Pharmacy services a key growth catalyst for Fred's Super Dollar

MEMPHIS, Tenn. — Pharmacy and hardware/auto were two significant contributing factors behind Fred's Super Dollar second-quarter sales increase of 2%, the company reported. "[We] were pleased with the progress of the first phase of our reconfiguration plan as the penetration of stores with pharmacies increased from 50% to 52%, and we experienced strong comparable sales performance in our expanded Hometown Auto & Hardware departments," Fred's CEO Bruce Efird stated. 

Fred's reconfiguration plan is a three-year plan revolving around two core principles — an aggressive expansion of the company's pharmacy footprint and healthcare services and expanding space allocated toward discretionary product lines on the front-end. "Our pharmacy department continues to grow in line with our expectations," Efird told analysts Thursday morning. Over the next three years, Fred's is planning to have stores with pharmacy operations comprise between 65% and 70% of the company's overall store base.

The pharmacy business continues to improve for Fred's. "Pharmacy department comparable store sales were positive 1% for the quarter, the first quarterly increase in over a year," Efird said. "Our team continues to drive traffic in this department with a [prescription] count increase of 1.3% and overall increase of approximately 5% during the quarter."

It's not just prescriptions that Fred's is chasing, however. Like many pharmacy operators today, the deep discounter is looking to evolve its pharmacy operations from a dispensary of prescriptions to a service provider. "This focus will include our immunization programs and medication-therapy management, as well as our prescription compliance strategy to improve adherence among our multi-script patients," he said. 

Specialty pharmacy also is fast becoming a core piece of Fred's overall pharmacy operations. "We are pleased with the initial progress surrounding the execution of our specialty pharmacy initiatives, including our Diplomat specialty pharmacy relationship and our internal specialty build-out, which is on track to open in the third quarter," Efird said. 

Across the front end, in those stores with pharmacies Fred's is looking to field a more traditional drug store mix. "We will expand health and beauty aids in our 75 pilot stores in this [upcoming] round of reconfiguration," reported Alan Crockett, Fred's EVP, GMM and chief merchandising officer. "There are a number of areas we are expanding, including footcare and eye care, vitamins, braces and wraps, adult nutritionals, body wash and cosmetics," he said. "Moving that health and beauty aid assortment more to a full-line drug store is the intention of the expansion."

In those stores without a pharmacy, hardware and auto are emphasized. "More of the focus in the stores without the pharmacy department is driving the automotive and hardware [categories], which is aligned with both increasing the sales in our higher-margin discretionary departments, as well as improving the overall productivity of the stores," Efird said.

Looking ahead, the third and fourth quarters are likely to be highly promotional, Efird noted. "Reviewing recent comments expressed by competitors in their quarterly reports and outlooks expressed by industry analysts, we anticipate that the competitive climate will be intense and the operating environment challenging in the second half of the year," he said. "Discretionary spending for lower-income consumers — a key customer segment for Fred's — is expected to remain under pressure. The programs we put in place earlier this year, combined with our pharmacy expansion and the aggressive general merchandising initiatives we have planned in the back half of the year, are designed to meet these economic and competitive challenges."

For the quarter ended Aug. 3, Fred's posted total sales of $482.2 million. Comparable store sales for the quarter increased 2.2% compared with a decline of 1% in the second quarter last year. 

Over the first half of 2013, Fred's opened seven new locations, consisting of three new stores and four Xpress pharmacies, and closed 22 locations.