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Fred’s falls short of January expectations

Deep discounter still has positive story to share, thanks in part to pharmacy

MEMPHIS — Fred's on Wednesday reported a fiscal 2010 sales increase of 3% to $1.8 billion for the year ended Jan. 29. Comparable sales were up 2.2%, versus an increase of 0.4% in the prior year.

January comp increases of 2.1%, however, fell well short of the 3.9% analyst consensus tallied by Thomson Reuters, a factor that may have had more influence in driving the company’s stock down 37 cents to $13.31 on Wednesday’s trading. Winter weather played a role in those not-as-good-as-expected results, the retailer reported.

"While we were pleased to see customer traffic continue to improve in January, along with stronger pharmacy department comparable scripts and sales, overall sales for the month were below plan,” said Bruce Efird, Fred's CEO.

“Poor weather and the inability of our customers to get early tax refunds in January were critical factors contributing to the sales shortfall. We experienced sharp sales increases early in January, but as the month progressed, spending dropped significantly and customers placed increased focus on sale items,” Efird added.

Taking the sales and mix effect into account, Fred’s estimated that earnings per share for the fourth quarter will be in the range of 19 cents to 22 cents.

During January, Fred's opened two new stores and one additional pharmacy. For the year, Fred's added a net of eight new locations, consisting of 12 new stores and three new pharmacy express stores, which were offset by the closing of seven store locations. The company also opened 23 new pharmacies in 2010 and closed 15, for a net addition of eight pharmacies during the year.

Fred's operates 677 discount general merchandise stores, including 24 franchised Fred's stores, in the Southeastern United States.

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