Fred's 4Q profit down as costs rise, shoppers wary

Fred's 4Q profit drops on higher costs, wary shoppers; 2013 outlook is short of expectations

Associated Press

MEMPHIS, Tenn. (AP) -- Discount store operator Fred's Inc. said Thursday that its fourth-quarter net income fell 33 percent due to some higher costs and cautious consumer spending.

The Memphis, Tenn.-based company's forecast for this year also fell below analyst expectations.

Fred's pharmacy division is performing well, but its general merchandise unit is weaker, said Fred's CEO Bruce Efird. The company is starting a three-year turnaround plan aimed at improving the profitability of its general merchandise segment.

Net income for the three months ended Feb. 2 fell to $6.6 million, or 18 cents per share. That compares with $9.8 million, or 26 cents per share, the year before. Analysts expected 20 cents per share, according to FactSet.

Revenue rose 7 percent, to $533.4 million from $497.6 million. Analysts expected $537.4 million. Revenue in stores open at least one year rose 4.8 percent. The measure is a key gauge of a retailer's financial health because it excludes stores that open or close during the year.

Operating costs were higher than the company expected.

For the year, profit fell 11 percent to $29.6 million, or 81 cents per share. Revenue rose 4 percent to $1.96 billion.

Looking forward, Fred's predicted earnings of 77 cents to 88 cents per share in 2013. Analysts expect 95 cents per share.

The company's predictions for the current quarter also fell short, as bad weather in March hurt sales of seasonal items. Fred's expects profit of 26 cents to 30 cents per share, with revenue in a range of down 1 percent to up 1 percent, which implies sales of $493 million to $503 million in the period through April.

Analysts expect profit of 30 cents per share on revenue of $511.3 million.

Shares dropped 7 cents to $14.03 in morning trading.

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