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Discount chain Fred's to weigh options after weak holiday sales

Jan 9 (Reuters) - Discount store operator Fred's Inc said it hired advisers to explore strategic options following disappointing sales during the holiday season.

Shares of the company, which also said it expects fourth-quarter earnings to be flat to modestly higher, rose 5 percent in thin premarket trading on Thursday.

"Fred's 2013 fourth quarter promotional strategy, which was centered on Black Friday, did not produce the incremental gains we expected," Chief Executive Officer Bruce Efird said in a statement.

Same-store sales rose 1.4 percent in December, compared with the average analysts' estimates of a 1 percent rise.

However, the growth was driven mainly by its pharmacies rather than its key general merchandise business, where sales fell short of its expectations, Efird said.

The company, which had a market value of about $653 million as of Wednesday's close, has 697 general merchandise stores, mainly in the southeastern U.S. About half of its stores have full-service pharmacies.

Fred's said it hired Bank of America Merrill Lynch and Peter J. Solomon Co for advice on its strategic options.

The company said it had also revamped its merchandising and marketing team and developed new pricing, marketing and inventory management strategies.

Fred's shares were up 4.8 percent at $18.61 in thin premarket trading on Thursday on the Nasdaq. They have risen about 40 percent in one year to Wednesday's close of $17.76.