Fred’s Weighs Strategic Moves As Losses Continue

Fred’s board of directors is considering strategic transactions and alternatives for certain non-core assets including real estate and the specialty pharmacy business as the retailer’s losses continued to mount in the third quarter.

For the third quarter ended October 28, Fred’s posted a net loss of $51.8 million, or $1.38 per share, versus a net loss of $38.4 million, or $1.05 per share, in the period a year previous. In the quarter, Fred’s recorded one-time charges totaling $45 million, or 96 cents per share after tax. Fred’s adjusted loss per share was 42 cents, which exceeded a MarketBeat-published analyst average estimate that called for a loss of 13 cents per share.

Comparable store sales decreased 0.8%. Net sales were $493.6 million versus $516.6 million in the quarter a year before. Operating loss was $49.8 million versus $44.1 million in the year-prior period.

“We recognize that our EPS results are below expectations,” said Michael Bloom, Fred’s CEO. “However, the management team, working closely with the board of directors, is taking the actions necessary to ensure Fred’s achieves profitability and growth over the long-term. Our third quarter EPS and EBITDA, excluding non-operating charges, was negatively impacted by a more aggressive inventory reduction and timing of shipments for higher margin seasonal merchandise, which led to inventory levels nearly $50 million below the prior year, as well as investments in our overall pricing strategy to ensure we remain competitive. While these initiatives impacted our gross margins, our cash flow plan remains on track as we streamline our business for the benefit of the company’s long-term success.”

Bloom added that Fred’s advanced, “efforts to turn around the company, and we are encouraged by our positive front-store comp sales in both October and November. We are focused on driving traffic, reducing SG&A, generating free cash flow and lowering our debt. We are aggressively executing our turnaround strategy to accomplish these goals, and we are seeing traction in both front store and pharmacy. We have also kicked off a reduced price endcap test, which is showing promising results, and we intend to roll it out to all stores. We are not yet at the point of presenting positive quarterly comp sales and traffic improvement. However, we are improving month-by-month as our initiatives are yielding results. We recognize that there is more work to be done, but we are encouraged by the traction our initiatives are gaining.”