UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~April~~July 27, 2014



¨	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 No.)



	628 Green Valley Road, Suite 500 Greensboro, NC (Address of principal executive offices)	27408 (Zip Code)

(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. (Check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (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 ~~May 29,~~August 26, 2014 was ~~48,403,207~~48,420,999 shares.

The Fresh Market, Inc.

Form 10-Q

For the Thirteen and Twenty-Six Weeks Ended ~~April~~July 27, 2014

Table of Contents



PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets as of ~~April~~July 27, 2014 and January 26, 2014	4

Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013	5

Consolidated Statements of Stockholders’ Equity for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 and the fifty-two weeks ended January 26, 2014	6

Consolidated Statements of Cash Flows for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013	7

Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2526

Item 4. Controls and Procedures	2526

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	2627

Item 1A. Risk Factors	2627

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2627

Item 6. Exhibits	27

Signature	2829

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements in addition to historical 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 to identify such forward-looking statements. 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.

The 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. The following are some of the factors that could cause actual future results to differ materially from those expressed in any forward-looking statements: changes in accounting estimates and assumptions and adjustments at the close of a fiscal quarter; 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; ~~accounting entries and adjustments at the close of a fiscal quarter;~~ the quality and safety of food products and other items that we may sell; our ability to anticipate and/or react to changes in customer demand; changes in economic and financial conditions, including ~~the outcome of negotiations surrounding~~ U.S. fiscal ~~policy, which, even if resolved, may be adverse due to tax increases~~ and ~~spending cuts,~~monetary policy, and the resulting impact on consumer confidence; other 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, including the availability and cost of acceptable real estate locations for new store openings, the capital that we utilize in connection with new store development and the anticipated time between lease execution and store opening; the mix of our new store openings as between build to suit sites and second-generation, as-is sites and as between existing markets and newer markets; the actions of third parties involved in our store growth activities, including property owners, landlords, property managers, contractors, subcontractors, government agencies, 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; our requirement to impair recorded goodwill and other long-lived assets; global economies and credit and financial markets; our ability to maintain the security of electronic and other confidential and/or personal 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, fuel and other cost increases; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings and the availability of insurance, indemnification and other third-party coverage of any losses suffered in connection therewith; tax matters; numerous other matters of national, regional and global scale, including those of a political, economic, business, and competitive nature; 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 hereof. 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 or revise 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.

Part I. Financial Information

Item 1. Financial Statements

The Fresh Market, Inc. Consolidated Balance Sheets (In thousands, except share amounts) (unaudited)	The Fresh Market, Inc. Consolidated Balance Sheets (In thousands, except share amounts) (unaudited)				The Fresh Market, Inc. Consolidated Balance Sheets (In thousands, except share amounts) (unaudited)

	April 27, 2014		January 26, 2014		July 27, 2014		January 26, 2014
Assets
Current assets:
Cash and cash equivalents	$	19,118	$	11,745	$	17,199	$	11,745
Accounts receivable	11,585		11,098		9,876		11,098
Inventories	53,128		55,656		56,487		55,656
Prepaid expenses and other current assets	3,509		4,304		5,177		4,304
Income tax benefit	—		1,692		854		1,692
Deferred income taxes	4,378		3,267		6,976		3,267
Total current assets	91,718		87,762		96,569		87,762
Property and equipment, net	384,472		373,449		384,620		373,449
Deferred income taxes					553		—
Other assets	8,717		8,417		9,370		8,417
Total assets	$	484,907	$	469,628	$	491,112	$	469,628

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	44,904	$	46,942	$	44,921	$	46,942
Accrued liabilities	80,492		63,694		67,050		63,694
Total current liabilities	125,396		110,636		111,971		110,636
Long-term debt	500		24,700		3,000		24,700
Capital and financing lease obligations	33,668		26,069		33,400		26,069
Closed store reserves					14,811		193
Deferred income taxes	5,884		12,017		—		12,017
Deferred rent	13,820		13,460		13,234		13,460
Deferred lease incentives	14,455		13,347		12,542		13,347
Other liabilities	16,596		13,134		14,280		12,941
Total noncurrent liabilities	84,923		102,727		91,267		102,727

Commitments and contingencies (Notes 2 and 9)

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, 48,276,436 and 48,260,804 shares issued and outstanding as of April 27, 2014 and January 26, 2014, respectively	483		483
Common stock – $0.01 par value; 200,000,000 shares authorized, 48,290,239 and 48,260,804 shares issued and outstanding as of July 27, 2014 and January 26, 2014, respectively					483		483
Additional paid-in capital	114,781		113,029		116,677		113,029
Retained earnings	159,324		142,753		170,714		142,753
Total stockholders' equity	274,588		256,265		287,874		256,265
Total liabilities and stockholders' equity	$	484,907	$	469,628	$	491,112	$	469,628

See accompanying notes to consolidated financial statements.

The Fresh Market, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(unaudited)


	For the Thirteen Weeks Ended				For the Thirteen Weeks Ended				For the Twenty-Six Weeks Ended
	April 27, 2014		April 28, 2013		July 27, 2014		July 28, 2013		July 27, 2014		July 28, 2013
Sales	$	431,002	$	366,626	$	422,227	$	354,764	$	853,229	$	721,390
Cost of goods sold (exclusive of depreciation shown separately)	282,836		237,289		278,512		233,486		561,348		470,775
Gross profit	148,166		129,337		143,715		121,278		291,881		250,615

Operating expenses:
Selling, general and administrative expenses	98,863		81,478		99,404		82,526		198,267		164,004
Impairments and store closure costs	6,700		140		9,909		133		16,609		273
Depreciation	15,026		12,335		15,276		12,707		30,302		25,042
Income from operations	27,577		35,384		19,126		25,912		46,703		61,296
Interest expense	1,097		244		1,124		1,221		2,221		1,465
Income before provision for income taxes	26,480		35,140		18,002		24,691		44,482		59,831
Tax provision	9,909		13,020		6,612		9,057		16,521		22,077
Net income	$	16,571	$	22,120	$	11,390	$	15,634	$	27,961	$	37,754

Net income per share:
Basic and diluted	$	0.34	$	0.46	$	0.24	$	0.32	$	0.58	$	0.78

Weighted-average common shares outstanding:
Basic	48,266,742		48,159,785		48,282,994		48,196,427		48,274,868		48,178,106

Diluted	48,418,242		48,326,452		48,441,288		48,395,609		48,429,497		48,356,482

Comprehensive income:
Net income	$	16,571	$	22,120	$	11,390	$	15,634	$	27,961	$	37,754
Other comprehensive income	—		—		—		—		—		—

Total comprehensive income	$	16,571	$	22,120	$	11,390	$	15,634	$	27,961	$	37,754

See accompanying notes to consolidated financial statements.

The Fresh Market, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)


	Common Stock, $0.01 par value											Common Stock, $0.01 par value
	Common Shares Outstanding	Common Stock		Additional Paid-in Capital			Retained Earnings		Total Stockholders’ Equity			Common Shares Outstanding	Common Stock		Additional Paid-in Capital			Retained Earnings		Total Stockholders’ Equity
Balance at January 27, 2013	48,144,620	$	482	$	105,431		$	91,946	$	197,859		48,144,620	$	482	$	105,431		$	91,946	$	197,859

Exercise of share-based awards	84,453	1		2,058			—		2,059			84,453	1		2,058			—		2,059
Issuance of common stock pursuant to restricted stock units	19,203	—		—			—		—			19,203	—		—			—		—
Issuance of common stock pursuant to employee stock purchase plan	5,290	—		226			—		226			5,290	—		226			—		226
Issuance of restricted stock awards	7,238	—		—			—		—
Vesting of restricted stock awards, non-employee directors												7,238	—		—			—		—
Withholding tax on restricted stock unit vesting	—	—		(494		)	—		(494		)	—	—		(494		)	—		(494		)
Share-based compensation	—	—		5,239			—		5,239			—	—		5,239			—		5,239
Tax benefit related to exercise of share-based awards	—	—		569			—		569			—	—		569			—		569
Net income	—	—		—			50,807		50,807			—	—		—			50,807		50,807

Balance at January 26, 2014	48,260,804	$	483	$	113,029		$	142,753	$	256,265		48,260,804	$	483	$	113,029		$	142,753	$	256,265

Exercise of share-based awards	4,248	—		93			—		93			7,327	—		162			—		162
Issuance of common stock pursuant to restricted stock units	6,039	—		—			—		—			6,552	—		—			—		—
Issuance of common stock pursuant to employee stock purchase plan	1,594	—		51			—		51			2,975	—		95			—		95
Issuance of restricted stock awards	3,751	—		—			—		—
Vesting of restricted stock awards, non-employee directors												8,554	—		—			—		—
Vesting of executive restricted stock awards												4,027	—		—			—		—
Withholding tax on restricted stock unit vesting	—	—		(141		)	—		(141		)	—	—		(155		)	—		(155		)
Share-based compensation	—	—		1,836			—		1,836			—	—		3,703			—		3,703
Tax shortfall related to exercise of share-based awards	—	—		(87		)	—		(87		)	—	—		(157		)	—		(157		)
Net income	—	—		—			16,571		16,571			—	—		—			27,961		27,961

Balance at April 27, 2014	48,276,436	$	483	$	114,781		$	159,324	$	274,588
Balance at July 27, 2014												48,290,239	$	483	$	116,677		$	170,714	$	287,874

See accompanying notes to consolidated financial statements.

