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Fred’s Weak December Prompts Executive, Strategic Rethink

For the five-week fiscal month of December, Fred’s Inc. announced a comparable store sales gain of 1.4%. At that same time, it reported a shake up in management and a review that could, potentially, result in the sale of the company.

December sales of $209.5 million fell just short of the $209.9 million reported in last year’s month.

In comments on the announcement, Bruce Efird, Fred’s CEO, said, “While December sales were in the range of our expectations, they were driven primarily by the strong performance of our Pharmacy department, as the discretionary departments in general merchandising fell short of plan. The positive impact from our reconfiguration plan continued in December, driven mainly by our Hometown Auto & Hardware department.

“However, in spite of the success of our reconfiguration program, Fred’s 2013 fourth quarter promotional strategy, which was centered on Black Friday, did not produce the incremental gains we expected. As a result, we now expect fourth quarter earnings per share to be flat to up modestly compared with the comparable 13-week period last year. To address the challenges and opportunities coming out of the fourth quarter, the merchandising and marketing team has been revamped and now will report directly to me. We have developed new pricing, marketing, inventory management and profit strategies that are designed to drive greater profitability throughout the year, with a key goal of re-energizing fourth quarter results in 2014. At the same time, we will continue to implement the successful elements of our reconfiguration plan, adding 150 to 200 conversions in 2014 and aggressively continuing our pharmacy expansion, which will reach 60% penetration of total stores by year end 2014.”

To allow Efird more time to focus on improving general merchandising performance, Fred’s stated that it is promoting Jerry Shore to the position of COO. He will with continue his responsibilities as CFO at the same time.

Additionally, Fred’s related that its board had retained BofA Merrill Lynch and Peter J. Solomon Co. to review strategic opportunities to enhance shareholder value.

In December, Fred’s opened two stores with pharmacies and added two Xpress pharmacy locations. Fred’s operates 701 discount general merchandise stores, including 21 franchised Fred’s stores, in the southeastern United States.