Specialty pharmacy service provider
) inked a multi-year supply agreement with one of the largest
healthcare service companies Cardinal Health Inc. (
). Per the deal, Cardinal Health will be the primary supplier of
all branded and generic drugs to all of Fred's' in-store pharmacies
and EIRIS health services.
The new deal comes at an opportune time, as Fred's' existing
supply agreement with AmerisourceBergen (
) is scheduled to end in early 2015.
The supply agreement is in line with Fred's' ongoing strategy of
rapid growth in the pharmacy department at retail locations,
specialty pharmacies and clinical services. Considering the
substantial contribution of the pharmacy department to overall
profit, Fred's is geared to put greater focus on the sector and
plans to increase the penetration of the department at its stores
to 70% by 2015.
The agreement also falls fits Cardinal's long-term strategy of
adding independent pharmacies to its supply chain and boosting its
generic drug sales.
Fred's' comps have been suffering for the past few months due to
inclement weather and stiff competition in the discount retail
sector. A harsh winter led to frequent shop shutdowns and
competition emanating from improved weather disrupted sales during
the early months of the year.
Moreover, higher vendor costs on both branded and generic drugs
are keeping margins under pressure in the pharmacy sector.
Additionally, decline in general merchandise gross margin and
increase in operating costs due to Fred's' inventory adjustments
prompted management to lower its outlook for the second quarter.
Fred's now expects to incur a loss of 15 to 20 cents down from
earnings of 4 to 9 cents announced during the first-quarter
conference call. (Read More:
Fred's Inc.'s (FRED) Comps Gain in July, Cuts Q2
View on Weak Margins
This deal isexpected to ease the pressure on the margin of the
pharmacy sector in the upcoming quarters.
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). A stock in the
retail sector worth considering includes Burlington Stores, Inc
) sporting a Zacks Rank #1 (Strong Buy).
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CARDINAL HEALTH (CAH): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
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AMERISOURCEBRGN (ABC): Free Stock Analysis
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