The Fresh Market, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	April 27, 2014			April 28, 2013			July 27, 2014			July 28, 2013
Operating activities
Net income	$	16,571		$	22,120		$	27,961		$	37,754
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,082			12,390			30,406			25,152
Loss (gain) on disposals of property and equipment	1,821			(43		)
Loss on disposals of property and equipment							1,791			4
Share-based compensation	1,836			1,392			3,703			2,923
Excess tax shortfall (benefit) from share-based compensation	87			(16		)	157			(171		)
Deferred income taxes	(7,244		)	380			(16,280		)	408
Change in assets and liabilities:
Accounts receivable	(487		)	418			1,222			457
Inventories	2,528			1,602			(831		)	(542		)
Prepaid expenses and other assets	2,131			23			(651		)	(2,054		)
Accounts payable	(2,038		)	(377		)	(2,021		)	3,976
Closed store reserves							16,302			(295		)
Accrued and other liabilities	25,883			8,010			6,454			2,044
Net cash provided by operating activities	56,170			45,899			68,213			69,656

Investing activities
Purchases of property and equipment	(24,426		)	(17,219		)	(40,363		)	(51,650		)
Proceeds from sale of property and equipment	7			61			92			70
Net cash used in investing activities	(24,419		)	(17,158		)	(40,271		)	(51,580		)

Financing activities
Borrowings on revolving credit facility	94,033			109,862			118,133			253,280
Payments made on revolving credit facility	(118,233		)	(136,862		)	(139,833		)	(265,780		)
Payments made on debt issuance costs							(441		)	—
Payments made on capital and financing lease obligations	(95		)	—			(292		)	(35		)
Proceeds from issuance of common stock pursuant to employee stock purchase plan	51			55			95			115
Excess tax (shortfall) benefit from share-based compensation	(87		)	16			(157		)	171
Payments on withholding tax for restricted stock unit vesting	(141		)	(66		)	(155		)	(72		)
Proceeds from exercise of share-based compensation awards	94			534			162			1,481
Net cash used in financing activities	(24,378		)	(26,461		)	(22,488		)	(10,840		)

Net increase in cash and cash equivalents	7,373			2,280			5,454			7,236
Cash and cash equivalents at beginning of period	11,745			8,737			11,745			8,737

Cash and cash equivalents at end of period	$	19,118		$	11,017		$	17,199		$	15,973

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	1,065		$	124		$	2,147		$	291

Cash paid during the period for taxes	$	296		$	6,454		$	32,304		$	32,113

Non-cash investing and financing activities:
Property and equipment acquired through capital and financing lease obligations	$	5,758		$	1,516
Property and equipment acquired through capital and financing lease obligations during the period							$	5,896		$	35,377

See accompanying notes to consolidated financial statements.

The Fresh Market, Inc.

Notes to Consolidated Financial Statements

(In thousands, except share and per share data)

(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of The Fresh Market, Inc. (the "Company") 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 Rule 10-01 of Regulation S-X. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended January 26, 2014. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods indicated. Interim results are not necessarily indicative of results that may be expected for a full fiscal year or future interim periods.

In certain instances, there are changes in the presentation of the consolidated financial statements to conform to the current year presentation. There was a change in the presentation of the Consolidated Statements of Cash Flows for the thirteen weeks ended April 28, 2013. Refer to Note 7 of the Notes to Consolidated Financial Statements in the Company's 2013 Annual ReportThe reclassifications have no effect on ~~Form 10-K for additional information.~~net income or stockholders' equity as previously reported.

The Company’s wholly-owned subsidiaries are consolidated and all intercompany accounts and transactions are eliminated upon consolidation.

The Company reports its results of operations on a 5252- or ~~53 week~~53-week fiscal year ending on the last Sunday in January. Fiscal years 2014 and 2013 are ~~52 week~~52-week fiscal years and each fiscal quarter consists of 13 weeks.

The Company has determined that it has only one reportable segment. 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, sushi and prepared foods. Non-perishable categories consist of traditional grocery, frozen and dairy products as well as bulk, coffee, candy, beer and wine, and health and beauty. The following is a summary of the percentage for the sales of perishable and non-perishable items:

For the Thirteen Weeks Ended
April 27,
2014 April 28,
2013
Perishable 64.9% 65.7%
Non-perishable 35.1% 34.3%

~~2. Long-Term Debt~~

~~Long-term debt is as follows:~~

April 27,
2014 January 26,
2014
Unsecured revolving credit note, with maximum available borrowings of $175,000 at April 27, 2014 and January 26, 2014, interest payable monthly at one-month LIBOR plus a margin, weighted-average annual interest rate of 2.2% and 3.1% for the thirteen weeks ended April 27, 2014 and the fifty-two weeks ended January 26, 2014, respectively $ 500
$ 24,700



	For the Thirteen Weeks Ended		For the Twenty-Six Weeks Ended
	July 27, 2014	July 28, 2013	July 27, 2014	July 28, 2013
Perishable	67.1%	67.0%	66.0%	66.4%
Non-perishable	32.9%	33.0%	34.0%	33.6%

Recent Accounting Pronouncements

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), to change the criteria for determining which disposals can be presented as discontinued operations and enhance the related disclosure requirements. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. Upon adoption of this standard, the Company will be required to evaluate whether a disposal meets the discontinued operations requirements under ASU 2014-08. The Company will make the additional disclosures upon adoption, and it does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.

The Fresh Market, Inc.

Notes to Consolidated Financial Statements - (continued)

1. Summary of Significant Accounting Policies (continued)

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). The guidance requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in FASB Accounting Standards Codification (ASC) 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015 with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

2. Long-Term Debt ~~(continued)~~

~~The~~Long-term debt is as follows:



	July 27, 2014		January 26, 2014
Unsecured revolving credit note, with maximum available borrowings of $175,000 at July 27, 2014 and January 26, 2014, interest payable monthly at one-month LIBOR plus a margin, with a total stated annual interest rate of 1.1% and 1.4% as of July 27, 2014 and January 26, 2014, respectively	$	3,000	$	24,700

On June 12, 2014, the Company ~~is party to a~~entered into an unsecured revolving credit ~~facility~~agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the several ~~other lending institutions (as amended,~~lenders party thereto (the “2014 Credit Agreement”). The 2014 Credit Agreement refinanced and replaced the Company's senior unsecured revolving credit facility under that certain Credit Agreement dated February 22, 2011, by and among the Company, as borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the several lenders party thereto (the “2011 Credit ~~Facility”~~Agreement”). The 2011 Credit ~~Facility~~Agreement was terminated effective June 12, 2014 upon the Company entering into the 2014 Credit Agreement.

The 2014 Credit Agreement matures ~~February 22, 2016,~~June 12, 2019 and is available to provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions and issuance of letters of ~~credit, refinancing and payment of fees.~~credit. While the Company currently has no material domestic subsidiaries, other entities will guarantee ~~the Company’s~~its obligations under the ~~2011~~2014 Credit ~~Facility~~Agreement if and when they become material domestic subsidiaries of the Company during the term of the ~~2011~~2014 Credit ~~Facility.~~Agreement.

The ~~2011~~2014 Credit ~~Facility~~Agreement provides for total borrowings of up to $175,000. Under the terms of the ~~2011~~2014 Credit ~~Facility,~~Agreement, the Company is entitled to request an increase in the size of the facility by an amount not exceeding $~~75,000~~100,000 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 lenders to become a party to the ~~2011~~2014 Credit ~~Facility,~~Agreement, subject to the approval of the Administrative Agent. The ~~2011~~2014 Credit ~~Facility~~Agreement includes a letter of credit sublimit of $~~25,000~~60,000, of which $21,097 was outstanding at July 27, 2014, and the 2011 Credit Agreement included a letter of credit sublimit of $25,000, of which $13,667 was outstanding at ~~April 27, 2014~~ ~~and~~ January 26, 2014~~, respectively.~~. The beneficiaries of these letters of credit are primarily the Company’s workers’ compensation and general liability insurance carriers. The ~~2011~~2014 Credit ~~Facility~~Agreement also includes a swing line sublimit of $~~10,000~~15,000.

