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Fred's Oct Sales Up Y/Y

Zacks Equity Research

Recently, Fred's Inc. (FRED) reported higher total sales and comparable sales for four weeks of Oct 2013 compared with that of the year-ago period.

Comparable store sales for the month increased 0.8% compared with a 0.8% fall in the year-ago month. However, the comps were at the lower end of management’s expectation due to soft sales in the general merchandise. Moreover, Halloween season could not boost comps as consumers tightened their spending due to lower incomes.

Total sales for the month also went up 2% to $143.4 million compared to $139.9 million a year ago. Strong sales in categories like Pharmacy, Hometown Auto & Hardware, backed by Fred’s’ reconfiguration plans boosted sales during the month.

Total sales for the third quarter of fiscal 2013 were up 2% year over year to $460.5 million. Comps for the quarter increased 1.4% compared with a decline of 2.5% a year ago.

Year-to-date, total sales were up 2% year over year to $1.4 billion and comps increased 1.1% compared with a 0.8% drop in the year-ago period.

Keeping in view the substantial contribution of the Pharmacy department to the overall profit, Fred’s is geared to put greater focus on the sector and is increasing pharmacy departments in all its stores.

With two store openings and closure of one Xpress pharmacy location during the month, Fred’s operates 701 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States as of Oct 2013.

Earnings Guidance for the Third Quarter of Fiscal 2013

After reviewing the October results, Fred’s forecasts its earnings to be up 5% to 10% over last year for the third quarter of fiscal 2013. Fred’s has maintained inventories at lower levels compared with last year to counter the ongoing tough retail conditions.

Management is well on track to improve its Pharmacy department growth, expand its specialty drug program and launch the expanded auto and hardware program. However, the company expects the unfavorable conditions to continue in fiscal 2013. Fred's carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other diversified retailers worth considering include The TJX Companies Inc. (TJX), Dollar Tree Inc. (DLTR) and Big Lots Inc. (BIG). All these stocks carry a Zacks Rank #2 (Buy).

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