Fred's Reports July Sales

Business Wire


Fred's Inc. (FRED) today reported sales for the four-week month of July, which ended August 2, 2014.

Fred's total sales for the month increased 4% to $148.0 million from $142.6 million in July 2013. Comparable store sales for the month increased 0.7% on top of a 2.5% increase in the same period last year.

Fred's total sales for the second quarter of fiscal 2014 increased 2% to $490.6 million from $482.2 million for the same period last year. On a comparable store basis, second quarter sales decreased 0.1% versus an increase of 2.2% for the year-earlier period.

Fred's total sales for the first six months of fiscal 2014 increased 1% to $988.9 million compared with $983.7 million for the same period last year. On a comparable store basis, year-to-date sales decreased 1.0% versus an increase of 0.5% in the same period last year.

Commenting on the announcement, Bruce A. Efird, Chief Executive Officer, said, "We are pleased that Fred's returned to positive comparable store sales for July, reflecting stronger trends in general merchandise sales and improved customer traffic, as recent changes to our marketing plan have gained additional traction. General merchandise departments that reported better performance in July included Health Aids, Housewares, Flooring, Stationery, Toys, Auto & Hardware, and several consumable departments. With our new ad program and marketing strategy now in place, we expect these positive trends to continue in the back half of the year. Complementing improving conditions with general merchandise, we also saw ongoing sales and script growth in the pharmacy department during July, with our best monthly comparable script growth of the year. In July, we also rolled out a clearance and inventory right-sizing program in all of our stores to address unproductive inventory and exit or reduce product categories that do not align with our convenience center model – a key to improving our GMROI going forward."

Efird noted that the programs that have been successful in improving customer traffic and right-sizing inventory have had the initial effect of lower general merchandise gross margin. The Company also has incurred increased operating costs related to the inventory adjustments and establishing clearance centers in all stores.

Additionally, Fred's pharmacy department margins for July continued to be pressured by very significant vendor cost increases on both brand and generic drugs. This cost pressure in the pharmacy for the second quarter accounted for a drop of approximately 225 basis points in pharmacy department gross margin. However, on a positive note, the Company has finalized a new pharmacy prime vendor distribution agreement. With this key strategic relationship, we have a new alliance that supports our rapid growth and addresses the issues experienced over the past year, while restoring Fred's pharmacy department margin and significantly improving the profitability of its specialty pharmacy business.

"With the transitional costs associated with implementing our convenience center model, together with the vendor-related cost pressures on pharmacy, we now expect to report a loss for the second quarter in the range of $0.15 to $0.20 per share, exclusive of reserves for disposition of inventory and stores that do not fit our convenience model," Efird continued. "However, the drivers of performance for the balance of the year will be the pharmacy department's new vendor agreement, store shipments returning to forecast, and the continuation of our new marketing programs. We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014."

Fred's, Inc. operates 704 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States. For more information about the Company, visit Fred's website at

Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. A reader can identify forward-looking statements because they are not limited to historical facts or they use such words as "outlook," guidance," "may," "should," "could," "believe," "anticipate," "plan," "expect," "estimate," "forecast," "goal," "intend," "committed," "continue," or "will likely result" and similar expressions that concern the Company's strategy, plans, intentions or beliefs about future occurrences or results. These risks and uncertainties include, but are not limited to, those associated with the Company's announced strategic plan, the ultimate terms of the reworked pharmacy distribution agreement, lease buyouts and the underlying assumptions and projections upon which they are based, as well as risks that intended results may not be achieved or may not occur as quickly as expected; general economic trends; changes in consumer demand or purchase patterns; delays or interruptions in the flow of merchandise between the Company's distribution centers and its stores or between the Company's suppliers and same; a disruption in the Company's data processing services; costs and delays in acquiring or developing new store sites; and the factors listed under "Risk Factors" in the Company's most recent Annual Report on Form 10-K and any subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made. Fred's undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

Fred's Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Executive Vice President and
Chief Financial Officer

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