Market Overview

Fred's Reports July Sales

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

Fred's Inc. (NASDAQ: FRED) today 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."

Fred's, Inc. and subsidiaries operate 651 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 372 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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