) reported 1% year-over-year rise in total sales to $170.9 million,
for the month of September 2012. However, comparable store sales
declined 3.8% year over year, compared to a sales growth of 1.1%
achieved in the same month last year.
As expected, September comparable store sales were significantly
impacted by the shift towards generic drugs from the high priced
branded drugs in the pharmacy department. The decline in September
comparable store sales was also due to weak sales in the tobacco,
softlines and fall seasonal goods categories. However, segments
like Pet, Celebration and Party, Auto, Hardware and Food generated
strong sales in the month. During September 2012, the company added
one store and two express pharmacy counters. The company closed one
store during the month.
Fred's expects its October sales and third quarter results to meet
expectations. The company intends to achieve sales growth by
investing in brand building and aggressively pursuing pharmacy
For the third quarter of 2012, Fred's forecasts its total sales to
increase 2% to 4%. Comparable store sales are expected to dip 1% to
3% for the third of quarter of 2012. The company expects earnings
to remain within the range of 22 cents to 26 cents per share in the
third quarter of 2012.
We are positive about Fred's initiative of revamping its stores and
upgrading stocks to attract more traffic. Also, persisting sluggish
economy is likely to compel consumer spending to shift from
high-end products to low priced goods, which would benefit the
However, we prefer to stay on the sidelines as Fred's has been
experiencing weak comparable store sales for the past several
months. Also, the absence of international exposure deprives Fred's
of the benefits of high growth opportunities in emerging markets
like China, Brazil, India, Mexico, Russia and Southeast Asia.
As a result, we currently have a Neutral recommendation on Fred's
Inc., supported by a Zacks #3 Rank (short-term 'Hold' rating).
Based in Memphis, Tennessee, Fred's Inc. sells frequently purchased
items, like household goods, apparel, food, tobacco, and healthcare
and paper products through company owned discount general
merchandise stores, franchised "Fred's" stores.
Another Tennessee-based discount retailer company -
Dollar General Corporation
) - currently has a Neutral recommendation in the long term though
its stock carries a Zacks #2 Rank (short-term 'Buy' rating).
DOLLAR GENERAL (DG): Free Stock Analysis Report
FREDS INC (FRED): Free Stock Analysis Report
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