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Fred's Comps Slow Down in June

Zacks Equity Research

Fred’s Inc.’s (FRED) comps have been suffering for the past few months due to inclement weather and stiff competition in the discount retail sector. After improving in May, it again slowed down a little in Jun 2014.

Comparable store sales for Fred’s during the five weeks ended Jul 5, 2014 declined 0.6% which compared unfavorably with a 4.5% increase in the year-ago period. Morover, same-store sales marginally missed management’s expectation of a flat to up 2% growth announced during first-quarter fiscal 2014 conference call.

However, total sales for the month went up 2% year over year to $191.2 million, better than the respective declines of 1.6%, 1% and 1.1% in the last three months. A harsh winter led to frequent shop shutdowns and competition emanating from improved weather disrupted sales during the early months of 2014.

Positive effect from the improvement in weather condition was partially offset by soft sales during the fourth week of the month. This was because the company was unable to place its new ad program during the week. However, conditions turned for the better for the rest of the reported month and the company’s new marketing and branding program generated better revenues. Moreover, Fred’s’ ad broadcast during the month helped attract traffic and heightened consumer awareness about its products.

Management is optimistic about the company’s performance in the upcoming months. Fred’s new marketing plan, including in-store marketing initiatives focusing diverse product mix offer coupled with an aggressive advertisement program is going to be operational first time in July.

Fred’s is also undertaking an aggressive clearance program in July better manage its inventory and exit or reduce product categories that do not align with Fred’s convenience center model. These initiatives are expected to boost the company’s sales and traffic in the upcoming months.

As of Jul 5, 2014, Fred’s operated 704 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States. Fred’s plans to make several strategic pharmacy store acquisitions in fiscal 2014. While eight acquisitions are scheduled to be completed in the second quarter, 12 more are on the cards for the third.

Other Stocks to Consider

Fred’s currently carries a Zacks Rank #3 (Hold). Other stocks in the retail sector worth considering include Burlington Stores, Inc. (BURL), Foot Locker Inc. (FL) and Big Lots Inc. (BIG). All these stocks have a Zacks Rank #2 (Buy).

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Read the Full Research Report on FL

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