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VOL. 132 | NO. 113 | Wednesday, June 7, 2017

Fred’s Reports Q1 Loss, Says Changes are Working

By Andy Meek

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Fred’s reported a first-quarter net loss Tuesday, June 6, but company executives said fundamentals at the drugstore chain are nevertheless improving. (Daily News File/Andrew J. Breig)

During many of its recent quarterly earnings presentations, Memphis-based discount retailer and drugstore company Fred’s Inc. essentially had to ask analysts and investors to be patient – to stick with the company through a turnaround in which the only good news to report seemed to be the kind that was coming but not here yet.

The company’s presentation of its fiscal first-quarter results Tuesday, June 6, was a bit different.

Fred’s reported a net loss for the quarter ended April 29. But with developments that included record sales in its specialty pharmacy category, strong growth from a test batch of remodeled stores and an assortment of other improvements, the message from Fred’s CEO Mike Bloom was essentially: We did what we said we’d do, and it’s working.

“We expect all the initiatives underway to result in continued improvement in our financial performance, and we expect to be profitable on an operational basis by the end of fiscal 2017,” Bloom said, adding that the company’s turnaround has resulted in two straight quarters of improvement in performance.

On the call with analysts, he walked through a plan the company said it would carry out in December that included closing underperforming stores, writing off discontinued merchandise, improving supply chain efficiency with such tweaks as optimizing routes and more.

The turnaround, to be sure, is still not complete. The numbers bear that out. For the quarter, Fred’s posted a net loss of $36.5 million, compared with net income of $1.3 million during first quarter 2016.

The company pointed to several temporary charges driving that loss, such as $13.5 million for expenses related to the closing of 39 underperforming stores.

Bloom, meanwhile, said both Fred’s retail and specialty pharmacy businesses are rapidly improving. The company’s effort to remodel stores, which it’s accelerating in the second half of 2017, is also helping drive sales, he said.

He added that the comparable sales of 44 stores that were remodeled in 2016 in line with Fred’s new prototype design are performing about 4 percent better than the chain average through April. The company also is rolling out beer and wine to 70 stores in the second half of 2017.

“Our job is never done,” Bloom continued. “But we do see 2017 as a year when our financial results will catch up to our operational successes. We are on track with our 2017 plan and doing exactly what we said we would do to optimize the Fred’s pharmacy business model and enhance value for our shareholders.”

Net sales for the first quarter were $532.3 million, down 3.1 percent from $549.5 million in the year-ago quarter. Comparable store sales for the first quarter also declined 1.2 percent versus an increase of 1 percent in the first quarter last year.

The company didn’t have much more to say about its pending deal to buy as many as 1,200 Rite Aid stores in tandem with the announced merger of Walgreens Boots Alliance and Rite Aid. The Federal Trade Commission is continuing to review that deal, which, if approved, would make Fred’s the third-largest drugstore chain.

Bloom told analysts his company is continuing to work “collaboratively with Walgreens, Rite Aid and the FTC” to win approval for Fred’s acquisition of the Rite Aid stores.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 0 19 170
BUILDING PERMITS 28 305 3,056
BANKRUPTCIES 25 98 716
BUSINESS LICENSES 4 26 302
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0