FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 1-34940

THE FRESH MARKET, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   56-1311233

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

identification number)

628 Green Valley Road, Suite 500

Greensboro, North Carolina 27408

(Address of principal executive offices)

(336) 272-1338

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨     Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)   Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 30, 2011 was 48,028,643 shares.


Table of Contents

The Fresh Market, Inc.

Form 10-Q

Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

  

Balance Sheets as of October 30, 2011 and January 30, 2011

     5   

Statements of Income for the thirteen and thirty-nine weeks ended October 30, 2011 and October  31, 2010

     6   

Statements of Stockholders’ Equity and Comprehensive Income for the thirty-nine weeks ended October 30, 2011 and the one month ended January 30, 2011

     7   

Statements of Cash Flows for the thirty-nine weeks ended October 30, 2011 and October 31, 2010

     8   

Notes to Financial Statements

     9   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     14   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     24   

Item 4. Controls and Procedures

     25   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     26   

Item 6. Exhibits

     26   

Signature

     27   

 

2


Table of Contents

Introductory Note

The Fresh Market, Inc., a Delaware corporation, is referred to herein as “the Company,” “we,” “us,” “our,” and words of similar import.

Change in Fiscal Year-End

On January 26, 2011 our Board of Directors approved a change in our fiscal year-end from a calendar year-end of December 31 to a fiscal year-end ending on the last Sunday of January commencing with fiscal 2011. In connection with the change of our fiscal year-end, we had a 30-day transition period from January 1, 2011 to January 30, 2011.

We changed our fiscal year-end in order to offer more comparable quarterly and annual data to our investors. As a specialty retailer focused on foods, our operations are more active during the periods surrounding holidays and can be subject to seasonal differences in the event that holiday periods fall within a particular fiscal period one year and a different fiscal period in a subsequent year. By changing our fiscal year-end, revenues, including the use of gift cards given as holiday gifts, in the months of December and January will now appear in the same fiscal quarter and fiscal year resulting in greater comparability of our period to period financial results regardless of whether significant shopping occurs at the end of December or the beginning of January. In addition, the Easter holiday and the time periods surrounding Easter are significant shopping periods for us and the change in our fiscal year-end means that these periods will always be in our first fiscal quarter rather than occurring variously from one year to the next in the first quarter or the second quarter. We believe that this change in fiscal year-end will provide investors with a more comparable quarterly and annual picture of our operations.

Availability of Transition Period Financial Statements

We previously included audited financial statements for the one month transition period ended January 30, 2011 in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2011 and, as a result, have included only the balance sheet for the one month transition period ended January 30, 2011 in this Quarterly Report on Form 10-Q.

Recasting of Prior Periods

As a result of the change in our fiscal year-end, our first three fiscal quarters of each fiscal year, each of which fiscal quarter will now consist of three periods of four, four and five weeks, will also end on different dates from prior periods. Accordingly, we have recast our prior year fiscal quarters in a Form 8-K filed with the Securities and Exchange Commission on June 14, 2011. By recasting these periods, the quarterly and year to date information for fiscal 2010 is comparable to the information for fiscal 2011.

 

3


Table of Contents

Forward Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements in addition to historical information. The forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “looking forward,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will” and “would” or any variations of these words or other words with similar meanings. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These “forward looking statements” may relate to such matters as our industry, business strategy, goals and expectations concerning our market position, future operations, future performance or results, margins, profitability, capital expenditures, liquidity and capital resources, interest rates and other financial and operating information and the outcome of contingencies such as legal and administrative proceedings.

Our forward-looking statements contained in this Form 10-Q are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. Actual results may differ materially from these expectations due to unexpected expenses and risks associated with our business; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service and convenience; the effective management of our merchandise buying and inventory levels; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence and spending; unexpected consumer responses to promotional programs; unusual, unpredictable and/or severe weather conditions including their effect on our supply chain and our store operations; the effectiveness of our logistics and supply chain model, including the ability of our third-party logistics providers to meet our product demands and restocking needs on a cost competitive basis; the execution and management of our store growth and the availability of acceptable real estate locations for new store openings; the actions of third parties involved in our store growth activities, including property owners, landlords, property managers, those involved in the construction of our new store locations and current tenants who occupy one or more of our proposed new store locations, all of whom may be impacted by their financial condition, their lenders, their activities outside of those focused on our new store growth and other tenants, customers and business partners of theirs; global economies and credit and financial markets; our ability to maintain the security of electronic and other confidential information; serious disruptions and catastrophic events; competition; personnel recruitment and retention; acquisitions and divestitures including the ability to integrate successfully any such acquisitions; information systems and technology; commodity, energy and fuel cost increases; inflation of the cost of goods purchased by us and the cost of products sold by us; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings; tax matters and other factors, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. You should bear this in mind as you consider forward-looking statements.

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. You are advised, however, to consult any further disclosures we may make in our future reports to the Securities and Exchange Commission, on our website, or otherwise.

 

4


Table of Contents

Part 1

Item1. Financial Information

The Fresh Market, Inc.

Balance Sheets (unaudited)

(In thousands, except share amounts)

 

     October 30,
2011
    January 30,
2011
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 9,696      $ 7,867   

Accounts receivable, net

     3,164        1,296   

Inventories

     39,068        31,141   

Prepaid expenses and other current assets

     5,234        5,306   

Deferred income taxes

     7,662        6,109   
  

 

 

   

 

 

 

Total current assets

     64,824        51,719   

Property and equipment:

    

Land

     5,451        1,685   

Buildings

     4,579        -         

Store fixtures and equipment

     224,474        206,909   

Leasehold improvements

     126,166        109,203   

Office furniture, fixtures, and equipment

     9,699        8,735   

Automobiles

     1,155        1,007   

Construction in progress

     37,261        17,042   
  

 

 

   

 

 

 

Total property and equipment

     408,785        344,581   

Accumulated depreciation

     (161,359     (139,427
  

 

 

   

 

 

 

Total property and equipment, net

     247,426        205,154   

Other assets

     3,444        1,984   
  

 

 

   

 

 

 

Total assets

   $ 315,694      $ 258,857   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 33,914      $ 25,398   

Accrued liabilities

     52,463        41,040   
  

 

 

   

 

 

 

Total current liabilities

     86,377        66,438   

Long-term debt

     76,000        81,850   

Closed store reserves

     2,014        2,145   

Deferred income taxes

     30,233        23,293   

Other long-term liabilities

     13,820        13,054   
  

 

 

   

 

 

 

Total noncurrent liabilities

     122,067        120,342   

Commitments and contingencies (Notes 2 and 8)

    

Stockholders’ equity:

    

Preferred stock – $0.01 par value; 40,000,000 shares authorized,none issued

     -              -         

Common stock – $0.01 par value; 200,000,000 shares authorized, 47,997,218 and 47,991,045 shares issued and outstanding at October 30, 2011 and January 30, 2011, respectively

     481        481   

Additional paid-in capital

     97,522        95,852   

Accumulated other comprehensive loss – interest rate swaps

     (308     (674

Retained earnings (accumulated deficit)

     9,555        (23,582
  

 

 

   

 

 

 

Total stockholders’ equity

     107,250        72,077   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 315,694      $ 258,857   
  

 

 

   

 

 

 

See accompanying notes.

 

5


Table of Contents

The Fresh Market, Inc.