At the Company’s option, ~~outstanding borrowings~~revolving loans under the 2014 Credit Agreement bear interest at (i) the London Interbank Offered Rate ("LIBOR") plus an applicable margin that ranges from ~~1.00%~~0.90% to ~~2.25%~~2.00%, (ii) the Eurodollar rate plus an applicable margin that ranges from ~~1.00%~~0.90% to ~~2.25%~~2.00%, or (iii) the base rate plus an applicable margin that ranges from 0% to ~~1.25%~~1.00%, 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%. As of ~~April~~July 27, 2014 and January 26, 2014, all outstanding borrowings bore interest at LIBOR plus an applicable margin. The “applicable margins” described above are determined by a schedule based on the Company’s ratio of (a) Adjusted Funded Debt (as defined in the 2014 Credit Agreement) minus certain cash and cash equivalents in excess of$5,000 as of the end of each fiscal quarter to (b) Consolidated EBITDAR (as defined in the 2014 Credit Agreement) for the period consisting of the four fiscal quarters then ending.

The commitment fee calculated on the unused portions of the ~~2011~~2014 Credit ~~Facility~~Agreement ranges from ~~0.20%~~0.125% to ~~0.35%~~0.250% per annum.

The ~~2011~~Fresh Market, Inc.

Notes to Consolidated Financial Statements - (continued)

2. Long-Term Debt (continued)

The 2014 Credit ~~Facility~~Agreement contains a number of affirmative and restrictive covenants, including limitations on the Company's ability to grant liens, incur additional debt, pay dividends, redeem its common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

3. Fair Value Measurements

The FASB ~~Accounting Standards Codification (ASC)~~ASC 820, Fair Value Measurements, requires fair value measurements to be classified and disclosed in one of the following pricing categories:

Level 1 - Quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 - Observable inputs other than quoted prices in active markets ~~included~~ for identical assets ~~and~~or liabilities.

Level 3 - Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable, ~~restricted cash,~~ accounts payable, accrued liabilities and other accrued expenses approximate fair value because of their short maturity. 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 fair value estimate of our long-term debt is a Level 2 measurement.

~~Non-Recurring~~Nonrecurring Fair Value Measurements

Certain assets are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. The Company recorded lease obligation costs as a nonrecurring fair value measurement in connection with its store closure costs for the thirteen and twenty-six weeks ended July 27, 2014. The Company did not record any ~~significant~~other nonrecurring fair value measurements during the thirteen and twenty-six weeks ended ~~April~~July 27, 2014.

~~The Fresh Market, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~3. Fair Value Measurements (continued)~~

As of April 27, 2014, the following table shows the fair value of certain real estate and other store related assets that have been measured at fair value on a non-recurring basis and aggregated by the level in the fair value hierarchy within which those measurements fall:

Fair Value Measurement
Description
Long-Lived Assets
Held and Used
Level 1 Level 2 Level 3

Measured as of January 26, 2014 $ 21,682
$ —
$ —
$ 21,682

4. Impairments and Store Closure Costs

Store Closure Costs

During the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, the Company closed four stores and recorded charges primarily consisting of certain lease obligations, severance costs, and losses on the disposal of assets associated with the closed stores. The Company expects to incur approximately ~~$21,000~~$16,000 in store closure and exit costs ~~and is targeting the second~~in fiscal ~~quarter of~~ 2014 ~~for the completion of~~relating to these stores. The expected store closure ~~activities.~~ and exit costs are net of an estimated gain due to the Company's assignment of a capital lease and the derecognition of the corresponding capital lease asset and obligation, which occurred subsequent to the twenty-six weeks ended July 27, 2014. Total expected costs are subject to change in future periods based on revisions to assumptions and estimates.

The Company incurred approximately ~~$7,000~~$9,800 in store closure and exit costs during the thirteen weeks ended ~~April~~July 27, 2014 ~~with $6,600~~for the four stores closed in March 2014. These costs were recorded to the "Impairments and store closure costs" line item on the accompanying Consolidated Statements of Comprehensive Income. The Company incurred approximately $16,800 in store closure and exit costs during the twenty-six weeks ended July 27, 2014 for the four closed stores, with approximately $16,400 recorded to the "Impairments and store closure costs" line item and approximately $400 for the liquidation of inventory recorded to ~~the "Cost of goods sold" and the "Selling, general and administrative expenses"~~other line items on the accompanying Consolidated Statements of Comprehensive Income. The remaining store closure and exit costs were not material for any period presented.

Store closure costs for the thirteen and twenty-six weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013 were as follows:


	For the Thirteen Weeks Ended				For the Thirteen Weeks Ended					For the Twenty-Six Weeks Ended
	April 27, 2014		April 28, 2013		July 27, 2014			July 28, 2013		July 27, 2014		July 28, 2013
Lease obligation costs	$	3,919	$	132	$	9,422		$	127	$	13,341	$	259
Employee and severance costs	750		—		17			—		767		—
Loss on disposal of assets	1,797		—
(Gain) loss on disposal of assets					(43		)	—		1,754		—
Other charges	234		8		513			6		747		14
	$	6,700	$	140	$	9,909		$	133	$	16,609	$	273

The Fresh Market, Inc.

Notes to Consolidated Financial Statements - (continued)

4. Impairments and Store Closure Costs (continued)

Closed Store Reserves

Closed store reserves ~~includes~~include amounts for occupancy costs related to closed stores as of the cease use date, which represent the present value of the remaining non-cancelable lease payments required under operating leases for the closed stores, less an estimate of subtenant income. During the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, ~~only one of the four closed~~three stores met the cease use requirements for recording a reserve for occupancy costs. One of the previously announced four closed stores is accounted for as a capital lease, therefore, no additional obligation for occupancy costs was required. Closed store reserves of $3,304 and $1,619 are included in "Accrued liabilities" and $14,811 and $193 are included in "Closed store reserves," on the Consolidated Balance Sheet at July 27, 2014 and January 26, 2014, respectively.

Activity for the closed store reserve for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 and for the fifty-two weeks ended January 26, 2014 was as follows:


	For the Thirteen Weeks Ended			For the Fifty-Two Weeks Ended			For the Twenty-Six Weeks Ended			For the Fifty-Two Weeks Ended
	April 27, 2014			January 26, 2014			July 27, 2014			January 26, 2014
Beginning balance	$	1,812		$	1,982		$	1,812		$	1,982
Additions and adjustments	3,932			656			16,918			656
Payments	(465		)	(826		)	(615		)	(826		)
Ending balance	$	5,279		$	1,812		$	18,115		$	1,812

~~The Fresh Market, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

5. Employee Benefits

Long-Term Cash Incentive Program

In March 2012, the Company adopted The Fresh Market, Inc. Long-Term Cash Incentive Program for Select Employees (the “Program”), in which the Company’s executive officers do not participate. The purpose of the Program is to provide incentives and reward employees for achieving specified performance goals over a performance period.

Under the Program, the Company grants awards, which entitle participants to receive cash bonuses based upon the Company’s achievement of specified performance goals encompassing a three-year fiscal performance period. The Company granted awards under the Program to its participants during the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013. At the end of each reporting period, the Company evaluates the potential amount of the awards payable based on the estimated level of its performance. These awards are expensed over the respective performance period on a straight-line basis. Cumulative adjustments, if any, are recorded quarterly to reflect subsequent changes in ~~estimated performance.~~the probability of meeting performance goals.

Each participant receives a percentage of the applicable target amount for the performance period based on achievement of the performance ~~goals and formulas.~~goals. The Program’s award payouts ~~will~~ vary based on the level of achievement of the performance goals and can range from 33% to 150% for awards granted in fiscal years 2012 and 2013 and 33% to 170% for awards granted in fiscal 2014. Each participant is entitled to a minimum of one-third of the target amount, which will be paid in three annual payments over the three-year vesting period. At the end of the three-year period, each participant is eligible for a final payout based upon the Company’s specific measurement criteria. There will be no additional payout unless the threshold for the applicable performance goal is reached, and the participant must be employed by the Company at the end of the performance period to be eligible for payment of an award.

Based on the expected level of achievement of the performance goals as of the respective balance sheet dates, the Company recorded expense of $~~210~~209 and $~~368~~155 for the thirteen weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013, respectively, and an expense of $419 and $523 for the twenty-six weeks ended July 27, 2014 and July 28, 2013, respectively.

6. Share-based Compensation

The Company grants share-based awards under The Fresh Market, Inc. 2010 Omnibus Incentive Compensation Plan. As of ~~April~~July 27, 2014, approximately 1,900,000 shares of the Company’s common stock were available for share-based awards.

The Fresh Market, Inc.

