Fred’s Inc. FRED has been reporting higher comparable-store sales (comps) for quite a while now owing to the initiatives taken by the company to boost sales and the recent growth in the specialty pharmacy department.
On Jan 7, Fred’s reported a 2.4% year-over-year rise in its comps for Dec 2015. This compared favorably to a decline of 1.4% observed for the same metric in Dec 2014. The upside was backed by strong growth in specialty pharmacy, along with higher general merchandise sales.
The company witnessed strong general merchandise department sales during the month, with solid response in holiday gift-giving categories. Positive sales mix across all categories also aided sales growth. However, comparable sales for the retail pharmacy department were negatively affected in December due to a very low incidence of cold and flu activity, which reduced December overall comparable store sales by approximately 125 basis points.
Total sales for the month went up 10% to $231.9 million on the back of merchandising programs designed for the holiday season and the recent growth in the specialty pharmacy department. Excluding the sales of 47 stores closed last year, sales climbed 14% during the month.
We note that in August, Fred’s started a new marketing plan, including in-store marketing initiatives, focusing particularly on diverse product mix and an aggressive advertisement program. This also helped in boosting sales.
As of Jan 2, 2016, Fred's operates 659 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in southeastern United States.
Fred's total sales for the first 11 months of 2015 were up 9% year over year to $1.994 billion. Comps gained 1.5% compared to a decline of 1% in the same period a year ago.
Fred's currently carries a Zacks Rank #3 (Hold).
The company seems to be recovering after sluggish comps and intense competition in the discount retailing sector affected its results in the past. Sales and profitability initiatives are yielding results and third quarter comps have improved. However, we are concerned about its declining margins.
Stocks to Consider
A better-ranked stock in the same space is Ross Stores Inc. ROST carrying a Zacks Rank #2 (Buy). In the broader retail sector, investors may consider The Kroger Co. KR and Wal-Mart Stores, Inc. WMT, also carrying a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment