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Fred’s Suffers Rough Q4, Prepares To Exit Some Home Segments

For the 13-week fourth quarter ended February 1, Fred’s, Inc. posted net income of $4 million, or 11 cents per diluted share, which includes an impact of six cents per share related to a LIFO inventory adjustment and a year-end inventory reserve for general merchandise categories that the company will exit, as they do not fit with long-term strategic plans. In a conference call, Fred’s CFO Jerry Shore said the company planned to stop carrying footwear, televisions and home theater, and select home furnishings products.

Financial analysts polled by Thomson Reuter’s estimated that Fred’s would return earnings of 15 cents per diluted share in the quarter.

In the conference call, CEO Bruce Efird said exiting the categories would allow Fred’s to better align product assortments with Pharmacy, in stores with the department, and to expand automotive and hardware selections.

Fred’s total sales for the 13-week fiscal 2013 fourth quarter were $495.1 million versus $533.4 million for the 14-week fourth period last year, according to the company. On the adjusted basis, fourth quarter total sales increased 0.5% year over year while comparable store sales increased 0.1%.

For the fiscal year, Fred’s net income totaled $26 million, or 71 cents per diluted share, versus $29.6 million, or 81 cents per diluted share, in fiscal 2012. Last year’s results included tax-related benefit of approximately $4.2 million, or 12 cents per diluted share, as well as operations in the 53rd week. Excluding the one-time items, Fred’s earnings per diluted share for fiscal 2013 increased 8% from an adjusted 66 cents per diluted share in the year earlier, it stated.

Fred’s reported total sales of $1.94 billion for 52-week fiscal 2013 versus $1.96 billion for 53-week fiscal 2012. On an adjusted basis, total sales gained 1.4% in fiscal year 2013 while comps increased 0.6% versus fiscal 2012.

Efird, in announcing the financial results, said, “Our company’s performance in the fourth quarter reflected all the difficulties that have been cited throughout the retail sector recently as we dealt with the unusually harsh weather of the past several months and a significant 24% increase in the cost of generic drugs, which reduced gross margin by 100 basis points in our Pharmacy department. Operationally, we achieved earnings of 17 cents per share for the quarter. Despite the impact of the sales miss for the quarter, we experienced continued momentum in the performance of our reconfiguration departments with Hometown Auto & Hardware achieving a comparable store sales increase of 1.5% for the quarter. Pharmacy department sales, relative to total sales, increased to 38.6% from 36.2% last year. Additionally, we were able to leverage selling, general and administrative expenses by 40 basis points in the fourth quarter, despite the sales loss.”