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Fred's focused on boosting pharmacy profits


Fred's Super Dollar says it has contacted a consulting firm to help it improve profitability after the retailer remained unprofitable for its fifth consecutive quarter.

Fred's reported total sales of $546.1 million for the second quarter ended Aug. 1, up 11%.Same store sales for the quarter increased 0.9% compared with a decline of 0.1% in the second quarter last year.

Fred's net loss totaled $4.9 million or ($0.13) per share. This compares with a net loss of $16.4 million or ($0.45) per share for the second quarter ended Aug. 2, 2014.

"As we have noted over the past several months, developing headwinds in the pharmacy industry have adversely affected our retail pharmacy department and, by extension, our second quarter results," stated Jerry Shore, Fred's CEO. "The industry-wide issues include continued pressure on reimbursement rates, increasing regulation of controlled substances, which proportionately affects our southeast region more than other parts of the country, and a greater uninsured population due to lower-than-average participation in available health insurance alternatives," he said.

"Unfortunately, these pressures obscure the improvements we have seen in the front-end of the store, along with the progress we have seen in growing our specialty pharmacy business, as our recent EntrustRx acquisition continues to track ahead of expectations."

Fred's has contracted with A.T. Kearney to work with its pharmacy department on strengthening profitability.

"These initiatives include rolling out new pharmacy marketing programs to drive new customers and reducing cost-to-fill through a targeted labor optimization model and an aggressive expense control program," Shore said. "At the same time, our team is evaluating which of the avenues for growth will deliver the best return on investment for 2016, including store relocations, store upgrades, new locations, along with continued growth in retail and specialty pharmacy," Shore added. "The converging benefits from all of these changes are expected to restore profitability in the back half of 2015 and build a strong adjusted EBITDA run rate moving into next year."

Fred's total sales for the first six months of fiscal 2015 increased 7% to $1.1 billion. On a comparable store basis, year-to-date sales increased 0.7% versus a decline of 1% for the year-earlier period. For the first six months of 2015, Fred's net loss totaled $4.9 million or ($0.13) per share compared with a net loss of $10.3 million or ($0.28) per share in the year-earlier period.

Through the first half of fiscal 2015, Fred's Super Dollar added a net two Xpress pharmacy locations. Fred's also acquired two specialty pharmacy-only locations.
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