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VOL. 130 | NO. 230 | Wednesday, November 25, 2015

Fred’s Reports Third-Quarter Profit, Sales Increase

By Andy Meek

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Back in September, Memphis-based discount retailer Fred’s Inc. brought all of its managers to Memphis for a two-day conference – the first time that’s been done in 14 years.

Memphis-based retailer Fred’s Inc. earned net income of $1.4 million in the third quarter, reversing a $10.4 million loss in the year-ago period.

(Daily News/Andrew J. Breig)

The confab came at the end of the third quarter that saw Fred’s earn $1.4 million, or 4 cents per share, reversing a $10.4 million loss, or a loss of 28 cents per share, in the year-ago period. Total sales for the quarter were up 14 percent to $541 million. Excluding sales of $16.2 million from stores closed mostly at the end of 2014, total sales for the third quarter were up 18 percent.

Those results come as Fred’s is trying to engineer a sustainable turnaround driven in large part by a successful pharmacy operation within the chain, a strategy that also includes a new store prototype. Such stores will feature new branding, an expanded product assortment, better navigation and an updated checkout.

All of that provides context for why the company’s managers assembled in Memphis for the third-quarter meeting. It was an opportunity, according to Fred’s president and COO Mike Bloom, to communicate the company’s new direction, set expectations, meet new leadership and pump up the team for the all-important, holiday-driven fourth quarter.

Based on the momentum it’s already seeing company-wide, Fred’s CEO Jerry Shore said during a presentation to analysts Tuesday, Nov. 24, about the company’s third-quarter results: “We now enter the fourth quarter with confidence that our stores are properly stocked and ready for the holiday season.”

The company, Shore said, achieved many of its financial and operational targets in the third quarter, which included a comparable store sales increase of 2.7 percent that represented the company’s best since 2009.

Fred’s, which will be open on Thanksgiving this year, is of course a retail story, but it’s also a health care-driven one, given the importance the company attaches to its pharmacy operations. While Fred’s and its subsidiaries operate 658 discount general merchandise stores and three specialty pharmacy-only locations in 15 states, there also are 374 full-service pharmacy departments within the company’s stores.

Shore said the pharmacies were responsible for 12 percent of the quarter’s 14 percent increase in total sales. And the company is positioning them as “leading health care destinations” in terms of products and services in the markets they serve.

Fred’s shares were trading up about 3 percent shortly after the earnings call ended Tuesday. The company’s shares are off about 16 percent since the beginning of the year.

Looking ahead to the fourth quarter, the company estimates total sales to increase 13 percent to 15 percent. And earnings per share are forecast to be in the range of 13 cents to 17 cents, compared to a loss of 22 cents per share last year.

PROPERTY SALES 83 405 4,276
MORTGAGES 104 424 4,814
BUILDING PERMITS 148 883 10,151
BANKRUPTCIES 53 264 3,149