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VOL. 132 | NO. 242 | Thursday, December 7, 2017

Fred’s Reports $51.8M Loss, Cancels Dividend

By Andy Meek

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Memphis-based discount retailer Fred’s Inc. accompanied the release of its fiscal third quarter earnings performance Wednesday, Dec. 6 – which included reporting a loss of $51.8 million for the quarter – with separate, related news that shows the company’s turnaround remains a difficult work in progress.

Fred’s Inc. management says it is considering “various strategic transactions and alternatives” for certain non-core assets to enhance profitability. (Daily News File/Andrew J. Breig)

Fred’s, which has spent more than a year confronting a sales slump and other headwinds, has cancelled its quarterly cash dividend so it can hang on to cash for debt reductions, share buybacks and other general uses. In connection with that, the company has amended its 2012 stock repurchase program to allow for the repurchase of up to 3.8 million shares of common stock.

In line with the company’s focus on driving traffic, generating free cash flow and improving its gross margin, Fred’s – which has about 600 stores – also acknowledged Dec. 6 that it’s considering “various strategic transactions and alternatives for certain non-core assets,” including the company’s real estate and its specialty pharmacy business.

The company said its decision to explore those alternatives is not in response to proposals from any third party and that no decision has been made yet to engage in any transaction. Fred’s CEO Mike Bloom said the moves are part of a strategic turnaround plan that followed “an exhaustive and comprehensive evaluation of our business” that prioritizes driving traffic, cutting expenses, driving profitability and generating free cash flow, among other things.

“We believe that we now are in a position to further enhance our strategic plan by exploring a variety of strategic initiatives and by investing in our common stock which we believe, given current share prices, represents an attractive use of funds and provides us an additional opportunity to build long-term value for our shareholders,” Bloom said.

A move to unload some of its assets is a reversal from where the company found itself a year ago. Then, it was hopeful of becoming a lot bigger after acquiring hundreds of Rite Aid stores in a deal that ultimately fell apart earlier this year.

The company’s loss for its fiscal third quarter, meanwhile, included sales at stores open for at least a year down almost 1 percent. Bloom described the results as “below expectations,” and the company pointed to $17.1 million in write-downs of “unproductive inventory” as partly to blame for the quarter’s results.

At press time, shares of Fred’s had fallen more than 78 percent since the beginning of the year.

“The management team, working closely with the board of directors, is taking the actions necessary to ensure Fred’s achieves profitability and growth over the long-term,” Bloom said, adding that the company made progress in the third quarter toward its efforts to turn around the company.

As evidence of progress, he cited “a complete turnaround” in Fred’s tobacco business, a significantly enhanced cosmetics business and the successful rollout of beer to about 150 stores as well as wine to about 50 stores.

Fred’s loss of $51.8 million for the most recent quarter, or $1.38 per share, compared to net loss of $38.4 million, or $1.05 per share, for the third quarter of 2016. Net sales for the third quarter were $493.6 million, down 4.5 percent from $516.6 million in the same period last year, mostly driven by the closure of 39 underperforming stores earlier in 2017.

The company’s ongoing turnaround has included an effort to reposition itself as more of a player in the health care space as opposed to primarily a retailer.

PROPERTY SALES 73 147 18,012
MORTGAGES 89 184 20,749
BUILDING PERMITS 117 258 37,094
BANKRUPTCIES 55 114 11,540