In spite of a tough retail environment, Fred’s Inc. (FRED) has been posting gain in comps for several past months. However, the bad weather in January resulted in frequent shutdown of shops. As a result for the four week month of Jan 2014, Fred’s comps declined 1.8% versus flat comparable store sales in the year-ago period.
Total sales for the month declined 1.1% year over year as benefits from Fred’s reconfiguration plan were offset by bad weather during the last week of January which led to double digit decline in sales. However, Fred’s reconfiguration departments like pharmacy, pet, auto, and hardware performed well during the month.
Fred’s embarked upon a 3-year reconfiguration plan in fiscal 2012, through which the company is increasing its focus on higher-margin categories and moving away from the lower-margin consumable categories. The company is remodeling and refreshing its store layouts and allocating space to highlight the key revenue-generating categories.
Fred’s is geared to increase pharmacy departments in all its stores, keeping in view its substantial contribution to the overall profit. As part of this strategy, Fred’s has plans to convert 150 to 200 stores in 2014 and take up the pharmacy penetration up to 60% by 2014-end.
Fred’s opened one new store with pharmacies and two Xpress pharmacy locations in Jan 2014.
Fourth Quarter and Fiscal 2013 Sales
For fourth quarter fiscal 2013, Fred’s comparable store sales inched up 0.1% compared with a decrease of 2.8% in the prior-year period. In fiscal 2013 comps inched up by 0.6% versus a decrease of 1.4% in the prior year period. Total sales went up 0.5% for the fourth quarter, and increased 1.4% for fiscal 2013.
For the year, Fred's added 11 new stores and 14 new Xpress pharmacies, and closed 25 store locations and 8 Xpress pharmacies.
Following lower than expected sales in January 2014, Fred’s has lowered its fourth quarter earnings guidance. It now expects earnings to be in the range of 13 cents to 16 cents versus a range of 18 cents to 23 cents announced previously. However, it is in-line with Zacks Consensus Estimate of 14 cents.