Fred's Reports Lower Comps in June

Zacks

Same-store sales at Fred’s Inc. (FRED) slipped 4.0% year over year in the five-week period ended June 30, 2012. This compares unfavorably with the 0.7% decrease in the year-ago period. Total sales moved up 2% in June 2012 to $182.6 million from $179.4 million in June last year.

Lower than expected general merchandise sales affected the comparable-store sales in June. Also, weather, calendar shift and holidays affected sales negatively.

Shift from brand to generic drugs also kept sales at low levels in the pharmacy department. However, performance of the new initiatives in housewares, bath, and hardware departments were in line with management’s expectations.

Retail sales for the first five months of 2012 stood at $835.1 million, up 3.0% from the year-ago period. Same-store sales for the period edged down 0.8% compared to the 0.6% increase in the comparable previous year.

Store Update

As a part of Fred’s real estate plan for 2012, the company opened two express pharmacy locations and closed 12 stores during June 2012.

As of June 30, 2012, Fred's operated 698 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.

As of fiscal 2011, Fred’s operated 679 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.

For July, the company expects comparable same store sales to remain flat or decline by 3%. The company anticipates second quarter earnings to be at lower end of the previously-projected range of 15 cents to 17 cents.

Fred’s maintained its fiscal 2012 earnings estimate in the range of 98 cents to $1.04 per share.

The Zacks Consensus Estimate for second quarter earnings is currently pegged at 15 cents per share and the full-year 2012 estimate is $1.00 a share.

Conclusion

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.

Fred’s faces stiff competition from Dollar General Corporation (DG), Walgreen Co. (WAG) and Wal-Mart Stores Inc. (WMT). Currently, we have a long-term Neutral recommendation on Fred’s, which carries a Zacks #2 Rank (short-term Buy rating).

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