Fred's reports dim January sales, highlights key initiatives for 2010

MEMPHIS, Tenn. Pharmacy was about the only sales highlight for Fred’s Inc. through its fiscal 2009, the Southern discounter reported Wednesday evening.

“January sales were below expectation, with the miss resulting mainly from multiple ice and snow storms blanketing the majority of our stores in the Southeast,” commented Bruce Efird, Fred’s CEO. “While December’s sales and traffic demonstrated that our customers were willing to stretch for the holidays at Fred’s, our January sales – outside of ongoing strong results in our pharmacy department – offer a fresh reminder that the consumer remains under considerable pressure.”

Fred’s Inc. posted a 1% drop in fiscal 2009 total sales, generating $1.8 billion for the 52 weeks ended Jan. 30, the chain announced Wednesday evening. Same-store sales were up 0.4%.

For the four weeks ended Jan. 30, total sales declined 1% to $125 million. Comparable store sales fell 2%.

The company’s performance underscores the importance of the implementing new sales- and profit-driving initiatives for 2010, Efird noted. Fred’s key initiatives include:

• Fred’s Core Five Program, which highlights trip-driving differentiation from small-box competitors, in terms of both price and selection, in the areas of pharmacy, pet products, celebration, paper and chemical, and home products departments
• Expanded marketing efforts in mailed circulars, in-store marketing, and direct mail advertising
• Increased investment in its stores, remodeling and updating more than 200 in 2010 with a customer-friendly layout developed in Fred’s pilot program. This initiative includes upgraded fixtures, a cleaner look, improved adjacencies, relocating the pharmacy to the front in some stores, and signage upgrades inside and out
• Increased advertising and additional in-store marketing to support Fred’s rollout of the new look that is specific to both urban and rural markets
• The restructuring in January of its merchandising and marketing responsibilities, including the addition of two new divisional merchandise managers in the hard lines area. That increased the number of DMMs to five, adding expertise in three of the core “five program” areas — celebration, pet and home — and bringing new skills to product sourcing; and
• The addition of new product lines, leading with Coca Cola, Purina pet products, and Energizer batteries, with additional new product introductions to be rolled out in the coming year.

Based on the sales shortfall Fred’s experienced in the fourth quarter 2009, management now expects earnings for the quarter to be in the range of 14 cents to 16 cents per diluted share. For the year 2009, the Company estimates earnings of 59 cents to 61 cents per diluted share, a 40% to 45% increase over 2008.

Looking ahead to 2010, management is optimistic that financial improvement will continue, with diluted earnings per share reaching the range of 68 cents to 75 cents for 2010.