Fred's (FRED) Comps Fell 4.6% in July 2016; Updates on Q2 Loss Expectations

Fred's Inc. (NASDAQ: FRED) reported sales for the four-week fiscal month of July, which ended on July 30, 2016.

Fred's total sales for the month decreased 7.0% to $154.0 million from $165.6 million in July 2015. Comparable store sales for the month declined 4.6% compared with an increase of 0.7% in the year-earlier period.

Fred's total sales for the second quarter of fiscal 2016 decreased 3.4% to $527.7 million from $546.1 million for the same period last year. On a comparable store basis, second quarter sales decreased 2.0% versus an increase of 0.9% for the year-earlier period.

Fred's total sales for the first half of fiscal 2016 increased 2.1% to $1.077 billion from $1.055 billion for the same period last year. On a comparable store basis, year-to-date sales declined 0.6% versus an increase of 0.7% for the year-earlier period.

Commenting on the announcement, Jerry A. Shore, Chief Executive Officer, said "We are disappointed with the Company's performance in the month of July. Our comparable store sales trended well below plan due to four major factors:

• The timing of government assistance funds, delivered on the first day of August, shifted the spending of those funds from fiscal July last year to fiscal August this year, resulting in an estimated negative impact on comparable store sales of 1.6%.
• Our pharmacies were closed in observance of the July 4th holiday, which this year fell on a Monday (the busiest day of the week for the pharmacy department) versus a Saturday last year (the slowest day of the week for pharmacy). We estimate this had a negative impact on comparable store sales of 2.3%.
• Sales trends were worse than expected in food, beverage, paper and household chemicals as we focused promotional activities around higher-margin categories.
• Specialty pharmacy continues to be affected by the industry-wide slowdown in demand for Hepatitis C drugs.

"Based primarily on the significant gross profit impact of our sales miss for the second quarter, combined with unexpected "direct and indirect remuneration" or DIR fees assessed during the quarter, we now anticipate reporting a loss for the second quarter in the range of $0.18 to $0.24 per share," Shore continued. "We have initiatives underway that will be implemented during the third and fourth quarters of this year to address recent trends in general merchandise and pharmacy. These include new front store businesses, enhancements to our product mix, and an enhanced pharmacy marketing campaign. Also, we are making a significant investment in our specialty pharmacy sales force – new efforts that are now lifting script counts in the specialty pharmacy department, as shown by the slowing rate of decline in July compared with the previous months of the quarter. Additionally, we are reviewing our pharmacy reimbursement strategy to manage the forward magnitude of DIR fees. We will have more to say about our outlook and expectations for future performance on August 30, when we announce second quarter results and provide updated guidance for the remainder of 2016."

You May Also Be Interested In

• Spectral AI, Inc. (MDAI) Appoints Erich Spangenberg as CEO of Spectral IP, Explores Potential Spin-Off
• Genco Shipping & Trading Limited (GNK) Sends Letter to Shareholders
• Gaming and Leisure Properties (GLPI) Appoints Debra Martin Chase to Board of Directors