Statements of Income (unaudited)

(In thousands, except share and per share amounts)

 

    For the Thirteen Weeks Ended     For the Thirty-Nine Weeks Ended  
    October 30,
2011
    October 31,
2010
    October 30,
2011
    October 31,
2010
 

Sales

  $ 263,260      $ 235,768      $ 787,263      $ 704,609   

Cost of goods sold

    179,066        158,974        528,530        475,083   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    84,194        76,794        258,733        229,526   

Operating expenses:

       

Selling, general and administrative expenses

    60,283        55,000        178,088        158,755   

Store closure and exit costs

    99        217        338        646   

Depreciation

    9,309        8,525        26,681        24,674   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    14,503        13,052        53,626        45,451   

Other (income) expenses:

       

Interest expense

    481        536        1,450        1,732   

Other income, net

    (2     -              (2     (165
 

 

 

   

 

 

   

 

 

   

 

 

 
    479        536        1,448        1,567   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

    14,024        12,516        52,178        43,884   

Tax provision

    4,874        125        19,041        297   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 9,150      $ 12,391      $ 33,137      $ 43,587   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

       

Basic and diluted

  $ 0.19      $ 0.26      $ 0.69      $ 0.91   
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

  $ -            $ 0.17      $ -            $ 0.66   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

       

Basic

    47,996,697        47,991,045        47,993,688        47,991,045   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    48,127,549        47,991,045        48,124,656        47,991,045   
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income data:

       

Income before provision for income taxes

    $ 12,516        $ 43,884   

Pro forma tax provision

      4,884          17,124   
   

 

 

     

 

 

 

Pro forma net income

    $ 7,632        $ 26,760   
   

 

 

     

 

 

 

Pro forma net income per share:

       

Basic and diluted

    $ 0.16        $ 0.56   
   

 

 

     

 

 

 

Pro forma weighted average common shares outstanding:

       

Basic and diluted

      47,991,045          47,991,045   
   

 

 

     

 

 

 

See accompanying notes.

 

6


Table of Contents

The Fresh Market, Inc.

Statements of Stockholders’ Equity and Comprehensive Income (unaudited)

(In thousands, except share amounts)

 

    Common Stock, $0.01 par value     Additional    

Accumulated

Other

   

(Accumulated

Deficit)

    Total  
    Common Shares
Outstanding
    Common
Stock
    Paid-in
Capital
    Comprehensive
Income (Loss)
    Retained
Earnings
    Stockholders’
Equity
 
 

 

 

 

Balance at December 31, 2010

    47,991,045      $ 481      $ 95,655      $ (682   $ (26,242   $ 69,212   

Share-based compensation

    -            -            197        -            -            197   

Comprehensive income:

           

Net income

    -            -            -            -            2,660        2,660   

Other comprehensive income - interest rate swaps, net of tax of $5

    -            -            -            8        -            8   
           

 

 

 

Total comprehensive income

              2,668   
 

 

 

 

Balance at January 30, 2011

    47,991,045      $ 481      $ 95,852      $ (674   $ (23,582   $ 72,077   

Issuance of restricted stock awards

    5,454        -            -            -            -            -       

Issuance of common stock under Employee Stock Purchase Plan

    719        -            27        -            -            27   

Share-based compensation

    -            -            1,643        -            -            1,643   

Comprehensive income:

           

Net income

    -            -            -            -            33,137        33,137   

Other comprehensive income - interest rate swaps, net of tax of $120

    -            -            -            366        -            366   
           

 

 

 

Total comprehensive income

              33,503   
 

 

 

 

Balance at October 30, 2011

    47,997,218      $ 481      $ 97,522      $ (308   $ 9,555      $ 107,250   
 

 

 

 

See accompanying notes.

 

7


Table of Contents

The Fresh Market, Inc.

Statements of Cash Flows (unaudited)

(In thousands)

 

     For the Thirty-Nine Weeks Ended  
     October 30,
2011
    October 31,
2010
 

Operating activities

    

Net income

   $ 33,137      $ 43,587   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     26,834        24,710   

Impairments and loss on disposal of property and equipment

     169        724   

Share-based compensation

     1,643        -       

Share-based compensation associated with liability awards

     -            976   

Deferred income taxes

     5,387        -       

Change in assets and liabilities:

    

Accounts receivable

     (1,982     (1,476

Inventories

     (7,926     (6,657

Prepaid expenses and other assets

     (485     (3,787

Accounts payable

     8,517        5,557   

Accrued liabilities and other long-term liabilities

     5,089        9,562   
  

 

 

   

 

 

 

Net cash provided by operating activities

     70,383        73,196   

Investing activities

    

Purchases of property and equipment

     (61,835     (30,830

Proceeds from sale of property and equipment

     160        49   
  

 

 

   

 

 

 

Net cash used in investing activities

     (61,675     (30,781

Financing activities

    

Borrowings on revolving credit note

     349,331        234,002   

Payments made on revolving credit note

     (355,181     (245,390

Debt issuance costs

     (1,056     -       

Proceeds from issuance of common stock pursuant to employee stock purchase plan

     27        -       

Distributions to stockholders

     -            (31,762
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,879     (43,150
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     1,829        (735

Cash and cash equivalents at beginning of period

     7,867        7,889   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 9,696      $ 7,154   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid during the period for interest

   $ 1,242      $ 1,713   
  

 

 

   

 

 

 

Cash paid during the period for taxes

   $ 11,104      $ 448   
  

 

 

   

 

 

 

See accompanying notes.

 

8


Table of Contents

The Fresh Market, Inc.

Notes to Unaudited Financial Statements

October 30, 2011

(in thousands, except share and per share data)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. These unaudited financial statements should be read in conjunction with the audited financial statements and the accompanying notes thereto in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010. In the opinion of management, these unaudited financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim results are not necessarily indicative of results that may be expected for any other interim period or for a full fiscal year.

On January 26, 2011, the Company’s Board of Directors approved a change in the Company’s fiscal year-end from December 31 of each year to the last Sunday in January of each year, commencing with the Company’s 2011 fiscal year, which will now begin January 31, 2011 and end January 29, 2012. As a result, the third quarter and year to date periods represent the thirteen and thirty-nine weeks, respectively, ended October 30, 2011 and October 31, 2010.

The Company has determined that it has only one reportable segment. All of the Company’s revenues come from the sale of items at its specialty food stores. The Company’s primary focus is on perishable food categories, which include meat, seafood, produce, deli, bakery, floral, and prepared foods. Non-perishable categories primarily consist of traditional grocery and dairy products as well as specialty foods, including bulk, coffee, candy, and beer and wine. The following is a summary of the percentage for the sales of perishable and non-perishable items:

 

   

For the Thirteen Weeks Ended

    

For the Thirty-Nine Weeks Ended

   

October 30,
2011

  

October 31,
2010

    

October 30,

2011

  

October 31,

2010

Perishable   66.2%    66.5%      67.0%    67.2%
Non-perishable   33.8%    33.5%      33.0%    32.8%

Unaudited Pro Forma Income per Share

In connection with the Company’s initial public offering, the Company terminated its S-corporation status and became subject to additional entity-level taxes beginning on November 9, 2010.

The Company has presented unaudited pro forma income per share data for the thirteen and thirty-nine weeks ended October 31, 2010 on the accompanying statements of income that was derived using the unaudited pro forma net income as presented. In calculating pro forma net income, the Company has adjusted historical net income to include an estimate for federal and state income taxes as if the Company were a C-corporation during that period. Pro forma income tax has been estimated using a blended statutory federal and state income tax rate of 39.0% for the thirteen and thirty-nine weeks ended October 31, 2010.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP (“ASU 2011-04”), which establishes common requirements for measuring fair value and related disclosures in accordance with GAAP. The amendment does not require additional fair value measurements. ASU 2011-04 is effective for all interim and annual reporting periods beginning after December 15, 2011 and is not expected to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”), which eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 is effective for all interim and annual reporting periods beginning after December 15, 2011 and is not expected to have a material impact on the Company’s financial statements.

 

9


Table of Contents

The Fresh Market, Inc.

