Market Overview

Fred's January Total Sales Increase 12%

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MEMPHIS, Tenn.--(BUSINESS WIRE)--

Fred's Inc. (NASDAQ: FRED) today reported sales for the four-week fiscal month of January, fourth quarter and year ended January 30, 2016.

Fred's total sales for the month increased 12% to $155.7 million from $139.6 million in January 2015. Comparable store sales for the month rose 0.7% on top of an increase of 4.3% in the year-earlier period.

Fred's total sales for the fourth quarter of 2015 increased 10% to $553.8 million from $504.4 million for the same period last year. Excluding sales of $16.0 million from stores closed in the fourth quarter of 2014, total sales increased 13% for the fourth quarter of 2015. On a comparable store basis, fourth quarter sales increased 1.7% versus flat comparable store sales in the fourth quarter of last year.

Fred's total sales for fiscal 2015 increased 9% to $2.150 billion from $1.970 billion for fiscal 2014. Excluding sales of $71.7 million from stores closed mainly in late 2014, total sales increased 13% for fiscal 2015. On a comparable store basis, fiscal 2015 sales increased 1.5% versus a decrease of 0.6% for fiscal 2014.

Commenting on the announcement, Jerry A. Shore, Chief Executive Officer, said, "Growth in total sales for January primarily reflected the continued strength of our expanded specialty pharmacy operations, and comparable store sales were largely in line with expectations, which incorporated no 'first of the month' benefit in this final fiscal month of the year. Meanwhile, retail pharmacy sales lagged plan; the ongoing impact of a very low incidence of cold and flu activity reduced January's overall comparable store sales by approximately 150 basis points. Flu activity in Fred's primary states was less than half the pace of last year.

"Fred's fourth quarter comparable sales gain of 1.7% marked a solid start for the initiatives we launched to drive sales," Shore added. "These efforts helped us establish solid momentum in 2015 across most lines of our business, and we believe we have now laid a strong foundation to build on that momentum. At the same time, we have seen the positive effects of changes made in our operating structure, including a reduction in total expenses and significantly improved operating leverage as a percent of sales. Still, we do not believe this progress will offset the ongoing headwinds we have experienced in our pharmacy department with an unexpectedly sharp decline in cold and flu scripts and sales, resulting in deeper gross margin pressure on the quarter. Accordingly, we now expect adjusted earnings per share to be in the range of $0.07 to $0.12 for the fourth quarter of 2015.

"Nonetheless, we are very pleased with Fred's considerable progress in 2015, as the team has been upgraded throughout the organization and new programs have been designed for 2016 to advance all areas of our business," Shore continued. "Key priorities for us in 2016 will be to drive traffic by improving the total store experience, continue to improve general merchandise profitability and extend the rapid growth of our specialty pharmacy and retail healthcare services. We will provide more detail on these programs during our fourth quarter earnings conference call on March 24. We remain focused on strategies to improve the lives and livelihood of our customers in communities we serve, which will enable Fred's to build and sustain an attractive, profitable growth model."

Fred's, Inc. and subsidiaries operate 659 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern United States. Included in the store count are 18 franchised locations. Also, there are 373 full service pharmacy departments located within the Company's stores. For more information about the Company, visit Fred's website at www.fredsinc.com.

Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. A reader can identify forward-looking statements because they are not limited to historical facts or they use such words as "outlook," "guidance," "may," "should," "could," "believe," "anticipate," "plan," "expect," "estimate," "forecast," "goal," "intend," "committed," "continue," or "will likely result" and similar expressions that concern the Company's strategy, plans, intentions or beliefs about future occurrences or results. These risks and uncertainties include, but are not limited to, those associated with the Company's announced strategic plan, the ultimate terms of the reworked pharmacy distribution agreement, lease buyouts and the underlying assumptions and projections upon which they are based, as well as risks that intended results may not be achieved or may not occur as quickly as expected; the success of announced acquisition activities and future growth trends in businesses acquired; general economic trends; changes in consumer demand or purchase patterns; delays or interruptions in the flow of merchandise between the Company's distribution centers and its stores or between the Company's suppliers and same; a disruption in the Company's data processing services; cyber-security threats; costs and delays in acquiring or developing new store sites; and the factors listed under "Risk Factors" in the Company's most recent Annual Report on Form 10-K and any subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made. Fred's undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

Fred's Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Chief Executive Officer

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