Discount retailer Fred’s Inc. FRED posted higher year-over-year sales in February. However, comparable store sales remained almost flat during the month as against a decline of 2.2% a year ago. Strong sales in the first two weeks were offset by unusual cold weather in the latter two weeks of the month.
Total sales in February increased 3% year over year, excluding the effect of the store closings, backed by strong performance of departments that deal with winter products along with health aids, hardware and toys. Including the effect of the closure of stores, total sales decreased 2% from the year-ago period to $154.1 million. Net sales were affected by the closing of 62 locations in Feb 2014 as part of its reconfiguration program.
The Pharmacy department continued to deliver strong results during the period, backed by higher scripts and sales. Ongoing expansion of pharmacy departments and growth of the specialty pharmacy division gave a boost to this category. The company opened one Xpress pharmacy location during the month.
Overall, Fred’s has been posting decent comps for the past few months and we are encouraged with the company’s reconfiguration plan. Fred’s embarked on a 3-year reconfiguration plan in 2012 to enhance its focus on higher-margin categories and move away from lower-margin consumable categories. The company is remodeling and refreshing its store layouts and allocating space to highlight the key revenue-generating categories.
Fourth-Quarter 2014 Guidance
Fred’s is scheduled to report fourth-quarter 2014 results on Mar 26. The Zacks Rank #2 (Buy) company’s total sales are expected to increase in the 4% to 6% range on a year-over-year basis. Comparable store sales are expected to remain in the range of flat to up 2% from the year-ago level.
Loss per share is forecasted in the range of 8 to 12 cents as against earnings of 11 cents in the same quarter last year. The loss per share guidance is wider than the Zacks Consensus Estimate of a loss of 2 cents.
Stocks to Consider
Some better-ranked stocks in the retail discount sector include Burlington Stores Inc. BURL, Ross Stores Inc. ROST and Target Corp. TGT. While Burlington Stores sports a Zacks Rank #1 (Strong buy), Ross Stores and Target have a Zacks Rank #2.
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