Fred's sails past pharmacy headwinds

David Salazar

11/24/2015

Fred’s hit the midpoint of its expected earnings per share in Q3, the company reported Tuesday, the result of a quarter thatsaw a 14% sales increasethat it more or less expects to see again in Q4, projecting growth between 13% and 15%.

The company’s adjusted earnings exclude non-operational expenses such as claims assessed for a data breach and charges related to earlier quarters.

“We are pleased with our third quarter financial results as we achieved adjusted earnings per share in the midrange of our projections,” Fred’s CEO Jerry Shore said. “Despite a sales-mix shift and continued headwinds in the pharmacy department, we realized a 40-basis-point company-wide increase in gross margin as progress with our initiatives in our general merchandise departments led this improvement.”

Fred’s had a net income of $1.4 million in Q3, which is a large improvement over its $10.4 million net loss in Q3 last year. Adjusted income hit 3.8 million, compared to an adjusted net loss of $6.2 million in 2014. In the first nine months of 2015, the company has seen a $3.5 million net loss — a number that was at $20.8 million for the first nine months of last 2014. Adjusted, the net loss for the first nine months of the year was $1.9 million, which is down from the $7.2 million adjusted net loss in the same period in 2014.

Gross profits for the quarter were up 15% at $142.3 million, over $123.5 million in the same period last year. In the first nine months of the year, gross profits rose 8% to 411.3 million over the same time last year. The adjusted gross profit was $397.1 million, with gross margin being deleveraged 130 basis points, largely the result of specialty pharmacy growth.

Fred’s operating income was $2.4 million ($5.8 million adjusted), an improvement over last year’s third quarter loss of $16.6 million ($9.8 million adjusted). Operating loss for the first nine months of the year was at $5.3 million ($2.5 million adjusted_, compared with last year’s loss of $32.7 million ($11.1 million adjusted) in the same period last year. EBITDA for the first nine months of 2015 was $33.8 million.

The company closed two Xpress pharmacy locations and acquired two specialty pharmacy-only locations in the third quarter.

Fred’s expects comps to rise 1% to 3% in the fourth quarter, with an expected EBITDA of $22 million to $26 million.

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