Notes to Unaudited Financial Statements (continued)

 

2. Long-Term Debt

 

Long-term debt is as follows:

 

     October 30,
2011
     January 30,
2011
 

Unsecured revolving credit note, with maximum available borrowings of $175,000, interest payable monthly at one-month LIBOR plus a margin, weighted-average interest rate of 3.2% and 1.5% for the thirty-nine weeks ended October 30, 2011 and the one month ended January 30, 2011, respectively

     $ 76,000         $ 81,850   
  

 

 

    

 

 

 
     

On February 22, 2011, the Company terminated its revolving credit facility that had been in place at January 30, 2011 and entered into a credit agreement with Bank of America, N.A. as Administrative Agent, Swing Line Lender, and Letter of Credit Issuer, and several other lending institutions (the “2011 Credit Facility”). The 2011 Credit Facility refinanced and replaced the Company’s credit agreement dated February 27, 2007 by and among the Company, Bank of America, N.A. as Administrative Agent, Swing Line Lender, and Letter of Credit Issuer, and the several other lending institutions (the “2007 Credit Facility”). The 2011 Credit Facility matures February 22, 2016, and is available to provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions, issuance of letters of credit, refinancing and payment of fees. While the Company currently has no material domestic subsidiaries, other entities will guarantee the Company’s obligations under the 2011 Credit Facility if and when they become material domestic subsidiaries of the Company during the term of the 2011 Credit Facility.

The 2011 Credit Facility provides for total borrowings of up to $175,000. Under the terms of the 2011 Credit Facility, the Company is entitled to request an increase in the size of the facility by an amount not exceeding $75,000 in the aggregate. If the existing lenders elect not to provide the full amount of a requested increase, or in lieu of accepting offers from existing lenders to increase their commitments, the Company may designate one or more other lender(s) to become a party to the 2011 Credit Facility, subject to the approval of the Administrative Agent. The 2011 Credit Facility includes a letter of credit sublimit of $25,000 and a swing line sublimit of $10,000.

At the Company’s option, outstanding borrowings bear interest at (i) the London Interbank Offered Rate plus an applicable margin that ranges from 1.00% to 2.25%, (ii) the Eurodollar rate plus an applicable margin that ranges from 1.00% to 2.25%, or (iii) the base rate plus an applicable margin that ranges from 0% to 1.25%, where the base rate is defined as the greatest of: (a) the federal funds rate plus 0.50%, (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00%. The commitment fee calculated on unused portions of the credit facility ranges from 0.30% to 0.45% per annum. As of October 30, 2011, all outstanding borrowings bear interest at LIBOR plus an applicable margin.

The loan agreement also provides the Company with standby letter of credit facilities up to $25,000, of which $7,968 and $6,962 were outstanding at October 30, 2011 and January 30, 2011, respectively. The beneficiaries of these letters of credit are the Company’s workers’ compensation insurance carriers and a utility company.

3. Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative accounting guidance. This framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The three levels of the fair value hierarchy are as follows:

 

Level 1       Quoted market prices in active markets for identical assets or liabilities;

 

10


Table of Contents

The Fresh Market, Inc.

Notes to Unaudited Financial Statements (continued)

 

3. Fair Value of Financial Instruments (continued)

 

Level 2      

Inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3      

Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The Company has no significant financial instruments subject to the three levels of the fair value hierarchy. The carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other accrued expenses approximate fair value because of the short maturity of those instruments. Store closure reserves are recorded at net present value to approximate fair value. The carrying amount of long-term debt approximates fair value because the advances under this instrument bear variable interest rates which reflect market changes to interest rates and contain variable risk premiums based on certain financial ratios achieved by the Company. The Company did not elect to report any of its nonfinancial assets or nonfinancial liabilities at fair value.

4. Employee Benefits

Shadow Equity Bonus Plan

The Company sponsored a shadow equity bonus plan under which variable bonus awards were granted to certain key employees at different times during the year. Bonus awards were effective as of January 1 of the year of grant and fully vest on January 1 of the fifth year after the award was granted if the employee remained employed as of that date. The Company recorded compensation expense ratably over the vesting period. As of January 30, 2011, other events that triggered vesting of bonus awards included the disability or death of the employee or a sale of the Company, which was defined as a sale of all or substantially all of its assets or equity as defined in the shadow equity bonus plan agreement (the “shadow equity agreement”). In March 2011, in order to clarify the intent of the board of directors at the time the shadow equity bonus awards were granted, the board of directors amended the form of shadow equity agreement to provide that a “sale of the company” includes a transaction as a result of which the Berry family (as defined in the shadow equity agreement) holds less than 50% of the equity interests in the Company.

The Company recognized compensation expense of nil and $388 for the thirteen weeks ended October 30, 2011 and October 31, 2010, and $398 and $1,018, for the thirty-nine weeks ended October 30, 2011 and October 31, 2010, respectively. There is no remaining balance in accrued liabilities as the outstanding shadow equity bonus amounts vested as a result of the secondary offering of the Company’s stock, which constituted a “sale of the company” as defined in the shadow equity agreement as amended, and the full vested amounts were paid during the thirty-nine week period ended October 30, 2011.

5. Share-based Compensation

Stock Options - 2010 Omnibus Incentive Compensation Plan

The Company grants options to purchase common stock under The Fresh Market, Inc. 2010 Omnibus Incentive Compensation Plan, which was adopted and approved by the Board of Directors during 2010. At October 30, 2011, approximately 2,800,000 shares of the Company’s common stock were available for share-based awards.

As of October 30, 2011 and January 30, 2011, there were approximately 601,000 and 605,000 shares of nonvested stock options outstanding and $4,402 and $5,532, respectively, of unrecognized share-based compensation expense. The Company anticipates the remaining expense to be recognized over a period of 3.0 years.

Share-based compensation expense related to stock options recognized during the thirteen and thirty-nine weeks ended October 30, 2011 totaled $359 and $1,085, and is included in the “Selling, general and administrative expenses” line item on the Statements of Income.

 

11


Table of Contents

The Fresh Market, Inc.

Notes to Unaudited Financial Statements (continued)

 

5. Share-based Compensation (continued)

 

Restricted Stock Awards – 2010 Omnibus Incentive Plan

In November 2010, the Company awarded approximately 117,000 shares of restricted stock units (RSUs) to employees and 5,500 shares of restricted stock awards (RSAs) to non-employee directors. The RSUs will vest in 25% annual increments on each of the first four anniversaries of the date of the grant and the RSAs will vest at the earlier of one year from the date of grant or the next annual meeting of the stockholders. In August 2011, the Company held its annual meeting of stockholders which triggered the vesting of the RSAs awarded in November 2010. The Company awarded approximately 5,600 shares of new RSAs to the non-employee directors in August 2011, which had a grant date fair value of approximately $180. The fair value of RSUs and RSAs is based on the fair market value of the Company’s common stock on the date of grant. The Company recorded $185 and $558 of share-based compensation expense related to these awards during the thirteen and thirty-nine weeks ended October 30, 2011 which is included in the “Selling, general and administrative expenses” line item on the Statements of Income.

As of October 30, 2011, total remaining unearned compensation cost related to nonvested stock awards was $1,952, which will be amortized over the remaining service period of approximately 3.0 years.

Employee Stock Purchase Plan

In November 2010, the Employee Stock Purchase Plan (“ESPP”) was adopted and approved by the Company’s board of directors. Beginning July 1, 2011, eligible employees began participation in the ESPP plan to purchase shares of the Company’s common stock at a 5% discount from the market price through a payroll deduction. The number of shares of common stock that are authorized and available for issuance under the ESPP is 1,000,000.

During the thirty-nine week period ended October 30, 2011, 719 shares of the Company’s common stock were purchased under the ESPP, which resulted in proceeds of approximately $27.

Stock Options – Stockholder Plan

In 2009, a stockholder of the Company granted stock options to certain key employees of the Company pursuant to separate arrangements between the stockholder and the respective employees. These options were granted with an exercise price of $6.73 and were recorded as a long-term liability on the balance sheet.

Compensation expense related to the stock option awards issued in 2009 accrued at a value based on the fair value of the awards as re-measured at the end of each reporting period. At the end of each reporting period, a portion of the fair value of the awards equal to the percentage of the requisite service rendered through the reporting date was determined and a liability was recorded. Compensation expense was recognized for the change in the liability. The Company determined the fair value of the awards using the Black-Scholes option-pricing model based on the estimated fair value per common share and certain assumptions.

