) third-quarter fiscal 2013 earnings of 20 cents increased 11%
year over year driven by improved margins and cost savings.
Earnings were, however, in line with the Zacks Consensus Estimate
and also within the company's expected range of 19 cents to 23
Revenues and Margin Performance
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' comparable store sales (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 to 2%. Comps improved on
the back of higher customer traffic and average ticket during the
Gross profits grew 2% to $140.2 million while gross margin
shrank 20 basis points (bps) to 30.5% from the year-ago quarter.
Gross margin shrank mainly due to higher merchandise
Disciplined cost management led to lower selling, general and
administrative (SG&A) expenses in the quarter. SG&A
expense margin leveraged 30 bps to 28.2% in the quarter. During
the quarter, Fred's closed four stores and opened eight
Operating income rose 5.1% to $10.6 million and operating
margin inflated 10 bps to 2.3% in the quarter due to prudent
Fourth-quarter fiscal 2013
For the fourth quarter of fiscal 2013, Fred's forecasts total
sales to increase in the range of 1% to 3%, while it expects
comparable store sales to be flat to up 2%, better than a decline
of 2.8% a year ago. The company expects earnings to remain within
a range of 18 cents-23 cents per share in the quarter, compared
to 18 cents in the year-ago period.
Management is well on track to improve its pharmacy department
growth and expand its specialty drug program. However, the
company expects the unfavorable retail conditions to continue
through the rest of fiscal 2013.
Fiscal 2013 Outlook Retained
Management expects the competitive climate to be intense and
the operating environment to be challenging in the second half of
the year. Consumer discretionary spending is expected to remain
low, especially of the lower income consumers which comprise
Fred's' principal customers. For fiscal 2013, Fred's continues to
expect earnings in the range of 81 cents-86 cents per share,
representing 17% to 25% growth over the year-ago level.
The Zacks Consensus Estimate is pegged at 22 cents per share
for the fourth quarter and 85 cents for fiscal 2013.
Other Stocks to Consider
Fred's currently carries a Zacks Rank #4 (Sell). Other
diversified retailers worth considering include
The TJX Companies Inc. (
Big Lots Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
BIG LOTS INC (BIG): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
PRICESMART INC (PSMT): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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