Tough retail conditions continue in November and the holiday
shopping season could not provide any spark to weak consumer
Comparable store sales (comps) for the off price retailer
) during the four weeks of Nov 2013 were flat compared with a
3.6% fall in the year-ago month. The comps were at the bottom end
of management's expectation of a flat to up 2% growth announced
during the third-quarter conference call.
Total sales for the month went up only 1% to $151.5 million
compared with $150.3 million a year ago as benefits from Fred's
reconfiguration plan was offset by a general tendency among
consumers to pull back their spending
Categories like Pharmacy, Hometown Auto & Hardware, Pets,
Small Appliances and Consumables did well in the month. However,
the strong performances of these businesses were partly offset by
competitive environment which continued to exert pressure on the
comps. Moreover, the holiday shopping period from Thanksgiving
Day to Cyber Monday did not benefit the off-price retailer
Fred's opened one store and closed five including one Xpress
pharmacy location during Nov 2013. As of Nov 2013, Fred's
operated 697 discount general merchandise stores, including 21
franchised Fred's stores, in the southeastern United States.
As part of its 3-year-long reconfiguration plan, Fred's is
increasing its focus on higher-margin categories and is moving
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.
During the recently concluded third 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
Fred's' comps climbed 1.4% during the quarter, better than a
2.5% decline a year ago, and within management's expectation of
flat to up 2%. Comps improved on the back of higher customer
traffic and average ticket during the quarter.
Fred's is geared to increase pharmacy departments in all its
stores, keeping in view its substantial contribution to the
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). Other
diversified retailers worth considering include
The TJX Companies Inc.
Micheal Kors Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
FREDS INC (FRED): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis
PRICESMART INC (PSMT): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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