Notes to Consolidated Financial Statements - (continued)

6. Share-based Compensation (continued)

Share-based compensation expense is recorded in the “Selling, general and administrative expenses” line item on the accompanying Consolidated Statements of Comprehensive Income. Total share-based compensation was comprised of the following:


	For the Thirteen Weeks Ended				For the Thirteen Weeks Ended				For the Twenty-Six Weeks Ended
	April 27, 2014		April 28, 2013		July 27, 2014		July 28, 2013		July 27, 2014		July 28, 2013
Stock options	$	907	$	716	$	900	$	728	$	1,807	$	1,444
Restricted stock units	442		312		407		269		849		581
Executive restricted stock awards	304		110		316		277		634		387
Restricted stock awards, non-employee directors	119		105		105		106		210		211
Performance share awards	—		104		—		30		—		134
Performance share units	44		45		131		109		175		154
Other share based-awards	20		—		8		12		28		12
	$	1,836	$	1,392	$	1,867	$	1,531	$	3,703	$	2,923

~~The Fresh Market, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~6. Share-based Compensation (continued)~~

The following table summarizes option activity under The Fresh Market, Inc. 2010 Omnibus Incentive Compensation Plan (in thousands) for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014:


Balance at January 26, 2014	764			764
Options granted	244			244
Options exercised	(4		)	(7		)
Options expired	—			(1		)
Options forfeited	(4		)	(4		)

Balance at April 27, 2014	1,000
Balance at July 27, 2014				996

Total remaining unearned compensation costs	$	6,397		$	5,518

Weighted-average remaining service period	2.7 years			2.6 years

The following table summarizes the activity for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 ~~has occurred under~~for the Company's existing restricted stock unit program, executive restricted stock award program and restricted stock award program for non-employee ~~directors:~~directors (in thousands):


	Restricted Stock Units			Executive Restricted Stock Awards			Restricted Stock Awards, Non-Employee Directors		Restricted Stock Units			Executive Restricted Stock Awards			Restricted Stock Awards, Non-Employee Directors
Balance at January 26, 2014	70			92			10		70			92			10
Granted	65			—			—		68			—			13
Vested	(9		)	(4		)	—		(10		)	(4		)	(10		)
Forfeited	(1		)	—			—		(2		)	—			—
Balance at April 27, 2014	125			88			10
Balance at July 27, 2014									126			88			13

Total remaining unearned compensation costs	$	3,415		$	2,607		$	52	$	3,081		$	2,312		$	352

Weighted-average remaining service period	3.2 years			2.0 years			0.1 years		3.1 years			1.8 years			0.9 years

The Fresh Market, Inc.

Notes to Consolidated 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 includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options, restricted stock units, executive restricted stock awards, restricted stock awards for non-employee directors and deferred stock units. The Company excluded the dilutive effect of its performance share awards and performance share units since the related performance conditions had not been satisfied for the thirteen and twenty-six weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013.

~~The Fresh Market, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~7. Earnings per Share (continued)~~

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 Thirteen Weeks Ended				For the Twenty-Six Weeks Ended
	April 27, 2014		April 28, 2013		July 27, 2014		July 28, 2013		July 27, 2014		July 28, 2013
Net income available to common stockholders (numerator for basic and diluted earnings per share)	$	16,571	$	22,120	$	11,390	$	15,634	$	27,961	$	37,754

Weighted-average common shares outstanding (denominator for basic earnings per share)	48,266,742		48,159,785		48,282,994		48,196,427		48,274,868		48,178,106
Potential common shares outstanding:
Incremental shares from share-based awards	151,500		166,667		158,294		199,182		154,629		178,376
Weighted-average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)	48,418,242		48,326,452		48,441,288		48,395,609		48,429,497		48,356,482

Basic and diluted earnings per share	$	0.34	$	0.46	$	0.24	$	0.32	$	0.58	$	0.78

For the thirteen weeks ended ~~April~~July 27, 2014 and ~~April~~July 28, 2013, there were approximately ~~527,000~~674,000 and ~~325,000~~302,000 shares, respectively, excluded from the computation of diluted weighted-average common shares outstanding because such shares were antidilutive. For the twenty-six weeks ended July 27, 2014 and July 28, 2013, there were approximately 598,000 and 327,000 shares, respectively, excluded from the computation of diluted weighted-average common shares outstanding because such shares were antidilutive.

8. Supplementary Balance Sheet Information

The following table reflects supplementary balance sheet information for the Company's property and equipment, net ~~and accrued liabilities~~ at ~~April~~July 27, 2014 and January 26, 2014:

April 27, 2014 January 26, 2014
Land $ 2,846
$ 2,846
Buildings 72,612
61,338
Store fixtures and equipment 338,258
323,454
Leasehold improvements 229,574
218,359
Office furniture, fixtures and equipment 13,169
14,097
Automobiles 1,370
1,370
Construction in progress 22,392
32,654
Total property and equipment 680,221
654,118
Accumulated depreciation (295,749 ) (280,669 )
Total property and equipment, net $ 384,472
$ 373,449



	July 27, 2014			January 26, 2014
Land	$	2,800		$	2,846
Buildings	72,785			61,338
Store fixtures and equipment	346,232			323,454
Leasehold improvements	235,302			218,359
Office furniture, fixtures and equipment	13,330			14,097
Automobiles	1,370			1,370
Construction in progress	22,963			32,654
Total property and equipment	694,782			654,118
Accumulated depreciation	(310,162		)	(280,669		)
Total property and equipment, net	$	384,620		$	373,449

The Fresh Market, Inc.

Notes to Consolidated Financial Statements - (continued)

8. Supplementary Balance Sheet Information (continued)

The following table reflects supplementary balance sheet information for the Company's accrued liabilities at July 27, 2014 and January 26, 2014:


	April 27, 2014		January 26, 2014		July 27, 2014		January 26, 2014
Accrued compensation benefits	$	26,028	$	24,547	$	29,619	$	24,547
Accrued occupancy cost	8,638		8,716		8,645		8,716
Accrued income taxes payable	15,316		—
Other accrued taxes	5,015		4,193		4,769		4,193
Accrued construction and maintenance costs	7,764		9,939		7,002		9,939
Other accrued liabilities	17,731		16,299		17,015		16,299

Total accrued liabilities	$	80,492	$	63,694	$	67,050	$	63,694

9. Commitments and Contingencies

Litigation

From time to time, the Company is involved in various legal proceedings in the normal course of business, including labor and employment, premises, personal injury, product liability and general liability claims, and claims related to commercial and leasing matters. In the opinion of management, the resolution of currently pending matters, other than those described or referred to in the following paragraphs, will not have a material adverse effect on the Company's financial condition or results of operations. However, because of the nature and inherent uncertainties of litigation, the Company cannot predict with certainty the ultimate resolution of these actions and, should the outcome of these actions be unfavorable, the Company's business, financial position, results of operations or cash flows could be materially and adversely affected.

The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of loss cannot be made. The Company expenses its legal fees as incurred.

In assessing potential loss contingencies, the Company considers a number of factors, including those listed in FASB ASC 450-20, Contingencies - Loss Contingencies, regarding assessing the probability of a loss and assessing whether a loss is reasonably estimable. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of litigation are difficult to predict and the Company’s view of these matters may change as the litigation and events unfold over time. An unfavorable outcome in any legal matter, if material, could have a material adverse effect on the Company’s results of operations in the period in which the unfavorable outcome occurs and potentially in future periods.

The Company has been named in two lawsuits filed against it and other parties in South Carolina arising out of an incident in May 2011, in which certain outdoor candle products that were allegedly sold at certain of the Company's stores are alleged to have caused personal injury. ~~The lawsuits seek damages from~~Subsequent to July 27, 2014, the Company as well as from one or more manufacturers and sellers of these products. The Company believes it has defenses against these claims and will vigorously defend itself and pursue recovery from insurers and other third parties. The Company maintains insurance policies (subject to customary deductibles) for its defense costs and any liability resulting from the lawsuits, although one of the Company's umbrella carriers that sits above its primary general liability insurer has reserved its rights as to coverage. The manufacturers of the candle product and the ~~fuel gel used~~plaintiffs in the ~~candle have each filed for bankruptcy. The Company is unable~~two lawsuits resolved all claims between the parties arising out of or related to ~~predict~~ the ~~outcome of~~incident and the ~~lawsuits or to estimate the amount of damages, if any, that may be awarded. If~~claims against the Company ~~is ultimately found liable~~ in the two lawsuits ~~and insurance is not available, liability resulting from the lawsuits could have a material adverse effect on the Company's results of operations for the period or periods in which it is incurred.~~

~~The Fresh Market, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~9. Commitments and Contingencies (continued)~~

will be dismissed.

