For the second time in slightly more than a decade, specialty retailer The Fresh Market (TFM) is seeking to become a publicly-traded company. The Greensboro, NC-based merchant last month submitted a Form S-1 draft registration statement with the Securities and Exchange Commission relating to the proposed initial public offering of its common stock. The number of shares to be offered and the price range for the proposed offering have not yet been determined. TFM said it expects to use the proceeds of the offering for general corporate purposes, which may include the repayment of indebtedness. It currently operates 159 stores in 27 states.
The upscale retailer, which was founded by former 7-Eleven executive Ray Berry in 1982, has encountered turbulent times for much of the past 10 years. When it first went public in November 2010 with an IPO valued at $290, the company operated 100 stores in 20 states.
Within a year of its first foray into the public markets, TFM began to stumble as its expanded quickly into new markets as well as adding stores in existing areas. Particularly disappointing was its entry and relatively quick exit from the large Texas and California markets. As the retail grocery landscape was evolving, TFM often found itself competing with like-minded retailers such as Whole Foods and Sprouts.
In March 2016, a subsidiary of large private equity firm Apollo Global Management agreed to acquire the retailer for $1.36 billion in cash. At the time, TFM operated 186 stores in 27 states.
Apollo’s stewardship of the specialty merchant has been rocky, too, although the company has improved its balance sheet and efficiency over the past 18 months, aided by the leadership of its relatively new CEO, Jason Potter who joined TFM in March 2020. Potter spent most of his career with Canadian retailer Sobeys. Also helping fuel TFM’s recent improvement has been the sales tailwind resulting from COVID-19 shopping patterns.
Over the past year, Potter has realigned his senior management team bringing in Brian Johnson (ex-Brookshire Grocery) to oversee store operations, naming Kevin Miller (ex-Natural Grocers by Vitamin Cottage) as chief merchant and adding Jim Heaney (ex-Carnival Cruise Lines) as CFO.
In February, Moody’s Investors Service upgraded the corporate family rating and probability of default rating of The Fresh Market, Inc. to B3 and B3-PD from Caa1 and Caa1-PD respectively. Moody’s also elevated the rating of the company’s senior secured notes to B3 from Caa1. The investor research firm said TFM’s current outlook is stable.
“Fresh Market’s topline and EBITDA has demonstrated an improving trend since 2019 and got a further boost from pantry loading during the pandemic as consumers increased transaction sizes while lowering the number of trips to the store,” Moody’s VP Mickey Chadha stated. “Although the recent unprecedented sales growth is expected to moderate in 2021 and the industry will remain highly competitive, we expect leverage to remain below 5.5x in the next 12 months.” Moody’s also noted that same-store sales increased about 20 percent last year, in line with industry averages.
Still, not everybody is convinced that an attempted IPO will be successful. Several financial analysts expressed some level of skepticism including one Wall Street critic.
“On the positive side, The Fresh Market has improved as a company and its upgraded financial ratings are testament to that,” our source noted. “However, I believe some retailers and their investors are trying to catch lightning in a bottle by seeking a publicly-traded solution to their long-term issues. While I think Apollo, which certainly enjoys a lot of clout in the financial markets, is wise to be going the ‘confidential preliminary route,’ the fact remains that that the explosive sales of the pandemic are already waning and will diminish even more when schools are fully open and restaurants return to more normal levels. The retail grocery field is as crowded and competitive as it’s ever been. Those hoping that a public offering will be the equivalent of a ‘get out of jail’ card need only to look at the recent history of Albertsons (whose IPO launched at a value of approximately 25 percent lower than expected) and Southeastern Grocers (who canceled their IPO effort after lukewarm interest).”