Fred’s sees pharmacy segment boosts as it posts Q1 loss

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Fred’s sees pharmacy segment boosts as it posts Q1 loss

By David Salazar - 06/06/2017

MEMPHIS, Tenn. — Fred’s Pharmacy posted its Q1 results Tuesday, and though the company swung to a roughly $36.5 million net loss, as its transformation continues, it’s seeing tangible results, particularly in pharmacy and front-end sales in renovated stores. The company also said that it is working with Rite Aid and Walgreens to bolster the case for the Federal Trade Commission to approve Walgreens’ acquisition of Rite Aid that, if approved, would make Fred’s the third-largest drug store chain in the United States


Fred’s said that its net loss was dues to three main factors — $13.5 million after tax for lease liability impairments and expenses that accompanied it closing 39 underperforming stores; $16.9 million for professional and legal advisory regarding it proposed acquisition of Rite Aid Stores and the development and implementation of its growth strategy; and 14.6 million for a valuation allowance against its deferred tax asset from the pretax loss created by these efforts.


Net sales were down 3.1% from $549.5 million in the first quarter of last year and comparable-store sales declined 1.2%, compared with a 1% increase in Q1 last year. The comps in Q! 2017 reflected a negative 1.4% impact from the sale of low productive discontinued inventory, the company noted. Fross profit decreased to $132.9 million from $141.3 million in the year-ago period. But Fred’s CEO Mike Bloom said that the company is on track with its plans and on an upward trajectory.


“Looking ahead, we are focused on executing our key objectives for 2017, including diversifying and optimizing our assets to improve performance and cash flow,” he said. “In large part we are on track with the Fred’s 2017 plan, and doing exactly what we said we would do to optimize Fred’s Pharmacy’s business model and enhance value for our shareholders. We anticipate continued sequential operational improvement excluding non-operating items throughout 2017 as the initiatives underway continue to take hold, and we expect to be profitable on an operational basis by the end of 2017.”


Bloom also said that the company’s pharmacy healthcare transformation — which he pointed to as a key point of differentiation in its market — was driving positive script comps. The company’s pharmacy division saw a total sales comp increase of 3.3% — driven largely by a record quarter for specialty pharmacy sales. At the same time, Fred’s generic dispensing rate increased 100 basis points year over year to 89.6% and retail pharmacy script comps grew 30 basis points.


“Our strong performance in total pharmacy was the primary driver for sequential improvement in our operating performance excluding non-operating items,” Bloom said. “With the right leadership team in place, we continue to enhance our talent, invest in technology, expand the specialty sales force and diversify the specialty portfolio. We also continue to improve the pharmacist-patient relationship, which is reflected in our positive script comps in the retail pharmacy. Both our retail and specialty pharmacy businesses are rapidly improving and driving momentum.”


Also seeing results are the stores whose front ends the company has revamped. Bloom noted that comps in stores remodeled to its new prototype are performing 4% better through April than the chain average.


“In the front store, our remodel program, which will be accelerated in the back half of 2017, is already improving the customer experience and driving sales,” Bloom said.