The Company is party to a lawsuit that was filed against it in U.S. District Court in Connecticut alleging that the manner in which the Company implemented and applied the fluctuating workweek method for calculating overtime due to the Company's department managers violates the federal Fair Labor Standards Act. The complaint purports to state a collective action on behalf of a class of department managers in stores in states in which the Company uses the fluctuating workweek method of compensation. The Company believes that the plaintiff's claims are without merit and intends to vigorously defend itself in this proceeding. At this time, the Company cannot predict whether the Court will certify a collective action, how it will rule on the merits of the claim, and/or the scope of the potential loss in the event of an adverse outcome. Should the Company ultimately be found liable in this matter, its liability could have a material adverse effect on the Company's results of operations for the period or periods in which it is incurred.

1514

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

Overview

The Fresh Market, Inc. is a growing specialty grocery retailer focused on creating an extraordinary food shopping experience for its 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 ~~April~~July 27, 2014, we operated ~~154~~158 stores in 26 states across the United States.

We believe several key differentiating elements of our business have enabled us to execute our strategy profitably across our expanding store base. We believe that our differentiated shopping experience 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 strong 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.

The food retail industry and our sales are affected by general economic conditions and seasonality, as well as the 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 fiscal 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. When a store is closed it is removed from comparable store sales in the period it is closed. 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 confidence, preferences and buying trends;

our competition, including competitor store openings, remodels and closings near our stores;

our competitors expanding their offerings of premium/perishable products;

the pricing of our products, including the effects of inflation, deflation and our promotional activities which we evaluate and adjust in the ordinary course of our business;

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;

1615

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

our in-store merchandising-related activities;

our ability to source products efficiently;

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

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

severe or unfavorable weather conditions.

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 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. Cost of goods sold is exclusive of depreciation, which is reported separately. 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 rates are driven by economies of scale from our store base, inventory shrinkage as a percentage of sales, productivity through process and merchandising programs, and promotional activities. 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. Share-based compensation expenses include those arising from grants made under our 2010 Omnibus Incentive Compensation Plan. Pre-opening expenses are costs associated with the opening of new stores and include store labor, travel, 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 a result of an increase in our sales. 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 compensation 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.

Impairments and Store Closure Costs

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include a decision to close a store or negative operating cash flows. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many factors. ~~It is reasonably possible that an~~An unexpected decline in sales or other factors ~~may~~could expose us to future impairment charges that could be material.

We record a reserve for future lease obligations associated with stores that have closed. The fair value of the lease liability is estimated using a discount rate to calculate the present value of the remaining noncancelable lease payments at the cease use date for the store, net of an estimate of subtenant income. Our expectations of potential subtenant income are based on various factors including our knowledge of the geographical area in which the closed store property is located, the remaining lease term and existing conditions. We also seek advice from local brokers and agents, commercial market value analysts, and ~~third party~~third-party fair value

reports to develop our assumptions. Changes in market and economic conditions could cause us to change our assumptions and may require adjustments to the reserves.

Income from Operations

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

Taxes

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. The amount of taxes currently payable or refundable is accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in our financial statements in the period that includes the enactment date.

1817

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 Thirteen Weeks Ended								For the Twenty-Six Weeks Ended
	April 27, 2014				April 28, 2013				July 27, 2014				July 28, 2013				July 27, 2014				July 28, 2013
	(amounts in thousands, except share and per share amounts)								(amounts in thousands, except share and per share amounts)
Consolidated Statements of Income Data (unaudited):
Sales	$	431,002	100.0	%	$	366,626	100.0	%	$	422,227	100.0	%	$	354,764	100.0	%	$	853,229	100.0	%	$	721,390	100.0	%
Cost of goods sold	282,836		65.6	%	237,289		64.7	%	278,512		66.0	%	233,486		65.8	%	561,348		65.8	%	470,775		65.3	%
Gross profit	148,166		34.4	%	129,337		35.3	%	143,715		34.0	%	121,278		34.2	%	291,881		34.2	%	250,615		34.7	%
Selling, general and administrative expenses	98,863		22.9	%	81,478		22.2	%	99,404		23.5	%	82,526		23.3	%	198,267		23.2	%	164,004		22.7	%
Store closure and exit costs	6,700		1.6	%	140		0.0	%
Impairments and store closure costs									9,909		2.3	%	133		0.0	%	16,609		1.9	%	273		0.0	%
Depreciation	15,026		3.5	%	12,335		3.4	%	15,276		3.6	%	12,707		3.6	%	30,302		3.6	%	25,042		3.5	%
Income from operations	27,577		6.4	%	35,384		9.7	%	19,126		4.5	%	25,912		7.3	%	46,703		5.5	%	61,296		8.5	%
Interest expense	1,097		0.3	%	244		0.1	%	1,124		0.3	%	1,221		0.3	%	2,221		0.3	%	1,465		0.2	%
Income before provision for income taxes	26,480		6.1	%	35,140		9.6	%	18,002		4.3	%	24,691		7.0	%	44,482		5.2	%	59,831		8.3	%
Tax provision	9,909		2.3	%	13,020		3.6	%	6,612		1.6	%	9,057		2.6	%	16,521		1.9	%	22,077		3.1	%
Net income	$	16,571	3.8	%	$	22,120	6.0	%	$	11,390	2.7	%	$	15,634	4.4	%	$	27,961	3.3	%	$	37,754	5.2	%

Net income per share
Basic and diluted	$	0.34			$	0.46			$	0.24			$	0.32			$	0.58			$	0.78
Shares used in computation of net income per share:
Basic	48,266,742				48,159,785				48,282,994				48,196,427				48,274,868				48,178,106
Diluted	48,418,242				48,326,452				48,441,288				48,395,609				48,429,497				48,356,482

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

For the Thirteen Weeks Ended
April 27,
2014 April 28,
2013
Other Operating Data (unaudited):

Number of stores at end of period 154
131
Comparable store sales growth ⁽¹⁾
2.5 % 3.0 %
Gross square footage at end of period (in thousands) 3,248
2,758
Average comparable store size (gross square feet) ⁽²⁾
21,117
21,147
Comparable store sales per gross square foot during period ⁽²⁾
$ 137
$ 137



	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	July 27, 2014			July 28, 2013			July 27, 2014			July 28, 2013
Other Operating Data (unaudited):
Number of stores at end of period	158			136			158			136
Comparable store sales growth ⁽¹⁾	2.9		%	3.4		%	2.7		%	3.2		%
Gross square footage at end of period (in thousands)	3,333			2,854			3,333			2,854
Average comparable store size (gross square feet) ⁽²⁾	21,101			21,083			21,109			21,114
Comparable store sales per gross square foot during period ⁽²⁾	$	131		$	131		$	268		$	267

1918

(1)

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. When a store is closed it is removed from comparable store sales in the period it is closed. 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.


(2)	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.

Items Impacting Comparability

Thirteen Weeks Ended ~~April~~July 27, 2014

Items impacting comparability between the thirteen weeks ended ~~April~~July 27, 2014 and the thirteen weeks ended ~~April~~July 28, 2013 include the following:

During the thirteen weeks ended ~~April~~July 27, 2014, we recorded a pre-tax charge of ~~$7.0~~$9.8 million, or ~~$0.09~~$0.13 per share after tax on a diluted basis, to the "Impairments and store closure costs" line item on the accompanying Consolidated Statements of Comprehensive Income in connection with the recognition of certain lease liabilities and other exit costs incurred with the closing of four stores.

Twenty-Six Weeks Ended July 27, 2014

Items impacting comparability between the twenty-six weeks ended July 27, 2014 and the twenty-six weeks ended July 28, 2013 include the following:

During the twenty-six weeks ended July 27, 2014, we recorded a pre-tax charge of $16.8 million, or $0.22 per share after tax on a diluted basis, with ~~$6.6~~$16.4 million recorded to the "Impairments and store closure costs" line item on the accompanying Consolidated Statements of Comprehensive Income in connection with the recognition of certain lease liabilities, severance, losses on the disposal of assets and other exit costs incurred with the ~~closings~~closing of four stores. The remaining charges relate to the liquidation of inventory and are reflected on other line items ofon the accompanying Consolidated Statements of Comprehensive Income. ~~As of April 27, 2014, we have vacated one of the four stores and plan to exit the remaining three locations during the second fiscal quarter of 2014.~~

Period to Period Comparisons

Thirteen Weeks Ended ~~April~~July 27, 2014 Compared to the Thirteen Weeks Ended ~~April~~July 28, 2013

Sales

Sales increased ~~17.6%~~19.0%, or $~~64.4~~67.5 million, to $~~431.0~~422.2 million for the thirteen weeks ended ~~April~~July 27, 2014, compared to the thirteen weeks ended ~~April~~July 28, 2013, resulting from a $~~9.0~~10.2 million increase in comparable store sales and a $~~55.4~~57.3 million increase in non-comparable store sales. There were ~~128~~130 comparable stores and 2628 non-comparable stores open at ~~April~~July 27, 2014.

