Zacks Investment Research downgraded shares of Fred's Inc. (FRED) from NEUTRAL to UNDERPERFORM on April 26, 2013, with a target price of $13.00.
We are downgrading our recommendation on Fred's Inc. from Neutral to Underperform following soft results delivered by the company in the fourth quarter of fiscal 2012. Fred's fourth-quarter earnings of $0.18 per share missed the year-ago earnings as well as the Zacks Consensus Estimate by 30.7% and 5.27% respectively. Furthermore, they could not meet the company's earnings guidance of $0.31 to $0.36 per share. Earnings were below expectation due to higher selling, general and administrative expenses and diminishing operating income. Moreover, Fred's has been reporting negative same store sales for several consecutive months. Management's over-dependence on pharmacy as a measure to turn around its business is also a matter of concern. Lack of international exposure also makes the company vulnerable to the ongoing macroeconomic headwinds in the U.S.
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