In spite of a tough retail environment,
) has been posting better comps for several past months. After
posting flat year-over-year comps for Nov 2013, off-price
retailer Fred's' comps inched up only 1.4% for the five weeks of
Dec 2013 compared with a 4.2% fall in the year-ago month. The
comps were within management's expectation of a flat to up 2%
growth announced during the third-quarter conference call.
Total sales for the month were flat at $209.5 million compared
with the year-ago period as benefits from Fred's' reconfiguration
plan were offset by a general tendency among consumers to
restrain their spending.
Categories like Pharmacy, Hometown Auto & Hardware, Pets,
Small Appliances and Consumables performed well during the month.
However, the strong performances of these businesses were partly
offset by a competitive environment which continued to exert
pressure on the comps. Moreover, Fred's' promotional campaigns to
boost sales during Black Friday did not produce any positive
Fred's opened two stores with pharmacies and two Xpress
pharmacy locations in Dec 2013. As of Dec 2013, Fred's operated
701 discount general merchandise stores, including 21 franchised
Fred's stores, in the southeastern United States.
During the recently concluded quarter reported on Nov 27,
2013, Fred's' total sales increased 2.0% year over year to $460.5
million, slightly missing the Zacks Consensus Estimate of $461.0
million. Sales were within Fred's' top-line growth expectation of
1%-3%. Modest sales gain in food and tobacco and pharmaceuticals
businesses/segments were offset by sales decline in household
goods, apparel and linens, paper and chemicals and franchise
Fred's' comps climbed 1.4% during the quarter, compared to a
2.5% decline a year ago, and within management's expectation of
flat to up 2%.
We are encouraged with Fred's' 3-year reconfiguration plan,
through which the company is increasing its focus on
higher-margin categories and moving away from the lower-margin
consumable categories. The company is remodeling and refreshing
its store layouts and allocating space to highlight the 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 has plans to
convert 150 to 200 stores in 2014 and take up the pharmacy
penetration up to 60% by 2014-end.
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). Other
diversified retailers worth considering include
The TJX Companies Inc.
Columbia Sportswear Company (
Micheal Kors Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
COLUMBIA SPORTS (COLM): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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