Fred's announces new chairman alongside Q4, 2015 results
Fred’s on Wednesday reported its Q4 and FY2015 earnings, as well as the news that board chairman Michael Hayes would be stepping down, to be replaced with longtime director Thomas Tashjian.
The company’s quarterly earnings hit $554.5 million a 10% increase over the same period last year. This increase grows to 14% when sales from stores that largely closed in Q4 2014 are discounted. Comparable store sales grew by 1.7%, and net loss for the quarter was $3.9 million, compared to an $8.2 million loss in the same period last year — a difference Fred’s attributed to the cost of store closures and provisions for inventory reserves. Gross profit for the quarter increased 7% to $132.9 million, and its adjusted diluted earnings per share — $0.02 — reflected a 250% increase over Q4 2014. Gross margin dropped from 27% in Q4 2014 to 25% this year, which the company attributes to growth among specialty pharmacy, which is a low-margin category.
“We were very pleased with the total sales increase, which was driven by the growth in specialty pharmacy, the success of our holiday seasonal programs, and the expanded product assortments throughout our stores,” Fred’s CEO Jerry Shore said. “With improved supply chain efficiency, merchandise was in the stores earlier to ensure that our customers knew that Fred's was in the holiday business in 2015. An enhanced merchandising plan was communicated to the stores, which improved our operators' ability to execute. All of this was supported by a stronger marketing effort.”
From a full-year perspective, Fred’s $2.15 billion total sales reflected a 9% increase over the entirety of FY2014, a number that grows to 13% over last year when excluding $71.7 million in sales from stores that were closed in 2015. Comps increased 1.5% for the full year — compared to a loss of 0.6% in FY2014 — and gross profit grew to $551.6 million, an increase of 3% over last year.
The company’s net loss for the year hit $7.4 million — considerably lower than its$28.9 million loss last fiscal year. The company’s adjusted expenses for Q4 were down to 24.3 from 27.1 in the previous quarter, which Fred’s attributes to better cost management in terms of labor expenses, occupancy costs and specialty pharmacy operations. Earnings before interest, taxes, depreciation and amortization increased 46% over FY14, growing to $53.2 million.
“As we look forward to 2016, we project that adjusted EBITDA will grow in the range of 35% to 45% on top of the 46% growth that occurred in 2015,” Shore said. “This will be accomplished through continued strong sales growth, ongoing and increased traction from the many improvements made last year. There will also be new investments and initiatives in the business to further modernize the foundation of the Company - all combining to drive financial performance in 2016 and beyond.”
Also moving into 2016, the company will have a new board chairman, as Michael Hayes is set to step down on April 15, to become chairman emeritus and be replaced by Thomas Tashjian, who has been a director since 2001. Under Hayes, who stepped down as CEO in 2008 to become chairman, the company grew from 144 stores in eight states to 659 in 15 states at the end of 2015, and the number of full-service pharmacies grew from 45 to 373.
“Because of the tireless work of Jerry Shore and the board of directors, we now have in place a successful, experienced and energetic management team, focused on driving deeper into healthcare, and also stronger general merchandising departments,” Hayes said. “What is now needed is an energetic chairman that has both the vision and skill set to keep this momentum going, and I believe Tom Tashjian is the right person to do this, and now is the right time. I want to thank Fred's employees, the board of directors, and our shareholders for allowing me to serve them for the past 24 years.”
Tashjian is a private investor with a background at several investment banking companies. He has also had experience at Ayr-Way Stores, which was acquired by Target.
"As a director for the past 15 years, I have developed a deep appreciation for Mike's ability to invent, innovate and inspire, and for the tenacity with which he has pursued his vision for a stronger company,” Tashjian said. “We are grateful to Mike for his energy and passion, which became contagious and engulfed us all, and for his dedication in building a capable and talented management team to lead Fred's on the continuation of its promising journey.”