Comparable store sales increased ~~2.5%~~2.9% to $~~368.3~~357.3 million for the thirteen weeks ended ~~April~~July 27, 2014, compared to the thirteen weeks ended ~~April~~July 28, 2013. For the thirteen weeks ended ~~April~~July 27, 2014, comparable sales were driven by a ~~1.8%~~2.7% increase in the number of transactions and a ~~0.7%~~0.2% increase in the average transaction ~~size as a result of promotional activity and the strength of the Easter holiday, partially offset by the impact of winter storms early in the quarter.~~size. Average customer transaction size for comparable stores increased to $~~32.05~~31.43 for the thirteen weeks ended ~~April~~July 27, 2014, compared to $~~31.83~~31.37 for the thirteen weeks ended ~~April~~July 28, 2013.

Gross Profit

Gross profit increased ~~14.6%~~18.5%, or $~~18.8~~22.4 million, to $~~148.2~~143.7 million for the thirteen weeks ended ~~April~~July 27, 2014, compared to the thirteen weeks ended ~~April~~July 28, 2013. The amount of the increase in gross profit attributable to increased sales was $~~22.7~~23.0 million partially offset by a decrease of $~~3.9~~0.6 million attributable to a decrease in the gross margin rate. The gross margin rate decreased 9020 basis points to ~~34.4%~~34.0% for the thirteen weeks ended ~~April~~July 27, 2014, compared to ~~35.3%~~34.2% for the thirteen weeks ended~~April 28, 2013~~. The reduction in our gross margin rate reflects a decrease in our merchandise margins due to our decision to absorb some cost inflation, and favorable responses to sales promotions, which drove a slight increase in the percent of revenue sold on promotion, as well as a 30 basis point increase in occupancy expenses as a percentage of sales.

2019

July 28, 2013. The slight decrease in the gross margin rate reflects higher occupancy costs and LIFO expense associated with the continuation of product cost inflation, partially offset by an increase in merchandise margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~21.3%~~20.5%, or $~~17.4~~16.9 million, to $~~98.9~~99.4 million for the thirteen weeks ended ~~April~~July 27, 2014, compared to the thirteen weeks ended ~~April~~July 28, 2013. 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 ~~April~~July 27, 2014, compared to the thirteen weeks ended ~~April~~July 28, 2013, 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 ~~April~~July 27, 2014, store-level compensation expenses increased $~~12.2~~13.9 million, other store operating expenses increased ~~$2.4~~$2.5 million, ~~pre-opening expenses increased~~ ~~$0.9 million, and~~ corporate general and administrative expense increased $0.8 million, and pre-opening expenses ~~increased $1.9 million.~~decreased $0.4 million.

As a percentage of sales, selling, general and administrative expenses increased by 7020 basis points to ~~22.9%~~23.5% for the thirteen weeks ended ~~April~~July 27, 2014, compared to ~~22.2%~~23.3% for the thirteen weeks ended ~~April~~July 28, 2013. The increase in selling, general and administrative expenses as a percentage of sales for the thirteen weeks ended ~~April~~July 27, 2014 was primarily related to an increase in store-level compensation expense at non-comparable ~~stores. Additionally,~~stores and benefit expenses. These expenses were partially offset by an improvement from corporate general and administrative expenses and lower new store pre-opening expenses as a percentage of sales for the thirteen weeks ended July 27, 2014, compared to the thirteen weeks ended July 28, 2013.

Impairments and Store Closure Costs

Impairments and store closure costs for the thirteen weeks endedJuly 27, 2014 were $9.9 million, of which $9.8 million related to expenses for the four stores that closed in March 2014. These costs primarily include certain lease liabilities accruals and other exit costs.

Depreciation Expense

Depreciation expense increased ~~20 basis points~~20.2%, or $2.6 million, to $15.3 millionfor the thirteen weeks endedJuly 27, 2014, compared to the thirteen weeks endedJuly 28, 2013, principally due to store unit growth. Depreciation expense as a percentage of sales remained flat at 3.6% for the thirteen weeks endedJuly 27, 2014, compared to the thirteen weeks ended July 28, 2013.

Income from Operations

Income from operations decreased 26.2%, or $6.8 million, to $19.1 millionfor the thirteen weeks endedJuly 27, 2014, compared to the thirteen weeks endedJuly 28, 2013. Income from operations as a percentage of sales for the thirteen weeks endedJuly 27, 2014 decreased to 4.5% from 7.3%for the thirteen weeks endedJuly 28, 2013. The decrease was primarily due to the ~~opening~~230 basis points related to store closure and exit costs for the four stores closed in March 2014, a slight reduction in gross margin rate, and the increased selling, general, and administrative expenses as a percentage of ~~seven new stores~~sales for the thirteen weeks ended July 27, 2014, compared to the thirteen weeks ended July 28, 2013.

Interest Expense

Interest expense decreased approximately $0.1 million to $1.1 million for the thirteen weeks endedJuly 27, 2014, compared to the thirteen weeks endedJuly 28, 2013.

Income Tax Expense

Income taxes for the thirteen weeks endedJuly 27, 2014 resulted in an effective tax rate of approximately 36.7%, which remained flat to the income tax rate for the thirteen weeks endedJuly 28, 2013.

Net Income

As a result of the foregoing, net income decreased 27.1%, or $4.2 million, to $11.4 millionfor the thirteen weeks endedJuly 27, 2014, compared to the thirteen weeks endedJuly 28, 2013. Net income as a percentage of sales for the thirteen weeks endedJuly 27, 2014 decreased to 2.7% from 4.4%for the thirteen weeks endedJuly 28, 2013. Net income was negatively affected by $9.8 million in pre-tax charges related to the store closure and exit costs recognized during the thirteen weeks ended July 27, 2014 due to the closing of four stores in March 2014.

Twenty-Six Weeks Ended ~~April~~July 27, 2014 Compared to the Twenty-Six Weeks Ended July 28, 2013

Sales

Sales increased 18.3%, or $131.8 million, to $853.2 million for the twenty-six weeks ended July 27, 2014, compared to ~~two new store openings during~~ the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013, resulting from a $19.2 million increase in comparable store sales and a $112.6 million increase in non-comparable store sales. There were 130 comparable stores and 28 non-comparable stores open at July 27, 2014.

Comparable store sales increased 2.7% to $725.6 million for the twenty-six weeks ended July 27, 2014, compared to the twenty-six weeks ended July 28, 2013. For the twenty-six weeks ended July 27, 2014, comparable sales were driven by a 2.3% increase in the number of transactions and a 0.4% increase in the average transaction size. Average customer transaction size for comparable stores increased to $31.74 for the twenty-six weeks ended July 27, 2014, compared to $31.60 for the twenty-six weeks ended July 28, 2013.

Gross Profit

Gross profit increased 16.5%, or $41.3 million, to $291.9 million for the twenty-six weeks ended July 27, 2014, compared to the twenty-six weeks ended July 28, 2013. The amount of the increase in gross profit attributable to increased sales was $45.8 million partially offset by a decrease of $4.5 million attributable to a decrease in the gross margin rate. The gross margin rate decreased 50 basis points to 34.2% for the twenty-six weeks ended July 27, 2014, compared to 34.7% for the twenty-six weeks ended July 28, 2013. The reduction in our gross margin rate reflects a decrease in our merchandise margins due to our decision to absorb some cost inflation, as well as a 20 basis point increase in occupancy expenses as a percentage of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 20.9%, or $34.3 million, to $198.3 million for the twenty-six weeks ended July 27, 2014, compared to the twenty-six weeks ended July 28, 2013. The increase in selling, general and administrative expenses was primarily attributable to an increase in the number of stores in operation during the twenty-six weeks ended July 27, 2014, compared to the twenty-six weeks ended July 28, 2013, which led to higher overall store-level compensation expenses and other costs to operate our stores. With more stores in operation during the twenty-six weeks ended July 27, 2014, store-level compensation expenses increased $26.0 million, other store operating expenses increased $4.9 million, pre-opening expenses increased approximately $0.5 million, and corporate general and administrative expenses increased $2.6 million.

As a percentage of sales, selling, general and administrative expenses increased by 50 basis points to 23.2% for the twenty-six weeks ended July 27, 2014, compared to 22.7% for the twenty-six weeks ended July 28, 2013. The increase in selling, general and administrative expenses as a percentage of sales for the twenty-six weeks ended July 27, 2014 was primarily related to an increase in store-level compensation expense at non-comparable stores. These expenses were partially offset by an improvement from corporate general and administrative expenses as a percentage of sales for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013.

Impairments and Store Closure Costs

Impairments and store closure costs for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014 were ~~$6.7~~$16.6 million, which included ~~$6.6~~$16.4 million of store closure and exit costs related to four stores that we closed ~~during the thirteen weeks ended April 27,~~in March 2014. These costs included certain lease liabilities, severance, loss on disposal of assets, and other exit costs.