The 2009 option awards were scheduled to vest in 2019 or upon the occurrence of certain events, including an initial public offering. Because the awards vest upon satisfaction of either a service or performance condition, the Company recognized compensation expense for these awards over the service term of 10 years, in accordance with authoritative guidance. These options vested on November 4, 2010, due to the initial public offering of the Company’s stock. Prior to the initial public offering, the Company recognized $375 and $976 in compensation expense related to these awards for the thirteen and thirty-nine weeks ended October 31, 2010 which is included in the “Selling, general and administrative expenses” line item on the Statements of Income.

6. Income Taxes

Prior to November 9, 2010 the Company was treated for federal and certain state income tax purposes as an S-corporation under the Internal Revenue Code and state laws. As a result, the earnings of the Company were taxed for federal and most state income tax purposes directly to the stockholders of the Company. Therefore, no provision or liability for federal and state income tax was provided in the Company’s financial statements except for those states where S-corporation status was not recognized. The provision for income taxes was $4,874 and $19,041 for the thirteen and thirty-nine weeks ended October 30, 2011 compared to a provision of $125 and $297 for the thirteen and thirty-nine weeks ended October 31, 2010, respectively.

 

12


Table of Contents

The Fresh Market, Inc.

Notes to Unaudited Financial Statements (continued)

 

7. Earnings per Share

The computation of basic earnings per share is based on the number of weighted-average common shares outstanding during the period. The computation of diluted earnings per share for the thirteen and thirty-nine weeks ended October 30, 2011 and October 31, 2010, respectively, includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options, RSUs and restricted stock awards.

A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except share and per share amounts):

 

    For the Thirteen Weeks Ended     For the Thirty-Nine Weeks Ended  
    October 30,
2011
    October 31,
2010
    October 30, 2011     October 31, 2010  

Net income available to common stockholders (numerator for basic earnings per share)

  $ 9,150      $ 12,391      $ 33,137      $ 43,587   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding (denominator for basic earnings per share)

    47,996,697        47,991,045        47,993,688        47,991,045   

Potential common shares outstanding:

       

Incremental shares from share-based awards

    130,852        -              130,968        -         
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding and potential additional common sharesoutstanding (denominator for diluted earnings per share)

    48,127,549        47,991,045        48,124,656        47,991,045   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per share

  $ 0.19      $ 0.26      $ 0.69      $ 0.91   
 

 

 

   

 

 

   

 

 

   

 

 

 

8. Commitments and Contingencies

Distributions to Stockholders

The Company did not declare dividends during the thirteen and thirty-nine weeks ended October 30, 2011. However, the Company declared dividends in the amount of $8,283 and $31,694 during the thirteen and thirty-nine weeks ended October 31, 2010. A portion of the cash distributions paid to stockholders was to provide them with funds to pay the applicable income taxes owed on taxable income generated by the Company while it was an S-corporation. The remaining dividends were discretionary distributions paid by the Company.

 

13


Table of Contents

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Fresh Market is a high-growth specialty retailer focused on creating an extraordinary food shopping experience for our customers. Since opening our first store in 1982, we have offered high-quality food products, with an emphasis on fresh, premium perishables and an uncompromising commitment to customer service. We seek to provide an attractive, convenient shopping environment while offering our customers a compelling price-value combination. As of October 30, 2011, we operated 107 stores in 21 states, primarily in the Southeast, Midwest and Mid-Atlantic United States.

We believe several key differentiating elements of our business have enabled us to execute our strategy consistently and profitably across our expanding store base. We believe the differentiated shopping experience we provide has helped us to expand our business primarily through favorable word-of-mouth publicity. Within our smaller-box format, we focus on higher-margin food categories and strive to deliver a more personal level of service and a more enjoyable shopping experience. Further, our smaller-box format is adaptable to different retail sites and configurations and has facilitated our successful growth. Additionally, we believe our disciplined, comprehensive approach to planning and merchandising and the support we provide our stores allow us to deliver a consistent shopping experience and financial performance across our store base.

How We Assess the Performance of Our Business

In assessing our performance, we consider a variety of performance and financial measures. The key measures that we assess to evaluate the performance of our business are set forth below:

Sales

Our sales comprise gross sales net of coupons, commissions and discounts. Sales include sales from all of our stores.

The food retail industry and our sales are affected by general economic conditions and seasonality, as well as the other factors, discussed below, that affect our comparable store sales. Consumer purchases of specialty food products are particularly sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, the level of disposable consumer income, consumer debt, interest rates and consumer confidence. In addition, our business is seasonal and, as a result, our average weekly sales fluctuate during the year and are usually highest in the fourth quarter when customers make holiday purchases.

Comparable Store Sales

Our practice is to include sales from a store in comparable store sales beginning on the first day of the sixteenth full month following the store’s opening. We believe that comparability is achieved approximately fifteen months after opening. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales. There may be variations in the way that our competitors calculate comparable or “same store” sales. As a result, data in this Form 10-Q regarding our comparable store sales may not be comparable to similar data made available by our competitors.

Various factors may affect comparable store sales, including:

 

   

overall economic trends and conditions, including general price levels in the economy;

 

   

consumer preferences and buying trends;

 

   

our competition, including competitor store openings or closings near our stores;

 

   

our competitors expanding their offerings of premium/perishable products;

 

   

the pricing of our products, including the effects of inflation or deflation;

 

   

the number of customer transactions at our stores;

 

   

our ability to provide an assortment of distinctive, high-quality product offerings to generate new and repeat visits to our stores;

 

   

the level of customer service that we provide in our stores;

 

   

our in-store merchandising-related activities;

 

14


Table of Contents
   

our ability to source products efficiently;

 

   

our opening of new stores in the vicinity of our existing stores; and

 

   

the number of stores we open, remodel or relocate in any period.

As we continue to pursue our growth strategy, we expect that a significant percentage of our sales growth will continue to come from new stores not included in comparable store sales. Accordingly, comparable store sales is only one measure we use to assess our performance.

Gross Profit

Gross profit is equal to our sales minus our cost of goods sold. Gross margin rate measures gross profit as a percentage of our sales. Cost of goods sold is directly correlated with sales and includes the direct costs of purchased merchandise, distribution and supply chain costs, buying costs, store supplies and store occupancy costs. Store occupancy costs include rent, common area maintenance, real estate taxes, personal property taxes, insurance, licenses and utilities. The components of our cost of goods sold may not be identical to those of our competitors. As a result, data in this Form 10-Q regarding our gross profit and gross margin rate may not be comparable to similar data made available by our competitors.

Gross margin rate enhancements are driven by:

 

   

economies of scale resulting from expanding our store base;

 

   

reduced shrinkage as a percentage of sales; and

 

   

productivity gains through process and program improvements.

Changes in the mix of products sold may also impact our gross margin rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include certain retail store and corporate costs, including compensation (both cash and share-based), pre-opening expenses and other corporate administrative costs. Pre-opening expenses are costs associated with the opening of new stores including costs associated with recruiting, relocating and training personnel and other miscellaneous costs. Pre-opening costs are expensed as incurred.

Labor and corporate administrative costs generally decrease as a percentage of sales as sales increase. Accordingly, selling, general and administrative expenses as a percentage of sales are usually higher in lower-volume quarters and lower in higher-volume quarters. Store-level labor costs are generally the largest component of our selling, general and administrative expenses. The components of our selling, general and administrative expenses may not be identical to those of our competitors. As a result, data in this Form 10-Q regarding our selling, general and administrative expenses may not be comparable to similar data made available by our competitors. We expect that our selling, general and administrative expenses will increase in future periods due to our continuing store growth and in part due to additional legal, accounting, insurance and other expenses we expect to incur as a result of being a public company.

