Same-store sales at Fred’s Inc. (FRED) remained flat year over year in the five-week period ended March 31, 2012, compared to a marginal 0.7% increase in same-store sales a year ago. Total sales for the month moved up 3% to $194.0 million from $188.9 million in March 2011.
March’s comparable-store sales matched management’s guidance on the back ofstrong customer traffic in the stores. Warm weather, increased purchase of seasonal products, and success of the Core 5 departments of Pet, Household Supplies, and Pharmacy boosted sales in the month.
Newer stores and pharmacies continued to surpass management expectations during March. Management is also confident about the potential of the real estate team and feels it will match the accelerated pace of the expansion of the company.
Retail sales for the first two months of fiscal 2012 stood at $352.9 million, which were 3.0% higher than $342.6 million in the year-ago period. Same-store sales for the period slipped 0.4% compared with an increase of 0.7% in the previous year.
Walgreen Co. (WAG), a competitor of Fred’s, posted a same-store sales decline of 6.8% in March, while total sales grew 4.3% to $6.02 billion.
As of March 31, 2012, Fred's Inc. operates 701 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.
Fred's Inc. runs Discount General Merchandise stores in a number of states in the southeastern United States. Fred's stores generally serve low, middle and fixed income families located in small to medium -sized towns. Majority of the company's stores have full service pharmacies. The company also markets goods and services to franchised Fred's stores.
Management expects tough retail conditions to continue across the markets in 2012. However, Fred’s anticipates improvements in its Core 5 Program, strategic initiatives and cost reduction programs to help maintain profitability in 2012.
For the first quarter of 2012, Fred’s forecasts its total sales to increase 3% to 5%, while it expects its comparable store sales to remain flat versus the 1% increase in the first quarter of last year.
The company expects its earnings to grow between 8% and 17% to 26 cents - 28 cents per share in the first quarter of 2012. Fred’s 2012 earnings per share are expected to increase 13% to 22% over last year, excluding the impact of the favorable income tax rate on 2011 results. Including the tax impact, Fred’s expects its earnings to be in the range of 96 cents to $1.04 per share, representing a growth of 10% to 20% over last year.
The Zacks Consensus Estimate for the first quarter 2012 is currently pegged at 27 cents and the full-year 2012 estimate is 99 cents.
The company operates in a highly fragmented industry and faces intense competition from national, regional and local retailing establishments, including department stores, discount stores, discount clothing, grocery and convenience stores and drug stores. Consequently, the company is under severe stress to maintain profitability.
Fred’s faces stiff competition from Dollar General Corporation (DG) and Walgreen Co. It currently holds a Zacks #2 Rank. On a long-term basis, we have a Neutral recommendation on the stock.Read the Full Research Report on DG
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