Editor, The Turnaround Letter

Our latest featured turnaround stock is an upscale food retailer that operates 176 stores in 27 states, notes George Putnam, editor of The Turnaround Letter.

Sales have grown rapidly since The Fresh Market (TFM) went public in 2009, but earnings began to level off in 2012.

The stock began to decline in mid-2012, but the sell-off has increased in recent months with the result that the stock is down about 45% in 2015.

At the beginning of 2015 the Board fired the CEO. After being rudderless for the first eight months of the year, Fresh Market recently announced the hiring of Rick Anicetti as CEO.

Anicetti has more than 30 years of experience in the grocery industry, first at Hannaford and then as CEO of Food Lion, where he led a successful transformation of the chain’s business model.

The company began taking steps to improve profitability even before Anicetti came aboard.

In March, Fresh Market announced that it would be closing its California stores in order to focus on the stores in its core geographic region. It is also upgrading internal systems to improve efficiency.

We expect Anicetti to make other moves to rekindle bottom line growth. And the timing may be fortuitous because Whole Foods (WFM), the leader in the upscale grocery segment, is showing signs of stumbling in some areas.

Fresh Market has a strong balance sheet with essentially no debt and cash flow remains strong.

The company recently announced that it would devote some of its cash flow to increasing shareholder value with a $200 million stock repurchase program.

We believe that the upscale grocery market still has robust growth potential and that with its new leadership The Fresh Market will be able to take good advantage of that potential.

The recent slide in the stock price values the company very cheaply and we recommend buying the stock up to $30.

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