Income from Operations

Income from operations consists of gross profit minus selling, general and administrative expenses, store closure and exit costs and depreciation.

Taxes

Until November 9, 2010, we operated as an S-corporation and did not pay federal corporate income tax or state corporate income tax in states that recognize S-corporation status. Instead, the stockholders of the S-corporation were responsible for income tax on the S-corporation’s taxable income. Accordingly, our income tax provision for the portion of 2010 prior to our initial public offering only reflects state taxes owed by us in certain states in which we operate. Since November 9, 2010, we have operated as a C-corporation.

 

15


Table of Contents

Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales.

 

     For the Thirteen Weeks Ended      For the Thirty-Nine Weeks Ended  
     October 30,
2011
     October 31,
2010
     October 30,
2011
     October 31,
2010
 
                  (dollars in thousands, except share and per share amounts)               

Statement of Income Data:

                    

Sales

   $ 263,260        100.0%       $ 235,768         100.0%       $ 787,263        100.0%       $ 704,609        100.0%   

Cost of goods sold

     179,066        68.0%         158,974         67.4%         528,530        67.1%         475,083        67.4%   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     84,194        32.0%         76,794         32.6%         258,733        32.9%         229,526        32.6%   

Selling, general and administrative expenses

     60,283        22.9%         55,000         23.3%         178,088        22.6%         158,755        22.5%   

Store closure and exit costs

     99        0.0%         217         0.1%         338        0.0%         646        0.1%   

Depreciation

     9,309        3.5%         8,525         3.6%         26,681        3.4%         24,674        3.5%   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income from operations

     14,503        5.5%         13,052         5.5%         53,626        6.8%         45,451        6.5%   

Interest expense

     481        0.2%         536         0.2%         1,450        0.2%         1,732        0.2%   

Other (income)

     (2     0.0%         -             0.0%         (2     0.0%         (165     0.0%   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income before provision for income taxes

     14,024        5.3%         12,516         5.3%         52,178        6.6%         43,884        6.2%   

Tax provision

     4,874        1.9%         125         0.1%         19,041        2.4%         297        0.0%   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 9,150        3.5%       $ 12,391         5.3%       $ 33,137        4.2%       $ 43,587        6.2%   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net income per share

                    

Basic and diluted

   $ 0.19         $ 0.26          $ 0.69         $ 0.91     

Dividends declared per common share

   $ -             $ 0.17          $ -             $ 0.66     

Shares used in computation of net income per share,

                    

Basic

     47,996,697           47,991,045            47,993,688           47,991,045     

Diluted

     48,127,549           47,991,045            48,124,656           47,991,045     

Pro Forma Data:

                    

Income before provision for income taxes

        $ 12,516         5.3%            $ 43,884        6.2%   

Pro forma provision for income taxes (1)

          4,884         2.1%              17,124        2.4%   
       

 

 

    

 

 

         

 

 

   

 

 

 

Pro forma net income (1)

        $ 7,632         3.2%            $ 26,760        3.8%   
       

 

 

    

 

 

         

 

 

   

 

 

 

Pro forma net income per share

                    

Basic and diluted

        $ 0.16               $ 0.56     

Percentage totals in the above table may not equal the sum of the components due to rounding.

 

    For the Thirteen Weeks Ended     For the Thirty-Nine Weeks Ended  
    October 30,
2011
    October 31,
2010
    October 30, 2011     October 31, 2010  

Other Operating Data:

       

Number of stores at end of period

    107        100        107        100   

Comparable store sales growth (2)

    5.5%        5.3%        4.7%        5.0%   

Gross square footage at end of period (in thousands)

    2,261        2,131        2,261        2,131   

Average comparable store size (gross square feet) (3)

    21,250        21,322        21,258        21,207   

Comparable store sales per gross square foot during period (3)

  $ 117      $ 112      $ 361      $ 348   

 

16


Table of Contents
(1) Prior to November 9, 2010, we were treated as an S-corporation for U.S. federal income tax purposes. As a result, our income was not subject to U.S. federal income taxes or state income taxes where S-corporation status is recognized. In general, the corporate income or loss of an S-corporation is allocated to its stockholders for inclusion in their personal federal income tax returns and state income tax returns in those states where S-corporation status is recognized. We terminated our S-corporation election and converted to a C-corporation on November 9, 2010 in connection with our initial public offering, and we are now subject to additional entity-level taxes that are reflected in our financial statements. The pro forma provision for income taxes reflects combined federal and state income taxes on a pro forma basis, as if we had been treated as a C-corporation, using a blended statutory federal and state income tax rate of 39.0% for the thirteen and thirty-nine week periods ended October 31, 2010. This tax rate reflects the sum of the federal statutory rate and a blended state rate based on our calculation of income apportioned to each state for the period.

 

(2) Our practice is to include sales from a store in comparable store sales beginning on the first day of the sixteenth full month following the store’s opening. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales. There may be variations in the way that our competitors calculate comparable or “same store” sales. As a result, data in this Form 10-Q regarding our comparable store sales may not be comparable to similar data made available by our competitors.

 

(3) Average comparable store size and comparable store sales per gross square foot are calculated using the gross square footage and sales for stores included within our comparable store base for each month during the given period.

Change in Fiscal Year-End

On January 26, 2011, our Board of Directors approved a change in our fiscal year-end from a calendar year-end of December 31 to a fiscal year-end of the last Sunday of January commencing with fiscal 2011. In connection with the change of our fiscal year-end, we had a 30-day transition period from January 1, 2011 to January 30, 2011.

We changed our fiscal year-end in order to offer more comparable quarterly and annual data to our investors. As a specialty retailer focused on foods, our operations are more active during the periods surrounding holidays and can be subject to seasonal differences in the event that holiday periods fall within a particular fiscal period one year and a different fiscal period in a subsequent year. By changing our fiscal year-end, revenues, including the use of gift cards given as holiday gifts, in the months of December and January will now appear in the same fiscal quarter and fiscal year resulting in greater comparability of our period to period financial results regardless of whether significant shopping occurs at the end of December or the beginning of January. In addition, the Easter holiday and the time periods surrounding Easter are significant shopping periods for us, and the change in our fiscal year-end means that these periods will always be in our first fiscal quarter rather than occurring variously from one year to the next in the first quarter or the second quarter. We believe that this change in fiscal year-end will provide investors with a more comparable quarterly and annual picture of our Company’s operations.

As a result of the change in our fiscal year-end, our first three fiscal quarters of each fiscal year, which will now consist of three periods of four, four and five weeks, will also end on different dates from prior periods. Accordingly, we have recast our prior year fiscal quarters in a Form 8-K filed with the Securities and Exchange Commission on June 14, 2011. By recasting these periods, the quarterly and year to date information for fiscal 2010 is comparable to the information for fiscal 2011.

Secondary Offering of Common Stock by Certain Selling Stockholders

On April 27, 2011, the Company, certain stockholders of the Company who owned shares of the Company’s common stock prior to the Company’s initial public offering (the “selling stockholders”) and several underwriters entered into an Underwriting Agreement pursuant to which the selling stockholders offered and sold 11,919,058 shares of the Company’s common stock at $42.50 per share in an underwritten public offering. The secondary public offering of the 11,919,058 shares closed on May 3, 2011. The Company did not receive proceeds from the sale of the shares of common stock by the selling stockholders, and it expensed $1.1 million of the costs associated with the offering in the thirty-nine week period ended October 30, 2011, which is included in the “Selling, general and administrative expenses” line item on the Statements of Income.

 

17


Table of Contents

Items Impacting Comparability

Thirteen Weeks Ended October 30, 2011

Net income for the thirteen weeks ended October 30, 2011 was $9.2 million, compared to net income of $12.4 million for the thirteen weeks ended October 31, 2010. Items impacting comparability between the thirteen weeks ended October 30, 2011 and the corresponding prior year period include the following item, which decreased net income for the thirteen weeks ended October 30, 2011:

 

   

Approximately $4.7 million increase for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010, for the provision for income taxes resulting from the termination of our S-corporation election and conversion to a C-corporation on November 9, 2010 in connection with our initial public offering. We are now subject to additional entity level taxes that are reflected in our financial statements.

