Fred’s Inc. (FRED) reported a 1.3% year-over-year decline in comparable-store sales (comps) in Oct 2014. It compared unfavorably with 0.9% increase in the year-ago period due to weak retail environment and low consumer spending. During the month, Fred’s opened three Xpress locations and shifted one Xpress location into an existing full-service store.
Total sales for the month went up only 1.3% to $145.3 million. Sales failed to meet management’s expectations of a growth range of 3% to 5% as general merchandise sales and traffic were adversely affected by the warmer weather. Lower traffic at the company stores also led to a decline in net sales during the quarter.
As of Nov 1, 2014, Fred’s operates 703 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.
For the third quarter ended Nov 1, 2014, Fred’s’ comps increased 0.3%, significantly lower than a 1.4% rise in the year-ago period. Total sales for the third quarter were $476.1 million, up 3.4% from the year-ago period.
Amid declining comp sales trend due to macro-economic headwinds, the company has been able to deliver positive sales in its pharmacy department. In the month of October too, Fred’s' pharmacy department performed well with higher year-over-year comps and sales.
Last month, Fred’s inked a multi-year supply agreement with one of the largest healthcare service companies, Cardinal Health Inc. (CAH). The supply agreement is in line with the company’s ongoing strategy of rapid growth in the pharmacy department at retail locations, specialty pharmacies and clinical services.
Per the deal, Cardinal Health will be the primary supplier of all branded and generic drugs to all of Fred’s’ in-store pharmacies and EIRIS health services after its current agreement expires in fiscal 2015. Management expects the deal to accelerate gross margin improvement in the pharmacy department.
Fred’s currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks to consider in the apparel industry include Ross Stores (ROST) and Dollar Tree Inc. (DLTR). Both the stocks have a Zacks Rank #2 (Buy). Another stock in the consumer staples sector worth considering includes Keurig Green Mountain Roasters inc. (GMCR) which carries a Zacks Rank #2 (Buy).
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