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Fred's Posts Better Comps in May

Zacks Equity Research

Same-store sales at Fred’s Inc. (FRED) climbed 1.3% year over year in the four-week period ended May 26, 2012. This compares favorably with the marginal 0.2% increase in same-store sales in the year-ago period. Total sales moved up 6% in May 2012 to $152.1 million from $143.6 million in the year-ago period.

May’s comparable-store sales came in at the high end of management’s guidance on the back of many new product innovations at the end of the first quarter. Shift from brand to generic drugs also boosted sales in the pharmacy department.

General merchandise and pharmacies continued to surpass management expectations during May. Management is also confident about the newer initiatives taken to remodel its stores and the new products launched during the period.

Retail sales for the first four months of 2012 stood at $652.6 million, up 4.0% from the year-ago period. Same-store sales for the period edged up 0.1% compared with an increase of 0.8% in the previous year.

Store Update

As of May 26, 2012, Fred's operated 708 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States. This includes one store opened by the company in May 2012.

Fred's Inc. runs Discount General Merchandise stores in a number of states in the southeastern United States. Fred's stores generally serve low, middle and fixed income families located in small to medium-sized towns. Majority of the company's stores have full service pharmacies. The company also markets goods and services to franchised Fred's stores.

At the time of announcing first quarter results, Fred’s said that its expects total sales to increase 4% to 6% in the second quarter, while it expects its comparable store sales to remain flat versus a 4% decline in the second quarter of last year.

The company expects second quarter earnings to increase between 15% and 30% and remain within a range of 15 cents - 17 cents per share. Fred’s expects its 2012 earnings in the range of 98 cents to $1.04 per share.

The Zacks Consensus Estimate for the second quarter 2012 is currently pegged at 16 cents and the full-year 2012 estimate is $1.01 a share.


Fred’s faces stiff competition from Dollar General Corporation (DG), Walgreen Co. (WAG) and Wal-Mart Stores Inc. (WMT). Currently, we have a long-term Neutral recommendation on Fred’s, which carries a Zacks #2 Rank (short-term Buy rating).

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