Fred's (FRED) June Comps Fall 1.6%; No Longer Expect Sequential Improvement

Fred’s, Inc. (NASDAQ: FRED) today reported sales for the five-week fiscal month of June, which ended on July 1, 2017.

Fred’s total sales for the month decreased 5.3% year-over-year to $197.5 million from $208.5 million in June 2016. The decrease in sales is related to the closure of 39 underperforming stores in the first quarter and continued pressure in the Front Store business. Total comparable store sales for the month decreased 1.6% compared with a 1.3% decrease in comparable sales in the prior year period. Comparable store sales for June included a negative 0.9% impact as a result of the sale of low productive discontinued inventory.

Commenting on the announcement, Michael K. Bloom, Chief Executive Officer, said, “Fred’s Pharmacy remains focused on executing the Company’s healthcare transformation. While overall comparable store sales in June were lower than we had anticipated, the results in our Retail and Specialty Pharmacy businesses continue to be favorable, with combined pharmacy comparable sales increasing 3.5%. In Retail Pharmacy, we continue to see a positive shift to generic, while we consistently experience strong sales and script growth in the Specialty Pharmacy business. Front Store sales continue to face headwinds in consumables categories, and cooler than average temperatures impacted summer seasonal sales. However, we are encouraged by our early results in the recent introduction of beer and wine in select stores. We also continue to see the benefits of the initiatives we began to roll out last year, including upgrading talent, investing in technology and remodeled stores and diversifying our specialty pharmacy portfolio, to name a few.”

Mr. Bloom continued, “Our lower than anticipated June sales and the headwinds we are facing will impact our second quarter results, and we no longer expect sequential improvement from the first quarter. However, we still expect to achieve operational profitability in the fourth quarter of 2017. We remain committed to enhancing long-term shareholder value and will continue to execute on our strategy, including growing scripts and optimizing our supply chain and store fleet, to drive revenue growth, enhance gross margins, reduce operating expense and increase free cash flow.”

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