Fred's Super Dollar reports July sales, projects Q2 loss

MEMPHIS, Tenn. — Fred's Super Dollar on Thursday reported July sales of $148 million, representing an increase of 4%. Comparable store sales for the month increased 0.7% on top of a 2.5% increase in the same period last year. 

 

For the second quarter ended Aug. 2, Fred's posted an increase of 2% to $490.6 million. On a comparable store basis, second quarter sales decreased 0.1% versus an increase of 2.2% for the year-earlier period.

 

"We are pleased that Fred's returned to positive comparable-store sales for July, reflecting stronger trends in general merchandise sales and improved customer traffic, as recent changes to our marketing plan have gained additional traction," stated Bruce Efird, Fred's CEO. "General merchandise departments that reported better performance in July included health aids, housewares, flooring, stationery, toys, auto and hardware and several consumable departments," he said. "With our new ad program and marketing strategy now in place, we expect these positive trends to continue in the back half of the year.

 

"In July, we also rolled out a clearance and inventory right-sizing program in all of our stores to address unproductive inventory and exit or reduce product categories that do not align with our convenience center model," Efird added. 

 

Fred's also realized ongoing sales and script growth in the pharmacy department during July, with the company's best monthly comparable-script growth of the year, Efird said. However, Fred's pharmacy department margins for July continued to be pressured by very significant vendor cost increases on both brand and generic drugs. This cost pressure in the pharmacy accounted for a drop of approximately 225 basis points in pharmacy department gross margin. On a positive note, Fred's finalized a new pharmacy prime vendor distribution agreement. "With this key strategic relationship, we have a new alliance that supports our rapid growth and addresses the issues experienced over the past yeaer, while restoring Fred's pharmacy department margin and signficantly improving the profitability of its specialty pharmacy business," Efird said. 

 

"With the transitional costs associated with implementing our convenience center model, together with the vendor-related cost pressures on pharmacy, we now expect to report a loss for the second quarter in the range of $0.15 to $0.20 per share, exclusive of reserves for disposition of inventory and stores that do not fit our convenience model," Efird continued. "However, the drivers of performance for the balance of the year will be the pharmacy department's new vendor agreement, store shipments returning to forecast and the continuation of our new marketing programs. We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014."