Fred’s Posts Loss, Awaits Decision On Rite Aid Bid

Fred’s reported a net loss in both its fourth quarter and fiscal year and continued to await the approval of Walgreens’ purchase of Rite Aid, and the retailer’s related purchase of 865 Rite Aid stores.

In the fourth quarter ended January 28, Fred’s Pharmacy recorded a net loss of approximately $22.5 million, or 60 cents per share, versus a net loss of $3.9 million, or 11 cents per share, for the 2015 period. Fred’s exceeded a 16 cents per share analyst average estimate published by MarketBeat.

During the quarter, Fred’s took extraordinary charges totaling $23.4 million, or 49 cents per share after tax, the company reported.

Net sales decreased 4.5% to $529.7 million versus the year-earlier period, while comparable store sales decreased 3.6% versus the year-prior quarter. Operating loss was $22.2 million versus a $5.1 million loss in the year-earlier period.

In the full fiscal year, Fred’s recorded a net loss of approximately $66.5 million, or $1.80 cents per share, versus a net loss of $7.4 million, or 20 cents per share, for the 2015 period. During the fiscal year, Fred’s took extraordinary charges totaling $61.8 million, or $1.28 per share after tax. Net sales decreased 1.2% to $2.13 billion versus the year earlier, while comps decreased 2.2% versus the year prior. Operating loss was $74.7 million versus a $10.4 million loss in the year-earlier period.

In December 2016, Fred’s signed an agreement with Walgreens Boots Alliance and Rite Aid to purchase 865 Rite Aid stores for $950 million in cash. The company is working with Walgreens Boots, Rite Aid and the United States Federal Trade Commission to obtain FTC approval of Walgreen Boots Alliance’s pending acquisition of Rite Aid and the divestiture of the designated Rite Aid assets to Fred’s. As negotiations proceed, Fred’s stated that it remains committed to purchasing additional assets, including up to 1,200 Rite Aid stores, if such a move is necessary to obtain the FTC’s approval of the Walgreens Boots/Rite Aid transaction.

Fred’s asserted that the proposed Rite Aid store acquisition would transform Fred’s, producing the largest regional pharmacy player in the United States and the third-largest drug store chain in the nation. The transaction will accelerate the company’s health care growth strategy, generating considerable benefits for customers, patients, payers, supplier partners, employees and shareholders, Fred’s maintained.

Michael Bloom, Fred’s CEO, said, “Over the last several months, we have started to recognize the positive impact of the initiatives we began implementing in 2016. We are now seeing bottom-line improvement driven by sequential growth in retail pharmacy adjusted script comps, sequential progress in sales trends in our specialty pharmacy business, front store margin expansion and strong holiday seasonal category sales. We are pleased to report that our comprehensive strategy and plan to improve our performance is on target. Notably, we have rolled out a series of initiatives that will continue to lay the foundation for Fred’s Pharmacy’s success. We are upgrading talent, investing in technology, diversifying our specialty pharmacy portfolio, improving the patient and customer experience, increasing supply chain efficiencies, expanding margins and optimizing assets to improve performance and cash flow.”

Bloom added, “While we are pleased with the progress we’ve made in such a short time, we encountered headwinds that contributed to particularly challenging second and third quarters. We began to reap the benefits of our strategic initiatives in the fourth quarter as evidenced by our strong sequential improvement. We expect the positive trends we experienced in the fourth quarter to continue. Looking at the organization as a whole, we expect to see continued sequential bottom-line improvement in 2017 as the initiatives underway take hold. We are keenly focused on positioning the company for long-term growth and enhancing value for our shareholders.”