Fred’s looks to unload specialty pharmacy business

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Fred’s looks to unload specialty pharmacy business

By David Salazar - 04/18/2018
Fred's is looking to sell its specialty pharmacy business, according to a form filed with the Securities and Exchange Commission Wednesday, the day it was meant to file its earnings for fiscal year 2017. The Memphis-based company said in the filing that its board of directors has approved the plan to sell the specialty pharmacy business, which includes three specialty-only locations. It has rescheduled its earnings report for May 4.

The filing notes that Fred’s “requires additional time to complete the accounting and reporting processes necessary to satisfy the requirement to reflect the discontinuation of its specialty pharmacy operations.” Fred’s CEO Mike Bloom, as part of the company’s December 2017 third-quarter earnings call, told analysts and investors that the company was in the midst of “a review of alternatives for the noncore assets of real estate and the specialty pharmacy business.” A spokesman for the company said the delay of its earnings report has nothing to do with the ongoing business operations. He declined to comment on whether the company has any potential suitors lined up.

Fred’s has been in the midst of a turnaround strategy in the aftermath of the scrapped acquisition of Rite Aid by Walgreens. Fred’s had been set to acquire enough divested stores to make it the third-largest drug chain in the country — but the recently completed Walgreens acquisition of 1,932 Rite Aid stores didn’t necessitate a divestment. As a result, in the first eight months of its fiscal year ended Oct. 28, 2017, the company reported a $37.3 million contribution to its $117.8 million net loss from costs associated with bank fees, financing termination fees, and professional and legal and advisory fees associated with the Rite Aid store acquisition. The company also canceled its third-quarter dividend. Since last June, Fred’s also has added two members to its board, including new chairman Heath Freeman and had two CFOs. Anto joined in February, succeeding Jason Jenne, who was appointed last July and now is CFO at True Temper Sports.

“We are aggressively executing our turnaround strategy, and we are seeing traction in both front store and pharmacy,” Bloom said on the third-quarter call. “We are not yet at the point of presenting positive quarterly comp sales and traffic improvement. However, I can tell you that we are improving month-by-month as our initiatives are yielding results.” Efforts undertaken to reduce costs included reducing its workforce and reduction of excess inventory that it leveraged into a clearance sale to drive foot traffic.

When the Rite Aid acquisition fell through last June, Bloom listed specialty pharmacy as one of the areas that would help optimize its business model alongside growing comparable-store prescriptions and driving front-store traffic. In December, Fred’s COO of pharmacy and executive vice president Timothy Liebmann noted that the evaluation was intended to assess whether to invest in it to grow or seek alternatives to capitalize on its value.

“We're in the middle of that evaluation right now, and I think that we're excited about the path we're going down with this,” Liebmann said in December. “I think that if we do nothing, you run the risk of being irrelevant in the space.”