Depreciation Expense

Depreciation expense increased ~~21.8%~~21.0%, or ~~$2.7~~$5.3 million,, to ~~$15.0~~$30.3 millionfor the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013, principally due to store unit growth and the recognition of depreciation expense for certain store locations, which are recorded as capital and financing lease assets. Depreciation expense as a percentage of sales increased by 10 basis points to ~~3.5%~~ 3.6% for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to ~~3.4%~~ 3.5% for the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013.

Income from Operations

Income from operations decreased ~~22.1%~~23.8%, or ~~$7.8~~$14.6 million,, to ~~$27.6~~$46.7 millionfor the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013. Income from operations as a percentage of sales for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014 decreased ~~330~~300 basis points to ~~6.4%~~5.5% from ~~9.7%~~8.5% for the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013. The decrease was primarily due to the ~~160~~190 basis points related to ~~the~~ the closure of four stores, a reduction in gross margin rate, and

the increased selling, general and administrative expenses as a percentage of sales for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013.

Interest Expense

Interest expense increased approximately ~~$0.9~~$0.7 million to ~~$1.1~~$2.2 million for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013. The increase was ~~primarily~~ attributable to ~~$1.0 million of~~ interest expense related to capital and financing lease obligations for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to ~~$0.2 million for~~ the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013.

Income Tax Expense

Income taxes for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014 resulted in an effective tax rate of approximately ~~37.4%~~37.1%, compared to approximately ~~37.1%~~36.9% for the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013.

Net Income

As a result of the foregoing, net income decreased ~~25.1%~~25.9%, or ~~$5.5~~$9.8 million,, to ~~$16.6~~$28.0 millionfor the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013. Net income as a percentage of sales for the ~~thirteen~~twenty-six weeks ended~~April~~July 27, 2014 decreased to ~~3.8%~~3.3% from ~~6.0%~~5.2% for the ~~thirteen~~twenty-six weeks ended~~April~~July 28, 2013. Net income was negatively affected by ~~$7.0~~$16.8 million in pre-tax charges related to the store closure and exit costs recognized with the closing of four stores during the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under the ~~2011~~2014 Credit ~~Facility.~~Agreement. 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 and corporate taxes. We believe that the cash generated from operations, together with the borrowing availability under the ~~2011~~2014 Credit ~~Facility,~~Agreement, 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, 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 a few days of the related sale.

At ~~April~~July 27, 2014, we had approximately $~~19.1~~17.2 million in cash and cash equivalents and $~~153.4~~150.9 million in borrowing availability under the ~~2011~~2014 Credit ~~Facility.~~Agreement.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, 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.

A summary of our operating, investing and financing activities for the twenty-six weeks ended July 27, 2014 and July 28, 2013 is shown in the following table:


	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	April 27, 2014			April 28, 2013			July 27, 2014			July 28, 2013
Net cash provided by operating activities	$	56,170		$	45,899		$	68,213		$	69,656
Net cash used in investing activities	(24,419		)	(17,158		)	(40,271		)	(51,580		)
Net cash used in financing activities	(24,378		)	(26,461		)	(22,488		)	(10,840		)
Net increase in cash and cash equivalents	$	7,373		$	2,280		$	5,454		$	7,236

Operating Activities

Cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, realized gain or loss on disposal of property and equipment, share-based compensation, changes in deferred income taxes, and the effect of changes in assets and liabilities.


	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	April 27, 2014			April 28, 2013			July 27, 2014			July 28, 2013
Net income	$	16,571		$	22,120		$	27,961		$	37,754
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,082			12,390			30,406			25,152
Loss (gain) on disposals of property and equipment	1,821			(43		)
Loss on disposals of property and equipment							1,791			4
Share-based compensation	1,836			1,392			3,703			2,923
Excess tax shortfall (benefit) from share-based compensation	87			(16		)	157			(171		)
Deferred income taxes	(7,244		)	380			(16,280		)	408
Changes in assets and liabilities	28,017			9,676			20,475			3,586
Net cash provided by operating activities	$	56,170		$	45,899		$	68,213		$	69,656

Net cash provided by operating activities ~~increased 22.4%~~decreased 2.1%, or ~~$10.3~~$1.4 million, to ~~$56.2~~$68.2 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013. The ~~increase~~decrease in net cash provided by operating activities was primarily due to the timing ~~differences for tax payments.~~of various working capital items.

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 Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	April 27, 2014			April 28, 2013			July 27, 2014			July 28, 2013
Purchases of property and equipment	$	(24,426	)	$	(17,219	)	$	(40,363	)	$	(51,650	)
Proceeds from sales of property and equipment	7			61
Proceeds from sale of property and equipment							92			70
Net cash used in investing activities	$	(24,419	)	$	(17,158	)	$	(40,271	)	$	(51,580	)

Capital expenditures ~~increased 41.9%~~decreased 21.9%, or ~~$7.2~~$11.3 million, to ~~$24.4~~$40.4 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013. The decrease is related to a reduced average cost of new store construction and a slight decrease in the number of store construction projects for the twenty-six weeks ended July 27, 2014, compared to the twenty-six weeks ended July 28, 2013. Capital expenditures related to new, remodeled or relocated stores totaled ~~$22.6~~$37.1 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to ~~$14.1~~$46.7 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013.

We plan to spend approximately ~~$110.0~~$100.0 million to ~~$130.0~~$115.0 million on capital expenditures during fiscal 2014, primarily related to new and remodeled stores.

We plan to open ~~23 to 24~~22 new stores during fiscal 2014, ~~seven~~11 of which ~~have~~had been opened as of ~~April~~July 27, 2014, and remodel 4 to 5 stores.

Financing Activities

Cash used in financing activities consists ~~principally~~primarily of borrowings and payments under the ~~2011~~2014 Credit ~~Facility.~~Agreement. We currently do not intend to pay cash dividends on our common stock.


	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	April 27, 2014			April 28, 2013			July 27, 2014			July 28, 2013
Borrowings on revolving credit facility	$	94,033		$	109,862		$	118,133		$	253,280
Payments made on revolving credit facility	(118,233		)	(136,862		)	(139,833		)	(265,780		)
Payments made on debt issuance costs							(441		)	—
Payments made on capital and financing lease obligations	(95		)	—			(292		)	(35		)
Proceeds from issuance of common stock pursuant to employee stock purchase plan	51			55			95			115
Excess tax (shortfall) benefit from share-based compensation	(87		)	16			(157		)	171
Payments on withholding tax for restricted stock unit vesting	(141		)	(66		)	(155		)	(72		)
Proceeds from exercise of share-based compensation awards	94			534			162			1,481
Net cash used in financing activities	$	(24,378	)	$	(26,461	)	$	(22,488	)	$	(10,840	)

Net cash used in financing activities for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014 ~~decreased 7.9%~~increased 107.5%, or ~~$2.1~~$11.6 million, to ~~$24.4~~$22.5 million, mostly due to ~~a decrease~~an increase in net payments on ~~the 2011 Credit Facility~~our unsecured revolving credit agreement compared, to the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013. We reduced ~~the 2011 Credit Facility~~our credit agreement balance by ~~$24.2~~$21.7 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014, compared to a reduction of ~~$27.0~~$12.5 million for the ~~thirteen~~twenty-six weeks ended ~~April~~July 28, 2013.

Revolving Credit ~~Facility~~Agreement

On June 12, 2014, we entered into an unsecured revolving credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the several lenders party thereto (the “2014 Credit Agreement”). The 2014 Credit Agreement refinanced and replaced our senior unsecured revolving credit facility under that certain Credit Agreement dated February 22, 2011, by and among us, as borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the several lenders party thereto (the “2011 Credit Agreement”). The 2011 Credit ~~Facility~~Agreement was terminated effective June 12, 2014 upon our entering into the 2014 Credit agreement.

The 2014 Credit Agreement matures ~~February 22, 2016,~~June 12, 2019 and is available to provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions and issuance of letters of ~~credit, refinancing and payment of fees.~~credit. While we currently have no material domestic subsidiaries, other entities will guarantee our obligations under the ~~2011~~2014 Credit ~~Facility~~Agreement if and when they become our material domestic subsidiaries during the term of the ~~2011~~2014 Credit ~~Facility.~~Agreement.

The ~~2011~~2014 Credit ~~Facility~~Agreement provides for total borrowings of up to $175.0 million. Under the terms of the ~~2011~~2014 Credit ~~Facility,~~Agreement, we are entitled to request an increase in the size of the facility by an amount not exceeding ~~$75.0~~$100.0 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 lenders to become a party to the ~~2011~~2014 Credit ~~Facility,~~Agreement, subject to the approval of the Administrative Agent. The ~~2011~~2014 Credit ~~Facility~~Agreement includes a letter of credit sublimit of ~~$25.0~~$60.0 million and a swing line sublimit of ~~$10.0~~$15.0 million.