Thirty-Nine Weeks Ended October 30, 2011

Net income for the thirty-nine weeks ended October 30, 2011 was $33.1 million, compared to net income of $43.6 million for the thirty-nine weeks ended October 31, 2010. Items impacting comparability between the thirty-nine weeks ended October 30, 2011 and the corresponding prior year period include the following items, which decreased net income for the thirty-nine weeks ended October 30, 2011:

 

   

Approximately $1.1 million, or $0.02 per share on an after tax diluted basis, for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, in issuance costs in conjunction with our secondary offering. As agreed upon by and among the Company and certain stockholders, we were obligated to bear the expenses and fees incurred in connection with the secondary offering, except for underwriting discounts and commissions. We received no proceeds in connection with the secondary offering and all fees and expenses incurred during the thirty-nine weeks ended October 30, 2011 were expensed and included in the “Selling, general and administrative expenses” line item on the Statements of Income. The issuance costs reduced operating income and net income by approximately 10 basis points as a percentage of sales.

 

   

Approximately $18.7 million increase for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, for the provision for income taxes resulting from the termination of our S-corporation election and conversion to a C-corporation on November 9, 2010 in connection with our initial public offering. We are now subject to additional entity level taxes that are reflected in our financial statements.

Period to Period Comparisons

Thirteen Weeks Ended October 30, 2011 Compared to the Thirteen Weeks Ended October 31, 2010

Sales

Sales increased 11.7%, or $27.5 million, to $263.3 million for the thirteen weeks ended October 30, 2011, resulting from a $12.4 million increase in comparable store sales and a $15.1 million increase in non-comparable store sales. The increase in sales was primarily attributable to sales from seven stores that opened subsequent to October 31, 2010 and an overall increase in comparable store sales. There were 95 comparable stores and 12 non-comparable stores open at October 30, 2011.

Comparable store sales increased 5.5% for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010, driven by a 2.0% increase in the number of transactions and a 3.5% increase in the average transaction size at our comparable stores. Average customer transaction size increased to $29.96 for the thirteen weeks ended October 30, 2011 from $28.94, for the thirteen weeks ended October 31, 2010.

Gross Profit

Gross profit increased 9.6%, or $7.4 million, to $84.2 million for the thirteen weeks ended October 30, 2011 over the same period of the prior fiscal year. The amount of the increase in gross profit attributable to increased sales was $8.9 million, which was offset by a decrease of $1.5 million attributable to a reduction in the gross margin rate. Our cost of goods sold increased by $20.1 million for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010, which was primarily attributable to a $17.5 million increase in product costs and a $2.0 million increase in store occupancy costs. Occupancy costs as a percentage of sales were unfavorable due to a significant number of unopened stores that are under construction and incurred rent expense for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010. Gross margin rate decreased 60 basis points to 32.0% for the thirteen weeks ended October 30, 2011 from 32.6% for the thirteen weeks ended October 31, 2010. The decrease in our gross margin rate was primarily attributable to increased commodity costs and the effect of successful promotional programs partly offset by improved shrink control.

 

18


Table of Contents

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 9.6%, or $5.3 million, to $60.3 million for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year. The increase in selling, general and administrative expenses was primarily attributable to an increase in the number of stores in operation during the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010, which led to higher overall store-level compensation expenses and other costs to operate our stores. With more stores in operation during the thirteen weeks ended October 30, 2011, our store-level compensation expenses increased $3.7 million and our other store operating expenses increased $1.5 million, compared to the thirteen weeks ended October 31, 2010. In addition, our corporate administrative expenses increased $0.6 million for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010, which was primarily attributable to incremental public company costs.

Selling, general and administrative expenses as a percentage of sales improved 40 basis points to 22.9% from 23.3% for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010. Store-level and corporate compensation expense improved by 60 basis points as a percentage of sales for the thirteen weeks ended October 30, 2011, compared to the corresponding period in 2010, and was partially offset by a 20 basis points increase in incremental public company costs, which consists of accounting, compliance, tax, legal, and other direct costs.

Income from Operations

Income from operations increased 11.1%, or $1.5 million, to $14.5 million for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year. Income from operations as a percentage of sales remained constant at 5.5% for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year. Depreciation increased 9.2% or $0.8 million, to $9.3 million for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year, which was principally attributable to store growth over that time. The operating margin improvements related to selling, general and administrative expenses and depreciation expense were offset by a decrease in the gross margin rate.

Interest Expense

Interest expense decreased 10.3% to $0.5 million for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year, due primarily to reduced weighted-average borrowings under our revolving credit facility and the expiration of one of our interest rate swaps in 2010 for which we paid a fixed rate of 3.9% on the notional amount of $15.0 million.

Income Tax Expense

Income tax expense increased $4.7 million for the thirteen weeks ended October 30, 2011, compared to the thirteen weeks ended October 31, 2010. The increase was attributable to the termination of our S-corporation election and the conversion to a C-corporation on November 9, 2010 in connection with our initial public offering, and as a result, we are now subject to additional entity-level taxes that are reflected in our financial statements.

The effective income tax rate for the thirteen weeks ended October 30, 2011 is lower than the pro forma tax rate used for the thirteen weeks ended October 31, 2010 due to our implementation of certain tax saving initiatives.

Net Income

As a result of the termination of our S-corporation election and the conversion to a C-corporation, net income decreased 26.1%, or $3.2 million, to $9.2 million for the thirteen weeks ended October 30, 2011, compared to the same period of the prior fiscal year. Net income as a percentage of sales for the thirteen weeks ended October 30, 2011 decreased to 3.5% from 5.3% for the thirteen weeks ended October 31, 2010.

On a pro forma basis, net income increased 19.9%, or $1.6 million, to $9.2 million for the thirteen weeks ended October 30, 2011, compared to pro forma net income of $7.6 million for the thirteen weeks ended October 31, 2010. Net income as a percentage of sales increased 30 basis points to 3.5% for the thirteen weeks ended October 30, 2011, compared to 3.2% for pro forma net income as a percentage of sales for the thirteen weeks ended October 31, 2010.

 

19


Table of Contents

Thirty-Nine Weeks Ended October 30, 2011 Compared to the Thirty-Nine Weeks Ended October 31, 2010

Sales

Sales increased 11.7%, or $82.7 million, to $787.3 million for the thirty-nine weeks ended October 30, 2011, resulting from a $32.4 million increase in comparable store sales and a $50.3 million increase in non-comparable store sales. The increase in sales was primarily attributable to sales from seven stores that opened subsequent to October 31, 2010, increased sales from five stores that were only open during a portion of 2010 and an overall increase in comparable store sales. There were 95 comparable stores and 12 non-comparable stores open at October 30, 2011.

Comparable store sales increased 4.7% for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, as a result of a 1.5% increase in the number of transactions and a 3.2% increase in the average transaction size at our comparable stores. Average customer transaction size increased to $30.23 for the thirty-nine weeks ended October 30, 2011 from $29.31, for the thirty-nine weeks ended October 31, 2010.

