Market Overview

Fred's Reports June Sales

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

Fred's Inc. (NASDAQ: FRED) today reported sales for the five-week fiscal month of June, which ended on July 2, 2016.

Fred's total sales for the month of $208.5 million decreased 2.3% compared with $213.3 million in June 2015. Comparable store sales for the month decreased 1.3% versus an increase of 1.6% for the year-earlier period.

Fred's total sales for the first five months of fiscal 2016 increased 3.8% to $923.2 million compared with $889.5 million for the same period last year. On a comparable store basis, year-to-date sales increased 0.1% versus an increase of 0.8% for the year-earlier period.

Commenting on the announcement, Jerry A. Shore, Chief Executive Officer, said, "Although sales for the month were lower than plan, we were encouraged with the front store performance in June. Sales growth in core categories such as health and beauty aids, seasonal, apparel, toys, lawn and garden and electronics helped offset ongoing challenges in paper, chemicals and food that we have discussed on earlier occasions. Consequently, front store comparable sales were positive and increased sequentially from May 2016. This front store progress, however, could not fully offset weaker sales in our pharmacy department, resulting in overall comparable store sales that were below expectation. Lower pharmacy sales reflected the industry-wide slowdown in specialty pharmacy sales attributable to the demand for Hepatitis C drugs as well as a decline in retail sales and scripts, which underscored calendar shifts that benefited May to the detriment of June.

"Looking ahead, we remain confident in the direction of our business and the success of our initiatives to drive future growth and profitability," Shore added. "We continue to see overall front store margin improvement as we expand our assortments in high-margin categories and have plans in place to turn around weaker categories beginning in the third quarter. We expect the retail pharmacy department will remain resilient as our labor management program continues to have a positive impact on our cost to fill. Additionally, the pressured Hepatitis C segment should benefit from new Hepatitis C drugs being introduced in July as well as longer-term company strategies to expand additional therapies."

During June, Fred's closed one full-service location.

Fred's, Inc. and subsidiaries operate 653 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 Fred's stores, including four franchised locations. 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.
Rick Hans, 901-362-3733, Ext. 2232
Executive Vice President and Chief Financial Officer

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