At our option, ~~outstanding borrowings~~revolving loans under the 2014 Credit Agreement bear interest at (i) ~~LIBOR~~the London Interbank Offered Rate ("LIBOR") plus an applicable margin that ranges from ~~1.00%~~0.90% to ~~2.25%~~2.00%, (ii) the Eurodollar rate plus an applicable margin that ranges from ~~1.00%~~0.90% to ~~2.25%~~2.00%, or (iii) the base rate plus an applicable margin that ranges from 0% to ~~1.25%~~1.00%, 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 the unused portions of the 2011 Credit Facility ranges from~~ ~~0.20%~~ to ~~0.35%~~ ~~per annum.~~ As of ~~April~~July 27, 2014 and January 26, 2014, all outstanding borrowings bore interest at LIBOR plus an applicable margin. The “applicable margins” described above are determined by a schedule based on our ratio of (a) Adjusted Funded Debt (as defined in the 2014 Credit Agreement) minus certain cash and cash equivalents in excess of $5.0 million as of the end of each fiscal quarter to (b) Consolidated EBITDAR (as defined in the 2014 Credit Agreement) for the period consisting of the four fiscal quarters then ending.

The ~~2011~~commitment fee calculated on the unused portions of the 2014 Credit ~~Facility~~Agreement ranges from 0.125% to 0.250% per annum.

The 2014 Credit Agreement 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~~2014 Credit ~~Facility~~Agreement provides that we ~~will be~~are required to maintain the following financial ratios:

a consolidated maximum leverage ratio as of the end of any fiscal quarter of not more than 4.25 to 1.00, based upon the ratio of (i) ~~adjusted funded debt~~Adjusted Funded Debt (as defined in the ~~2011~~2014 Credit ~~Facility)~~Agreement) minus certain cash and cash equivalents in excess of $5.0 million as of the end of each fiscal quarter to (ii) Consolidated EBITDAR (as defined in the ~~2011~~2014 Credit ~~Facility) over~~Agreement) for the period consisting of the four fiscal quarters then ending, ~~on or before the determination date,~~ and

a consolidated fixed charge coverage ratio as of the end of each fiscal quarter of not less than 1.70 to 1.00, based upon the ratio of (i) Consolidated EBITDAR (as defined in the ~~2011~~2014 Credit ~~Facility)~~Agreement) less cash taxes paid ~~by us~~ and ~~certain discretionary~~dividends and other distributions made in respect of capital stock, in each case, over the period consisting of the four fiscal quarters then ending ~~on or immediately prior to the determination date~~ to (ii) the sum of cash interest, ~~expense, cash~~ lease, rent and ~~rent expense and~~scheduled principal payments on Funded Debt (as defined in the ~~current portion~~2014 Credit Agreement), in each case, over the period consisting of ~~capitalized lease obligations for such period and the current portion of long-term liabilities for~~ the four fiscal quarters ~~ending as~~then ending.

The 2014 Credit Agreement contains customary events of default. If an Event of Default (as defined in the ~~end of any quarter~~2014 Credit Agreement) occurs and is continuing, on ~~or prior~~the terms and subject to the ~~determination date.~~

conditions set forth in the 2014 Credit Agreement, amounts outstanding under the 2014 Credit Agreement may be accelerated and may become or be declared immediately due and payable.

We were in compliance with all debt covenants under the ~~2011~~2014 Credit ~~Facility~~Agreement as of ~~April~~July 27, 2014.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at ~~April~~July 27, 2014 consisted of operating leases. We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

Our contractual obligations primarily consist of long-term debt obligations and lease obligations. No material changes outside the ordinary course of business have occurred in our contractual obligations during the ~~thirteen~~twenty-six weeks ended ~~April~~July 27, 2014. For a more comprehensive discussion of our contractual obligations see "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 fiscal year ended January 26, 2014.

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, as we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, costs and expenses and related disclosures. 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 ongoing basis, management evaluates its estimates and judgments. Critical accounting policies that affect our more significant judgments 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~~ leases, ~~accounting for~~ insurance reserves, ~~accounting for income~~ taxes and ~~accounting for~~ share-based compensation, 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 fiscal year ended January 26, 2014.

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 moderate for the thirteen and twenty-six weeks ended ~~April~~July 27, 2014. 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

We do not utilize financial instruments for trading or other speculative purposes, nor do we utilize leveraged financial instruments. Our exposure to market risks results primarily from changes in interest rates and there have been no material changes regarding our market risk position from the information provided under Part II, Item 7A inof our Annual Report on Form 10-K for the fiscal year ended January 26, 2014.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) 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. 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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that, as of ~~April~~July 27, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the 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 President and Chief Executive Officer and Executive Vice President 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 thirteen and twenty-six weeks ended ~~April~~July 27, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

In the ordinary course of our business, we are subject to lawsuits, investigations and claims, including, but not limited to, intellectual property disputes, contractual disputes, premises claims and employment, environmental, health, product liability 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.

We have been named in two lawsuits filed against us and other parties in South Carolina arising out of an incident in May 2011, in which certain outdoor candle products that were allegedly sold at certain of our stores are alleged to have caused personal injury. ~~The lawsuits seek damages from us, as well as from one or more manufacturers and sellers of these products. We believe that~~Subsequent to July 27, 2014, we have defenses against these claims and we will vigorously defend ourselves and pursue recovery from insurers and other third parties. We maintain insurance policies (subject to customary deductibles) for our defense costs and any liability resulting from the lawsuits, although one of our umbrella carriers that sits above its primary general liability insurer has reserved its rights as to coverage. The manufacturers of the candle product and the ~~fuel gel used~~plaintiffs in the ~~candle have each filed for bankruptcy. We are unable~~two lawsuits resolved all claims between the parties arising out of or related to ~~predict~~ the ~~outcome of~~incident and the ~~lawsuits or to estimate the amount of damages, if any, that may be awarded. If we are ultimately found liable~~claims against us in the two lawsuits ~~and insurance is not available, liability resulting from the lawsuits could have a material adverse effect on our results of operations for the period or periods in which it is incurred.~~will be dismissed.

We are party to a lawsuit that was filed against us in U.S. District Court in Connecticut alleging that the manner in which we implemented and applied the fluctuating workweek method for calculating overtime due to our department managers violates the federal Fair Labor Standards Act. The complaint purports to state a collective action on behalf of a class of department managers in stores in states in which we use the fluctuating workweek method of compensation. We believe that the plaintiff's claims are without merit and we intend to vigorously defend ourselves in this proceeding. At this time, we cannot predict whether the Court will certify a collective action, how it will rule on the merits of the claim, and/or the scope of the potential loss in the event of an adverse outcome. Should we ultimately be found liable in this matter, our liability could have a material adverse effect on our results of operations for the period or periods in which it is incurred.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 26, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table provides information about repurchases of our common stock during the ~~three month~~three-month period ended ~~April~~July 27, 2014:

Total Approximate
Number of Dollar Value
Shares of Shares
Total Average Purchased that May Yet
Number Price as Part of a be
of Shares Paid Per Publicly Purchased
Purchased Share Announced under the
Period (1) ($) Program Program

January 27, 2014 through February 26, 2014 —
—
—
—
February 27, 2014 through March 26, 2014 643
$ 34.18
—
—
March 27, 2014 through April 27, 2014 —
—
—
—

Total

Approximate

Number of

Dollar Value

of Shares

Total

Average

Purchased

that May Yet

Number

Price

as Part of a

of Shares

Paid Per

Publicly

Purchased

Announced

under the

Period

(1)

($)

Program

April 28, 2014 through May 28, 2014

—

May 29, 2014 through June 28, 2014

138

32.95

—

June 29, 2014 through July 27, 2014

—


(1)	Represents shares of common stock withheld for income tax purposes in connection with the vesting of shares of restricted stock issued to certain employees.

Item 6. Exhibits



Exhibit 10.1		Credit Agreement, dated as of June 12, 2014, among The Fresh Market, Inc., Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto
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~~The Fresh Markets, Inc.'s Quarterly Report on Form 10-Q, for the period ended ~~April~~July 27, 2014, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements

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SIGNATURE

Pursuant to the requirements 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.



~~June~~September 4, 2014	THE FRESH MARKET, INC.

	By:	/s/ Jeffrey B. Short
		Jeffrey B. Short
		Vice President and Controller
		(Principal Accounting Officer)

2829



			Fair Value Measurement
Description	Long-Lived Assets Held and Used		Level 1		Level 2		Level 3

Measured as of January 26, 2014	$	21,682	$	—	$	—	$	21,682