VOL. 131 | NO. 107 | Monday, May 30, 2016
First-Quarter Results Show Fred’s on Rebound
By Andy Meek
Especially for a company like Memphis-based discount retailer Fred’s Inc., quarterly earnings results are about more than the numbers.
With the first quarter in the books, Memphis-based discount retailer Fred’s Inc. finds itself in a period of momentum and change. It grew earnings during the quarter, while also leveraging its pharmacy capabilities with a new retail store format.
(Daily News/Andrew J. Breig)
Fred’s – which grew total sales 8 percent during the quarter ended April 30 over the same period last year and earned $1.3 million in net income – is in the midst of a broad strategic and operational realignment. On the heels of new additions to management last year, plus new strategic imperatives and a big acquisition, changes the company is pushing this year include positioning itself as more of a health care company.
That’s one thing, for example, Fred’s CEO Jerry Shore pointed out to analysts when walking through the company’s first quarter numbers, noting that the “migration towards becoming a health care company is part of our new strategic roadmap.”
Other pieces of that roadmap have included a pack of new hires, including the recent addition of a new CFO as well as additions to the company’s pharmacy, general merchandise, supply chain and real estate units. Fred’s is also investing heavily in new store growth and remodels.
While detailing results like the company’s comparable store sales increasing 1 percent for the first quarter compared to an increase of 0.8 percent in the first quarter of 2015, Shore presented the health care push as a differentiator for Fred’s that can help it navigate a tough retail landscape.
For one thing, “it capitalizes on our strong bonds with customers in our rural markets who need access to health care,” Shore told analysts. “It also provides Fred’s many new opportunities to leverage our capabilities to offer additional ancillary health care services in combination with our front store offerings, which are our key points of differentiation in these rural markets. By accelerating the integration of pharmacy, specialty pharmacy, clinical services and our new retail store format and assortment, Fred’s can become a primary source for health care needs for our customers.”
Among other results for the quarter:
The company opened one full-service store during the quarter. For the full fiscal year, Fred’s now expects total sales to increase 2 percent to 6 percent and comparable store sales to increase 1 percent to 4 percent.
Earnings per share totaled $0.03 for the first quarter, compared with essentially the same earnings per share for the first quarter of 2015.
A report from Zacks Equity Research released after Fred’s earnings said the company “seems to be making a comeback after witnessing sluggish comps and intense competition in the discount retail sector over the past few quarters. Sales and profit initiatives are yielding significant results as is evident from the improvement in fiscal first-quarter comps. However, declining margins remain a concern.”
Fred’s Inc. and its subsidiaries operate 660 discount general merchandise stores and three
specialty pharmacy-only locations in 15 states in the Southeast. There are also 373 full-service pharmacy departments located within Fred's stores, including four franchised locations.
“There are changes in our business model that will capitalize on our pharmacy capabilities,” Shore summed up for analysts during the company’s earnings presentation. “Our new retail store format and assortment provides our consumers with a better shopping experience and complements our health care strategy.
“We have a renewed sense of optimism for what we, as a company, can achieve and (in) our willingness to invest more in our infrastructure to support future growth and the payback we are seeing from those increased investments.”