Fred’s Continuing Operations Deliver Advances

Today, Fred’s, Inc. today posted financial results for the second quarter ended August 3, including net income of $3.3 million, or nine cents per diluted share, versus net income of $6.1 million, or 17 cents per diluted share, in the year-prior period. The year-earlier quarter included a benefit of approximately $4 million, or 11 cents per diluted share, due to the inclusion of favorable tax credits related to a state income tax settlement as well as adjustments for other tax-related assumptions and estimates, according to the company.

Freds earnings per share matched a Zacks analyst average estimate.

Comparable store sales for the second quarter increased 2.2%, Fred’s reported, while total sales for the period increased 2.4% to $482.2 million. According to the company, operating include grew by 54.9% to $5.2 million.

Bruce Efird, the retailer’s CEO, said in comments on the Freds financial results, “We are pleased by the company’s performance during the second quarter, which was highlighted by a strong increase in both operating income and net income, excluding last year’s tax benefits. Sales growth, customer traffic, average ticket, gross margin, and expense management were all positive factors in the quarter. We also were pleased with the progress of the first phase of our reconfiguration plan as the penetration of stores with pharmacies increased from 50% to 52%, and we experienced strong comparable sales performance in our expanded Hometown Auto & Hardware departments. Reviewing recent comments expressed by competitors in their quarterly reports and outlooks expressed by industry analysts, we anticipate that the competitive climate will be intense and the operating environment challenging in the second half of the year. Discretionary spending for lower income consumers, a key customer segment for Fred’s, is expected to remain under pressure. The programs we put in place earlier this year, combined with our pharmacy expansion and the aggressive general merchandising initiatives we have planned in the back half of the year, are designed to meet these economic and competitive challenges.”

During the second quarter, Fred’s opened two new stores and one new Xpress location and closed 21 units. Fred’s operates 697 discount general merchandise stores including 21 franchised units in the southeastern United States.