Unseasonable cold weather that continued through March and the
calendar shift of Easter marred the sales results at discount
). Comparable store sales declined 1.2% in Mar 2014, which was
better compared to a decline of 3.0% in the year-ago period
as bad weather was offset by positive effects of reconfiguration
plan of Fred's.
Total sales for the month increased only 1.0% year over year
to $191.2 million. Ice storms that affected the Southeast region
of America resulted in extreme 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.
However, reconfiguration of departments like pharmacy, auto
and hardware performed well during the month. Fred's also opened
one pharmacy store and closed two stores without pharmacies in
Fred's expects the weather conditions to improve during April
as its stores are well prepared for the spring season and Easter
holiday. Fred's plans to reconfigure approximately 70 stores
during the month of April.
Fred's embarked on a 3-year reconfiguration plan in fiscal
2012 to enhance its focus on higher-margin categories and move
away from the lower-margin consumable categories. The company is
remodeling and refreshing its store layouts and allocating space
to highlight the key revenue-generating categories.
Fred's is geared to increase pharmacy departments in all its
stores, keeping in view of 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.
On Mar 27, Fred's announced its fourth-quarter fiscal 2013
earnings results. Although fourth-quarter earnings of 17 cents
exceeded the guidance range of 13 to 16 cents, we want to remind
investors that the range was lowered following soft comps
announced by the company for the month of January.
Moreover, sales slipped 7.2% year over year and missed the
Zacks Consensus Estimate by 1%. Lower-than-expected sales
resulted from store closings following extreme weather
conditions, especially in January. The company also saw soft
margins in the quarter due to merchandise markdown and weak
Bleak Outlook for First-Quarter Fiscal 2014
Management expects these headwinds to continue into the first
quarter. In fact, harsh weather heavily affected general
merchandise sales during the months of February and March as well
- the first two months of the first quarter. 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 expects total sales to
be flat compared to an increase of 2% in the previous year.
Comparable-store sales are expected to be flat to down 2%,
compared to a decline of 1.3% in the previous year. Earnings per
share are forecasted in the range of 23 to 27 cents for the first
quarter, lower than 31 cents reported in the year-ago
The Zacks Consensus Estimate is pegged at 25 cents for the
first quarter of fiscal 2014.
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). Some
better-ranked stock in the consumer staples sector worth
Diamond Foods Inc.
Inventure Foods Inc
). All the stocks carry a Zacks Rank #2 (Buy).
DIAMOND FOODS (DMND): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
INVENTURE FOODS (SNAK): Free Stock Analysis
SUPERVALU INC (SVU): Free Stock Analysis
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