Fred’s Inc. FRED made a soft start to the second quarter of fiscal 2016 with comps demonstrating a year-over-year decrease in May 2016. Fred’s also reported decline in sales figures for the four-week period ended on May 28
During the period, Fred’s comps declined 0.4% compared to an increase of 0.3% recorded a year ago. Total sales slipped 1% to $164.8 million from $167.2 million reported in May 2015.
Sales in May 2016 were within management’s expectations, as was announced during the first-quarter fiscal 2016 earnings conference on May 26.
During the conference call, Fred’s announced that it expects comparable store sales in May to range from slightly negative to flat. Sales have been likely impacted by the shift in Memorial Day this year.
For the first four months of fiscal 2016, Fred’s sales increased 6% year over year to $714.4 million. Year-to-date comps increased 0.7% compared to an increase of 0.6% in May 2015.
For the second quarter, comparable store sales are expected to remain flat or increase up to 2%. Total sales are projected to range from flat to an increase of 2%. Earnings per share are projected in the range of flat to 3 cents compared with the nearly flat results in the prior-year quarter.
Retail pharmacy comps and script counts increased in May backed by the company’s marketing efforts. Higher margin categories experienced strong growth as well.
During May, Fred’s closed six store locations. As of May 28, 2016, Fred's operated 654 discount general merchandise stores, including 18 franchised locations and three specialty pharmacy-only locations across 15 states in southeastern U.S. There are 373 full service pharmacy departments located within Fred's stores, including four franchised locations.
For Jun 2016, Fred’s expects to see higher sales in general merchandise departments that are likely to be boosted by warm weather.
This Zacks Rank #3 (Hold) stock is making a comeback with sales and profit initiatives reaping significant benefits. However, we are concerned about the decline in margins.
Stocks to Consider
Some better-ranked stocks in the broader retail wholesale sector are Wal-Mart Stores Inc. WMT, The Kroger Company KR and Chuy’s Holdings Inc. CHUY, all carrying a Zacks Rank #2 (Buy).
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