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Despite Lower Comps, Fred’s Drives Q1 Earnings

For the first quarter ended May 4, Fred’s, Inc. announced that net income increased 9.1% to $11.4 million while earnings per diluted share increased 10.7% to 31 cents from 28 cents for the same period last year. Comparable store sales for the quarter declined 1.3%.

A published Thomson Reuters consensus analyst estimate called for earnings per share of 27 cents for the quarter.

Fred’s total sales for the first quarter increased 0.2% to $501.5 million versus last year’s period, according to the company. Operating income gained 4% to $17.8 million, it reported.

Home product sales in the quarter were strong as were those in the hardware, automotive, pet, electronics and tobacco segments as part of a general merchandise performance that turned in an almost 1% positive comp, the company related in a conference call.

In comments on the company’s financial results, CEO Bruce Efird said, “We are very pleased with our first quarter results, which topped the high end of our earnings guidance for the period. These improvements reflected the immediate impact of our recently launched reconfiguration plan, as we outperformed in gross margin results and expense management. Given the unusual weather conditions that affected top-line growth during the quarter, our team’s ability to control expenses was one of the primary reasons we were at the high end of expectations. As we outlined in our recent year-end conference call, the team has set an aggressive plan for 2013. This includes implementing the initiatives of our reconfiguration plan targeting pharmacy department growth, expanding our specialty drug program, and rolling out our expanded auto and hardware program. We also will continue to update and refine our new prototypes, and launch the test of the destination stores.”

Fred’s, Inc. operates 715 discount general merchandise stores in the southeastern United States including 21 franchised units.