Gross Profit

Gross profit increased 12.7%, or $29.2 million, to $258.7 million for the thirty-nine weeks ended October 30, 2011, compared to the same period of the prior fiscal year. The amount of the increase in gross profit attributable to increased sales was $26.9 million and the amount of the increase in gross profit attributable to increased gross margin rate was $2.3 million. Our cost of goods sold increased by $53.4 million for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, which was primarily attributable to a $48.5 million increase in product costs and a $4.0 million increase in store occupancy costs. Gross margin rate increased 30 basis points to 32.9% for the thirty-nine weeks ended October 30, 2011 from 32.6% for the thirty-nine weeks ended October 31, 2010. The increase in our gross margin rate was primarily attributable to increased merchandise margin, as well as leverage in occupancy cost and supplies expense, for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 12.2%, or $19.3 million, to $178.1 million for the thirty-nine weeks ended October 30, 2011, compared to the same period of the prior fiscal year. The increase in selling, general and administrative expenses was primarily attributable to an increase in the number of stores in operation during the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, which led to higher overall store-level compensation expenses and other costs to operate our stores. With more stores in operation during the thirty-nine weeks ended October 30, 2011, our store-level compensation expenses increased $10.3 million and our other store operating expenses increased $4.0 million, compared to the thirty-nine weeks ended October 31, 2010. In addition, our corporate administrative expenses increased $3.5 million for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010, primarily attributable to our investment in headcount, employee related expenses and incremental public company costs. Under the terms of a registration rights agreement entered into in connection with our initial public offering, we also incurred an additional $1.1 million of issuance costs included in selling, general and administrative expenses related to the secondary offering of shares of our common stock, which closed on May 3, 2011. The Company did not receive any proceeds from the sale of shares of our common stock in the secondary offering.

Selling, general and administrative expenses as a percentage of sales for the thirty-nine weeks ended October 30, 2011 increased by 10 basis points to 22.6% from 22.5% for the thirty-nine weeks ended October 31, 2010. The increase in selling, general and administrative expenses as a percentage of sales was due to higher corporate expenses, primarily attributable to nearly $2.0 million of incremental public company costs and approximately $1.1 million in transaction expenses incurred in connection with our secondary offering of common stock. Together these costs impacted selling, general and administrative expenses by approximately 40 basis points for the thirty-nine weeks ended October 30, 2011 compared to the thirty-nine weeks ended October 31, 2010. The higher corporate expenses were mostly offset by an improvement in store-level compensation expense as a percentage of sales during the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010.

Income from Operations

Income from operations increased 18.0%, or $8.2 million, to $53.6 million for the thirty-nine weeks ended October 30, 2011, compared to the same period of the prior fiscal year. As a percentage of sales, operating income increased by 40 basis points to 6.8% for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010. Depreciation increased 8.1% or $2.0 million, to $26.7 million for the thirty-nine weeks ended October 30, 2011, compared to the

 

20


Table of Contents

same period of the prior fiscal year, which was principally attributable to store growth over that time. The primary drivers of the increased operating margin were the improvements related to gross margin rate and depreciation expenses, which more than offset the combined 40 basis points increase incurred in connection with the equity offering costs of our common stock and the incremental public company costs.

Interest Expense

Interest expense decreased 16.3%, or $0.3 million, to $1.5 million for the thirty-nine weeks ended October 30, 2011, compared to the same period of the prior fiscal year, due primarily to reduced weighted-average borrowings under our revolving credit facility and the expiration of one of our interest rate swaps in 2010 for which we paid a fixed rate of 3.9% on the notional amount of $15.0 million.

Income Tax Expense

Income tax expense increased $18.7 million for the thirty-nine weeks ended October 30, 2011, compared to the thirty-nine weeks ended October 31, 2010. The increase was attributable to the termination of our S-corporation election and the conversion to a C-corporation on November 9, 2010 in connection with our initial public offering, and as a result, we are now subject to additional entity-level taxes that are reflected in our financial statements.

The effective income tax rate for the thirty-nine weeks ended October 30, 2011 is lower than the pro forma tax rate used for the thirty-nine weeks ended October 31, 2010, due to our implementation of certain tax saving initiatives.

Net Income

As a result of the termination of our S-corporation election and the conversion to a C-corporation, net income decreased 24.0%, or $10.5 million, to $33.1 million for the thirty-nine weeks ended October 30, 2011 compared to the same period of the prior fiscal year. Net income as a percentage of sales for the thirty-nine weeks ended October 30, 2011 decreased to 4.2% from 6.2% for the thirty-nine weeks ended October 31, 2010.

On a pro forma basis, net income increased 23.8%, or $6.3 million, to $33.1 million for the thirty-nine weeks ended October 30, 2011, compared to pro forma net income of $26.8 million for the thirty-nine weeks ended October 31, 2010. Net income as a percentage of sales increased to 4.2% for the thirty-nine weeks ended October 30, 2011, compared to 3.8% for the pro forma net income as a percentage of sales for the thirty-nine weeks ended October 31, 2010. Issuance costs associated with our secondary offering reduced our net income as a percentage of sales by 10 basis points for the thirty-nine weeks ended October 30, 2011.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility. Our primary uses of cash are purchases of inventory, operating expenses, capital expenditures primarily for opening new stores and relocating and remodeling existing stores, debt service, corporate taxes and, while we were an S-corporation, distributions to our stockholders. We believe that the cash generated from operations, together with the borrowing availability under our revolving credit facility, will be sufficient to meet our working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new stores and relocating and remodeling existing stores and other strategic initiatives. These strategic initiatives include the replacement of store equipment and product display fixtures, and investments in information technology and merchandising enhancements. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within seven days of the related sale.

We were in compliance with all debt covenants under our revolving credit facility as of October 30, 2011. At October 30, 2011, we had $9.7 million in cash and cash equivalents and $91.0 million in borrowing availability under our revolving credit facility.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, including both organic and external growth, which may comprise acquisitions of businesses, assets, and leasehold rights, we may elect to pursue additional expansion opportunities within the next year which could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional expansion opportunities, our ability to pursue such opportunities could be materially adversely affected.

 

21


Table of Contents

A summary of our operating, investing and financing activities is shown in the following table:

 

     For the Thirty-Nine Weeks Ended  
     October 30,
2011
    October 31,
2010
 

Net cash provided by operating activities

   $ 70,383       $ 73,196    

Net cash used in investing activities

     (61,675)        (30,781)   

Net cash used in financing activities

     (6,879)        (43,150)   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 1,829      $ (735)   
  

 

 

   

 

 

 

Operating Activities

Cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation, share-based compensation, changes in deferred taxes, the effect of working capital changes and realized losses on disposal of property and equipment.

 

     For the Thirty-Nine Weeks Ended  
     October 30,
2011
     October 31,
2010
 

Net income

   $ 33,137       $ 43,587   

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

     26,834         24,710   

Impairments and loss on disposal of property and equipment

     169         724   

Share-based compensation

     1,643         -       

Share-based compensation associated with liability awards

     -             976   

Deferred income taxes

     5,387         -       

Change in working capital

     3,213         3,199   
  

 

 

    

 

 

 

Net cash provided by operating activities

   $ 70,383       $ 73,196   
  

 

 

    

 

 

 

Net cash provided by operating activities decreased 3.8%, or $2.8 million, to $70.4 million for the thirty-nine weeks ended October 30, 2011 compared to the same period of the prior fiscal year. The decrease in net cash provided by operating activities was due to increased tax payments.

Investing Activities

Cash used in investing activities consists primarily of capital expenditures for opening new stores and relocating and remodeling existing stores, as well as investments in information technology and merchandising enhancements.

 

     For the Thirty-Nine Weeks Ended  
     October 30,
2011
     October 31,
2010
 

Purchases of property and equipment

   $ (61,835)       $ (30,830)   

Proceeds from sale of property and equipment

     160          49    
  

 

 

    

 

 

 

Net cash used in investing activities

   $ (61,675)       $ (30,781)   
  

 

 

    

 

 

 

Capital expenditures increased 100.6 %, or $31.0 million, to $61.8 million for the thirty-nine weeks ended October 30, 2011 compared to the same period of the prior fiscal year. The increase in capital expenditures was primarily due to an increase in new store construction during the thirty-nine weeks ended October 30, 2011 compared to the same period of the prior fiscal year.

 

22


Table of Contents

Additionally, we purchased land for the development of new stores, including a building, and we incurred additional expenditures related to merchandising initiatives.

