Same-store sales at Fred’s Inc. (FRED) inched up 0.7% in the five-week period ended July 2, 2011, compared with an increase of 1.7% posted in the year-ago period.
June’s comparable store sales met management’s expectations and reflected the volatility to customers' purchase pattern as well as decline in customer sentiment. Total retail sales in June 2011 inched up slightly to $179.0 million from $178.9 million in the year ago period.
Although the month displayed solid sales result at the beginning, sales in the month under review kept dwindling. This drop came on the back of a decline in customer traffic and pronounced paycheck cycle, reflecting a challenging economy that generally follows a recession.
Retail sales of fiscal 2011 stood at $807.0 million, which was 2.0% higher than $792.1 million from the year ago period. Same-store sales for the period edged up 0.6% compared to 2.3% in the previous year. Sales as on July 1 were the highest single-day amount for the year.
Walgreen Co. (WAG), an arch rival of Fred’s, posted March same-store sales increase of 2% while net sales increased 6.8% to $6.04 billion from $5.65 billion in the year-ago period.
Store Update
As of July 2, 2011, Fred's Inc. had 673 Discount General Merchandise stores, including 22 franchised Fred's stores, in the south eastern United States
Fred's, Inc. runs Discount General Merchandise stores in a number of states in the southeastern United States. Fred's stores generally serve low, middle and fixed income families located in small to medium sized towns. The majority of the company's stores have full service pharmacies. The company also markets goods and services to franchised Fred's stores.
Guidance
In the last earnings release management said that it expects diluted earnings per share, to be in the range of 24 cents to 26 cents for the first quarter of fiscal year 2011, an increase of 14% – 24% over 21 cents last year.
Fred’s expects total earnings per diluted share for 2011 to be in the range of 84 cents to 90 cents, representing an increase of 12% to 20% over last year. The Zacks Consensus Estimate is currently pegged at 16 cents with full-year estimate of $1.02.
The Company expects to open 20 to 25 stores and 10 to 15 pharmacies during 2011 and anticipates closing down a total of approximately 10 stores and five pharmacies.
Conclusion
Fred's announced a store restructuring program with an aim to drive traffic towards Pharmacy, Pet products, Celebration, Paper and Chemical, and Home products departments. However, the company’s top line growth has been negatively impacted by continued macroeconomic headwinds, which have adversely affected disposable incomes forcing customers to cut back on discretionary spending.
Fred’s holds a Zacks #3 Rank, which translates into a short-term Hold rating. Currently, we maintain a long-term Neutral recommendation on the stock.
FREDS INC (FRED): Free Stock Analysis Report
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