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VOL. 131 | NO. 62 | Monday, March 28, 2016

Fred’s Set for Rebound in 2016

By Andy Meek

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Twenty-four years ago this month, Memphis-based discount retailer Fred’s Inc. went public.Today, for a variety of reasons that include Fred’s ongoing shot at a turnaround, the company finds itself in a period of unprecedented change.

Memphis-based discount retailer Fred’s Inc. has just come off one of its most consequential years in recent memory - a year that included major new executive hires and setting the table for 2016 through things like a planned $2.2 million investment in new store growth and remodels. 

(Daily News File/Andrew J. Breig)

During the same presentation to analysts in recent days in which he spelled out his reasons for stepping down as Fred’s chairman, for example, Michael Hayes put it like this: “2015 was a year like none we have ever seen before.”

Indeed, the past 12 months brought among other things the arrival of new management, a new strategic direction and a multimillion-dollar acquisition.

Fred’s snatched up talent from companies like AutoZone Inc., Walgreens, CVS, Dollar General, Family Dollar and Wal-Mart to round out its leadership team. Looking ahead, it’s also in the process of investing $2.2 million in new store growth and remodels and is looking for a new outside advertising agency to work with.

And there’s more still on the way, like expanding the presence of a new store prototype that began rolling out this year, which the company hopes will drive sales. The company also says it’s migrating toward becoming a health care company, given Fred’s greater emphasis on the pharmacy side of the business.

The efforts appear to be bearing some fruit. Fred’s corporate controller Ben Garner said on the earnings call last week that the company expects total sales in the first quarter to increase between 8 percent and 12 percent over last year.

For all of fiscal 2016, Fred’s is projecting a total sales increase of between 5 percent and 9 percent.

Progress can’t always be presented in the form of a smooth line up and to the right, though, and in Fred’s case the fourth quarter and full-year 2015 earnings it reported – including a fiscal fourth quarter loss of $3.9 million – disappointed Wall Street. In tandem with the earnings announcement, Hayes said he’s stepping down as chairman, to be replaced by director Thomas H. Tashjian.

Nevertheless, the company has charted a path forward and is executing that plan. Fred’s president and chief operating officer Mike Bloom – a former Family Dollar and CVS executive – told analysts last week about Fred’s leadership bringing “clarity to our entire organization” with its renewed emphasis on its pharmacy experience as well as the customer shopping experience across the entire store.

A commentary from Zacks Investment Research in the wake of Fred’s recent earnings suggested that the company “seems to be turning around after the sluggish comps and intense competition in the discount retailing sector hurt results over the past few quarters. Sales and profitability initiatives are yielding results as can be seen from the improvement in fiscal fourth-quarter comps. However, the declining margins remain a concern in our view.”

In the end, one of the most critical determinants of the company’s long-term success may come down not to big spends or corporate rethinks, but the culture and atmosphere within the company itself. If so, Bloom isn’t worried on that front.

He said the changes over the past year have produced a “noticeable culture change” in the company’s store support center, distribution centers and in its stores.

“The bar has been raised for the entire organization,” he told analysts, “and team members have really stepped up their game.”

PROPERTY SALES 38 38 12,796
MORTGAGES 27 27 8,030
BUILDING PERMITS 137 137 30,071
BANKRUPTCIES 44 44 6,108