Fred's CEO ‘pleased’ with Q1 results

MEMPHIS, Tenn. — Despite a dip in comparable store sales for the first quarter ended May 4, Fred’s topped the high end of its earnings guidance for the period.

The company reported net income of $11.4 million for the first quarter ended May 4, and increase of 9% from $10.5 million in the first quarter ended April 28, 2012. Fred's total sales for the first quarter were $502 million, a 0.2% from $501 million for the same period last year. Comparable store sales for the quarter, however, declined 1.3% versus a decrease of 0.4% for the first quarter last year.

"We are very pleased with our first quarter results,” said CEO Bruce A. Efird. “These improvements reflected the immediate impact of our recently launched reconfiguration plan, as we outperformed in gross margin results and expense management. Given the unusual weather conditions that affected top-line growth during the quarter, our team's ability to control expenses was one of the primary reasons we were at the high end of expectations.”

The company plans to implement the initiatives of its reconfiguration plan targeting pharmacy department growth, expanding its specialty drug program and rolling out its expanded auto and hardware program.

“We are guardedly optimistic about the second quarter and expect that earnings from operations for the quarter will improve in the range of approximately 25% to 75% compared with the same period last year,” added Efird.

Fred's gross profit for the quarter was $151 million, an increase of 2% from $148 million in the prior-year period. Gross margin for the quarter increased to 30% compared with 29.5% in the same quarter last year. The margin improvement is primarily attributed to the pharmacy department effect of the brand to generic mix shift.

During the first quarter, Fred's opened one full-service store and three Xpress pharmacy locations, which were offset by the closure of one full-service store. Currently, Fred's operates 715 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.