Outside of its home state of Tennessee, you're not likely to
hear the nameFred's (
) tossed around too often when referring to grocery stores or
pharmacies. When I Googled "FRED", I got everything
from Barney Rubble's ole pal to a sheik French jeweler; Fred's
was on page 6 for me.
To be fair, they operate over 700 stores across the
southeastern part of the US and I know that they have their loyal
following. Heck, there are plenty of lesser known companies that
are thriving! But for Fred's, it's a matter of the revenue
and EPS numbers that just aren't adding up and competition from
the likes ofWalmart (
) ,Walgreens (
) and others that are making matters worse.
FRED is a Zacks Rank #5 and is ranked as a "sell"
overall. Even though the stock yields a 1.8% dividend, this
might not be the place you want to park your investment
Last month, Fred's posted fourth-quarter fiscal 2012 (quarter
ended Feb 2013) earnings of 18 cents per share, missing the Zacks
Consensus Estimate by a penny and was the second miss in a row
after a 14.3% miss in Q32012.
Earnings declined 30.7% from the prior-year quarter due to the
ongoing tough retail environment, challenging results in general
merchandise departments and higher operating expenses.
Sales also missed the Zacks Consensus Estimate of $534.0
million but increased 7% year over year to $533.4 million.
However, excluding the extra week in the current quarter,
comparable store sales declined 3% compared to an increase of
0.1% in the same quarter last year, while comparable store
customer traffic decreased 2.8% from last year.
Growth Outlook Weak
Management expects tough retail conditions to continue across the
markets in fiscal 2013. Fred's forecasts its total sales to
increase 1% to down 1% in Q1of fiscal 2013,
Comparable store sales, including one extra week, are expected
to decrease by 1% to 3% in the first quarter due to weak sales in
March. The company expects earnings to remain within a range of
26 to30 cents per share in the quarter, compared with the Zacks
Consensus for 27cents. Keep in mind that estimates
have dropped from 31 cents just 60 day ago.
For the full fiscal year 2013, Fred's expects lower earnings
of 77 to 88 cents per share compared to the Zacks Consensus for
82 cents, which again has come down substantially from $1.01 just
60 days ago.
When you exclude the impact of favorable income tax adjustment
(12 cents per share) on 2012 results, earnings per share is
expected to increase by 12% to 28% for the current year.
Worth the Risk?
When you back up and look at analyst momentum, it looks decidedly
bearish, with almost every analysts notching down their estimates
for all reporting periods over the last 60 days and only 1 moving
their estimate up.
Zacks ESPs (which are a great predictor of earnings beats when
coupled with the Zacks Rank) are all flat, which is not a good
sign for those of you looking for a positive surprise when FRED
reports next on May 16th.
With a P/E of 16.50, FRED is not the cheapest on valuation,
especially when you consider a 1.6% anticipated sales growth and
11% expectations for earnings.
If you are looking for a diversified retailer, it might not be
a bad idea to check outSears Holdings (
) , they are a Zacks Rank #1 or evenCostco (
) , with a Zacks Rank #2.
In a tight margin industry that's supplying a strained
consumer; I would opt for the best in breed, not the long shot,
come-back kid. Let's see if the numbers improve at
their next report and decide at that point if the stock is
turning a corner before putting our hard earned dollars into this
Jared A Levy is one of the most highly sought after traders in
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COSTCO WHOLE CP (COST): Free Stock Analysis
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