Fred’s Comps Decline In Q2

Following the recent appointment of Michael Bloom as the retailer’s new CEO, Fred’s reported sales and income declines in its second quarter.

For the second quarter ended July 30, Fred’s reported a net loss of $6.9 million, or 18 cents per share, versus a net loss of $4.9 million, or 13 cents per share, for the second quarter of last year.

Fred’s earnings performance, though declining, still was better than an analyst average estimate published by MarketBeat, which anticipated a loss of 21 cents per share.

Comparable store sales for the quarter decreased 2% while total sales declined 3% compared with last year’s period to $529.5 million. Operating loss was $10.9 million versus $7.8 million in the year-earlier quarter.

Newly appointed Fred’s CEO, Michael Bloom, said, “Looking at the quarter, we are disappointed with the company’s performance, as comparable store sales were down in front store, retail pharmacy and specialty pharmacy. The deleveraging impact of lower-than-plan sales, combined with a decline in gross margin rate for the pharmacy division, driven by generic deflation, reimbursement pressures and unexpected direct and indirect remuneration fees, accounted for the quarter’s net loss. While we did see progress on initiatives in the front store delivering improved gross margins and operating profit, the headwinds in pharmacy and competitive pressures in the front store were deeper than anticipated. There are some new initiatives that we will be launching in the back half of 2016 that will help set the stage to combat these headwinds. We remain confident that the ongoing plan will result in improved company performance over the long term.”

In terms of trends, Bloom said, “Retail sales in the front store and pharmacy departments were pressured less in August than in July, but still experienced unfavorable sales trends in categories such as food, beverage, paper and household chemicals. Specialty pharmacy comparable sales continued to be affected by the industry-wide slowdown in demand for specialty Hepatitis C drugs and the lag of onboarding new salespeople.”

Fred’s operates 651 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern United States.