Transformation on track: Fred’s remains optimistic after new Walgreens-Rite Aid deal

In the aftermath of the announcement that Walgreens would be purchasing more than 2,000 stores from Rite Aid rather than continuing with its initial plan to acquire the chain outright — which removed the need for Fred’s to purchase 855 Rite Aid stores and related assets — the Memphis-based retailer is unfazed.

For Fred’s CEO Mike Bloom, the potential to expand its store base was just one opportunity.

“While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it,” Bloom said the day after the new deal was announced. “This is a disappointing outcome; however, the termination of the transaction has no impact on the company’s transformation strategy or our ability to execute. ... We are excited about what we have accomplished and are optimistic about the future.”

Fred’s currently is working its way toward operational profitability after its first-quarter results reflected a $36.5 million net loss, partially due to losses from lease liability impairments and expenses associated with closing 39 stores that were underperforming, the cost of professional and legal advisory for the proposed Rite Aid stores acquisition and other factors.

And though the company also swung to a loss in June, Bloom said that the company is still committed to achieving operational profitability by the end of 2017. Fred’s is looking to achieve this in two areas — its continued healthcare transformation and tweaks to its front-end.

On the healthcare front, Fred’s is seeing the results of continuing to diversify its specialty pharmacy offerings, with June seeing strong sales and script growth. Additionally, the company’s retail pharmacy segment saw a 3.5% increase in comparable sales in June, and in Q1 its retail pharmacy script comparable sales increased 30 basis points. The company’s generics dispensing rate also is on the rise, with it increasing 100 basis points year over year in Q1 to 89.6.

“In retail pharmacy, we continue to see a positive shift to generic, while we consistently experience strong sales and script growth in the specialty pharmacy business.”

Other efforts include a revamped front-end in Fred’s stores. When discussing Q1 results, Bloom noted that new prototype stores performed 4% better than the average in April, and in June he noted that such efforts as introducing beer and wine in certain stores were having a positive impact on sales.

“Our leadership team continues to deliver on its promise to optimize our business model and execute our healthcare strategy,” Bloom said in late June. “We are capitalizing on opportunities to increase prescription comps in retail pharmacy, growing sales in specialty pharmacy and driving traffic into our front store. We also continue to optimize our store fleet, upgrade our talent, technology, supply chain and business processes. Our transformation is on track.”