We plan to spend approximately $85 million to $90 million on capital expenditures during fiscal 2011, of which approximately 90% will be in connection with opening new stores and relocating and remodeling existing stores.

We plan to open 12 to 14 new stores during fiscal 2011, seven of which were open as of October 30, 2011. Additionally we have remodeled one store and relocated one store as of October 30, 2011 and we will complete an additional remodel and relocation by the end of our fiscal year. Our working capital requirements for inventory will likely continue to increase as we continue to open additional stores.

Financing Activities

Cash used in financing activities consisted principally of borrowings and payments under our revolving credit facility and, in the prior fiscal year, also included distributions to our stockholders. Distributions to our stockholders consisted of both discretionary distributions and distributions to enable our stockholders to pay their tax obligations that resulted from our S-corporation status, which we funded through borrowings under our revolving credit facility. We currently do not intend to pay cash dividends on our common stock.

 

     For the Thirty-Nine Weeks Ended  
     October 30,
2011
     October 31,
2010
 

Borrowings on revolving credit note

   $ 349,331       $ 234,002    

Payments made on revolving credit note

     (355,181)         (245,390)   

Debt issuance costs

     (1,056)         -       
Proceeds from issuance of common stock pursuant to employee stock purchase plan      27          -       

Distributions to stockholders

     -             (31,762)   
  

 

 

    

 

 

 

Net cash used in financing activities

   $ (6,879)       $ (43,150)   
  

 

 

    

 

 

 

Net cash used in financing activities during the thirty-nine weeks ended October 30, 2011 and October 31, 2010 was $6.9 million and $43.2 million, respectively. The $36.3 million decrease in net cash used in financing activities was primarily due to the elimination of distributions to our stockholders. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock for the foreseeable future. On February 22, 2011, we terminated our 2007 Credit Facility and entered into a new 2011 Credit Facility. At closing, approximately $74.7 million was drawn under the 2011 Credit Facility to repay borrowings under the 2007 Credit Facility, which is included in both borrowings and payments on the revolving credit agreement during the thirty-nine weeks ended October 30, 2011. In connection with the new credit agreement we incurred approximately $1.1 million in debt issuance costs.

Revolving Credit Facility

On February 22, 2011, we terminated our revolving credit facility that had been in place at January 30, 2011 and entered into a credit agreement with Bank of America, N.A. as Administrative Agent, Swing Line Lender, and Letter of Credit Issuer, and several other lending institutions (the “2011 Credit Facility”). The 2011 Credit Facility refinanced and replaced our credit agreement dated February 27, 2007 by and among the Company, Bank of America, N.A. as Administrative Agent, Swing Line Lender, and Letter of Credit Issuer, and several other lending institutions (the “2007 Credit Facility”). The 2011 Credit Facility matures February 22, 2016, and is available to provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions, issuance of letters of credit, refinancing and payment of fees. While we currently have no material domestic subsidiaries, other entities will guarantee our obligations under the 2011 Credit Facility if and when they become material domestic subsidiaries during the term of the 2011 Credit Facility.

The 2011 Credit Facility provides for total borrowings of up to $175 million. Under the terms of the 2011 Credit Facility, we are entitled to request an increase in the size of the facility by an amount not exceeding $75 million in the aggregate. If the existing lenders elect not to provide the full amount of a requested increase, or in lieu of accepting offers from existing lenders to increase their commitments, we may designate one or more other lender(s) to become a party to the 2011 Credit Facility, subject to the approval of the Administrative Agent. The 2011 Credit Facility includes a letter of credit sublimit of $25 million and a swing line sublimit of $10 million.

 

23


Table of Contents

At our option, outstanding borrowings bear interest at (i) the London Interbank Offered Rate plus an applicable margin that ranges from 1.00% to 2.25%, (ii) the Eurodollar rate plus an applicable margin that ranges from 1.00% to 2.25%, or (iii) the base rate plus an applicable margin that ranges from 0% to 1.25%, where the base rate is defined as the greatest of: (a) the federal funds rate plus 0.50%, (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00%. The commitment fee calculated on unused portions of the credit facility ranges from 0.30% to 0.45% per annum.

The 2011 Credit Facility contains a number of affirmative and restrictive covenants, including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

In addition, the 2011 Agreement provides that we will be required to maintain the following financial ratios:

 

   

a consolidated maximum leverage ratio as of the end of any quarter of not more than 4.25 to 1.00, based upon the ratio of (i) adjusted funded debt (as defined in the 2011 Credit Facility) to (ii) EBITDAR (as defined in the 2011 Credit Facility) over the period consisting of the four fiscal quarters ending on or before the determination date, and

 

   

a consolidated fixed charge coverage ratio of not less than 1.70 to 1.00, based upon the ratio of (i) EBITDAR (as defined in the 2011 Credit Facility) less cash taxes paid by the company and certain discretionary distributions over the period consisting of the four fiscal quarters ending on or immediately prior to the determination date to (ii) the sum of interest expense, lease expense, rent expense and the current portion of capitalized lease obligations for such period and the current portion of long-term liabilities for the four fiscal quarters ending as of the end of any quarter on or prior to the determination date.

We were in compliance with all debt covenants under our revolving credit facility as of October 30, 2011.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements.

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (GAAP). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, management evaluates its estimates and judgments. Critical accounting policies that affect our more significant judgment and estimates used in the preparation of our financial statements include, accounting for inventories, accounting for impairment of long-lived assets, accounting for closed store reserves, accounting for insurance reserves, accounting for share-based compensation and accounting for income taxes, which are discussed in more detail under the caption “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2010.

Seasonality

The food retail industry and our sales are affected by seasonality. Our average weekly sales fluctuate during the year and are usually highest in the fourth quarter when customers make holiday purchases.

Inflation

While inflation may impact our sales and cost of goods sold, we believe the effects of inflation on our results of operations and financial condition were not significant for the thirteen and thirty-nine weeks ended October 30, 2011. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” on our Form 10-K for the year ended December 31, 2010.

 

24


Table of Contents

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Form 10-Q. The evaluation included certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter period that may have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

25


Table of Contents

Part II – Other Information

Item 1 – Legal Proceedings

In the ordinary course of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, intellectual property disputes, contractual disputes, premises claims and employment, environmental, health, and safety matters. Although we cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations, except for the proceedings described in the immediately succeeding paragraph, which could have a material adverse effect on us.

As part of our ongoing efforts to protect our intellectual property rights, on October 24, 2011, we filed a Notice of Opposition (the “Opposition”) with the United States Patent and Trademark Office, Trademark Trial and Appeal Board, in response to an application filed by Roth I.G.A. Foodliner, Incorporated (“Roth”) to register “Fresh Market at Roth’s” as a federal trademark in connection with Roth’s retail grocery business in Oregon. On December 5, 2011, Roth filed an Answer and Counterclaim in response to the Opposition. That Answer and Counterclaim seeks dismissal of the Opposition; registration of Roth’s trademark; and cancellation of the Company’s registered The Fresh Market trademark and related The Fresh Market and Design mark on the grounds that those marks are generic names for the goods and services for which they are registered. The Company denies Roth’s claims and intends to protect and defend its trademarks in this proceeding.

Item 6 – Exhibits

 

Exhibit 10.2   +    The Fresh Market, Inc. Renewal agreement with Burris Logistics
Exhibit 31.1      Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2      Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1      Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2      Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101      The following financial information from the Company’s Quarterly Report of Form 10-Q, for the period ended October 30, 2011, formatted in eXtensible Business Reporting Language: (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Stockholders’ Equity and Comprehensive Income, (iv) Statements of Cash Flows, (v) Notes to Financial Statements (1)
  +    Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the SEC. The omitted information has been filed separately with the SEC pursuant to our application for confidential treatment.
  (1)    Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

26


Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: December 7, 2011     THE FRESH MARKET, INC
    By:  

/s/ Lisa K. Klinger

      Lisa K. Klinger
     

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

27