Fred’s swings to Q3 loss; hints at 'pending transaction'

Fred’s acknowledged it had a tough fiscal third quarter, but the company is making many changes and looking forward to a brighter future.



The first action Fred’s will take will be closing 40 underperforming stores in the first half of 2017, which provides an immediate benefit to earnings of more $4 million.



“We used a new, data-driven and sophisticated process to assess store performance, and more accurately forecast how this will change in the future,” said CEO Mike Bloom. “We have taken a similar approach to optimize our inventory. Based on a very deep and unprecedented view of what we need to grow, we will be eliminating and writing off inventory associated with both the store closings, and unproductive inventory throughout the enterprise.”



The retailer reported a net loss of $38.4 million for the quarter ended Oct. 29, compared to $1.4 million in net income in the year-ago period. On a per-share basis, it lost $1.05 per share. The loss adjusted for non-recurring costs, was 27 cents per share.



Fred’s revenue decreased 4.5% to $516.6 million in the period. Same-store sales fell 3.8%.



“The weakness that we saw in the second quarter continued into the third quarter, including soft sales in both pharmacy and the front store, as well as reduced margins in pharmacy,” said Bloom. As the new CEO, I am 100% focused on reversing the negative trends that the company has experienced. I have been working diligently with the new leadership team to develop a strategic roadmap that we previewed on the last earnings call, to optimize, focus, and grow with discipline.”



Moving forward, Bloom set forth a game plan for growth at Fred’s for the next three to five years.



"The strategic plan that the leadership team developed includes four major levers, retail pharmacy expansion, specialty pharmacy, getting back to growth in front store, and acquisitions and partnerships,” Bloom stated during the company’s Q3 earnings call. “We see great growth potential for our retail pharmacy through a variety of initiatives: improvement in payer relationships, expansion of revenue-generating healthcare services offered through the pharmacy, a significant investment in pharmacy marketing focused on driving customer retention, and acquisition resulting in script growth, and an increase participation in 340B programs.”



On the specialty side, Fred’s plans to build on its momentum to diversify its specialty pharmacy portfolio, initially targeting oncology, rheumatoid arthritis and HIV.



Citing a “pending transaction,” Bloom did not take Wall Street analyst calls following his prepared remarks in the earnings call.



In his stated remarks with the third quarter report, Bloom noted that "acquisition and partnership activity will play an integral role to accelerate our growth strategy."