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Fred’s Q2 Advances Buoyed By One-Time Benefit

For its second fiscal quarter ended July 28, Fred’s, Inc. said net income increased to $6.1 million compared with net income of $5.1 million in the year-earlier period. Earnings per diluted share were 17 cents versus 13 cents in the year-earlier period.

Second quarter 2012 net income reflected the impact of $4 million, or 11 cents per diluted share, related to a state income tax settlement, as well as adjustments to other tax-related assumptions and estimates, the company stated.

Fred’s second quarter total sales increased 4% to $470.8 million. Comparable store sales slipped 1% compared with a decline of 0.4% in the second quarter last year.

Bruce Efird, CEO, said in commenting about results, “The company’s positive performance in the second quarter reflected several unusual items. The 31% increase in earnings for the quarter included the positive impact of a complex state income tax settlement that added 11 cents to earnings per diluted share, clearly a benefit to the company and its shareholders, but this benefit was reduced significantly by one-time adjustments related to the accelerated closing of 14 stores and added promotional markdowns for product transitioning. Results in our pharmacy department were strong as we achieved comparable prescription growth, gross margin improvement, and new acquisition growth. Several merchandising initiatives that we have rolled out this year also did well in the quarter, including those for bedding, bath, housewares and financial services. Additionally, we continued to see excellent start-up performance in our newly opened stores.”

Efird added, taking stock of the year’s conclusion, “As we look ahead to the second half of the year, we expect that the macroeconomic environment in our region of the country will continue to lag the national numbers and anticipate an intensely competitive retail environment during the third and fourth quarters. Expecting little benefit from the economic environment, we have accelerated several major merchandising initiatives, increased our marketing spend for the third and fourth quarter print and electronic media, and have increased the pace of pharmacy acquisitions, all directed at adding and rebuilding customer traffic. At the same time, we are continuing our real estate expansion with approximately 20 new store and pharmacy openings set for the back half of the year. We remain confident in our forecast that earnings will increase 10% to 20% for the full year as we continue to build a stronger foundation for Fred’s in 2012 and beyond.”