Increased promotional environment and competitive activity in
the discount retail industry hampered April sales results at
). Comparable-store sales declined 2.3% in the month compared with
an increase of 1.2% in the year-ago period.
Total sales for the month declined 1.6% year over year to $150.0
million. Although weather improved during the month and shoppers
returned to the stores. However, higher inventory due to lower
sales for the first three months of the calendar year led to
delayed spring sales for the company
Total sales for the first three months of fiscal 2014 decreased
0.6% year over year to $498.5 million. Comps slipped 1.9% versus a
1.3% decrease for the year-ago period. The year-to-date results
were negatively impacted by ice-storms which hit the Southeast
region of America and resulted in unseasonably cold weather during
January and February. The after-effect continued well into March,
which disrupted shopping trends and offset the positive effect of
Fred's' reconfiguration plan.
The competitive activity offset the company's marketing
strategies. However, reconfiguration departments like hometown,
auto and hardware performed well during the month.
Fred's embarked on a 3-year reconfiguration plan in fiscal 2012
to focus more on higher-margin categories and move away from
lower-margin consumable categories. The company is remodeling and
refreshing its store layouts and allocating space to highlight key
Fred's is geared to increase pharmacy departments in all its
stores, keeping in view its substantial contribution to the overall
profit. As part of this strategy, Fred's plans to convert 150 to
200 stores in 2014 and take up the pharmacy penetration up to 60%
by 2014-end. The company also plans to implement its
reconfiguration plan in 60 to 80 stores with the Hometown Auto
& Hardware department and seasonal expansions.
Lower Outlook for First-Quarter Fiscal 2014
Management expects these headwinds to mar results for
first-quarter fiscal 2014. Again, lower fourth-quarter 2013 sales
raised the inventory levels which the company was unable to clear,
in turn delaying spring selling.
For first-quarter fiscal 2014, Fred's maintained its sales
guidance and expects total sales to be flat versus an increase of
2% in the previous year. Comparable-store sales are expected to be
flat to down 2%, compared with a decline of 1.3% in the previous
year. Earnings per share forecast was lowered to 18-22 cents from
23-27 cents announced previously.
The Zacks Consensus Estimate is pegged at 20 cents for the first
quarter of fiscal 2014.
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). Other stocks in
the broader consumer staples sector which look attractive at
current levels include
Pinnacle Foods Inc.
The Hain Celestial Group Inc.
Inventure Foods Inc.
). All these stocks sport a Zacks Rank #2 (Buy).
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FREDS INC (FRED): Free Stock Analysis Report
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INVENTURE FOODS (SNAK): Free Stock Analysis
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