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Fred's Down to Strong Sell

Zacks Equity Research

On Feb 22, 2014, Zacks Investment Research downgraded Fred’s Inc. (FRED) to a Zacks Rank #5 (Strong Sell) owing to soft comps for Jan 2014 and a bleak outlook for fourth-quarter fiscal 2013.

Why the Downgrade?

Fred’s witnessed sharp downward estimate revisions after reporting lower-than-expected fourth-quarter 2013 sales results on Feb 06, 2014.

Bad weather in January resulted in shutdown of several shops during the final week of the month. As a result, for the four weeks of Jan 2014, Fred’s’ comps declined 1.8% worse than flat comps in the year-ago period.  Total sales for Jan 2014 also declined 1.1% year over year to $134.8 million.

Weak results in Jan led to lower than expected sales performance in the fourth quarter of 2013. For fourth quarter fiscal 2013, Fred’s comparable store sales inched up only 0.1% compared with a gain of 1.4% in the prior-year period. Total sales inched up 0.5% for the fourth quarter and increased 1.4% for fiscal 2013.

Following lower-than-expected January sales, Fred’s lowered the fourth-quarter earnings guidance. The company anticipates that the sales shortfall during January is expected to hurt fourth quarter earnings by 3 cents per share. Fred’s now expects earnings in the range of 13 to 16 cents versus 18 to 23 cents expected previously.

All the estimates were revised downward following the cautious outlook of the company. The Zacks Consensus Estimate for fourth-quarter 2013 and fiscal 2013 slipped 26.3% to 14 cents per share and 6.3% to 75 cents per share, respectively, over the last 30 days.

Other Stocks to Consider

Some better-ranked stocks in the consumer staples sector worth considering include Post Holdings Inc. (POST), Diamond Foods Inc. (DMND) and The Hain Celestial Group Inc. (HAIN). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on FRED
Read the Full Research Report on DMND
Read the Full Research Report on HAIN
Read the Full Research Report on POST

Zacks Investment Research