) is set to report fiscal 2013 first-quarter earnings on May 30.
In the last quarter, the company posted a negative earnings
surprise of 5.6%. Let's see how things are shaping up for this
Growth Factors This Past Quarter
In the fourth quarter of fiscal 2012, the company's earnings of
18 cents missed the company's guidance range of 31 cents to 36
cents and the year-ago figures by 30.7%, primarily due to tough
retail environment and higher operating expenses.
Sales increased 7% year over year on the back of higher
merchandise sales and improved consumer traffic as a result of
improved marketing initiatives. Margins improved on the back of
higher gross margin in the pharmacy department, partially offset
by increased charges on general merchandise margin due to sales
However, the retail environment worsened in the beginning of the
first quarter of fiscal 2013. Sales at Fred's were partly
hampered due to poor weather conditions and negative impact of
the ongoing shift from branded to generic drugs.
Higher taxes, weak job prospects and lower discretionary spending
could mark soft sales for April. Moreover, a tightening fiscal
policy is hampering consumer confidence. However, weather
improved in April and Fred's quickly resumed its momentum.
Fred's asserted that it is well on track to achieve its growth
targets in the first quarter of fiscal 2013. While announcing its
March sales, the company has revealed that it expects tough
retail conditions to continue across the markets in fiscal 2013.
Comparable store sales, including one extra week, are expected to
decrease by 1% to 3% in the first quarter due to weak sales in
March. The company expects to record earnings within the range of
26 cents-30 cents per share in the quarter.
For fiscal 2013, however, Fred's expects earnings to drop 77
cents - 88 cents per share compared with fiscal 2012. However,
excluding the impact of favorable income tax adjustment of 12
cents per share on the 2012 results, earnings per share is
expected to increase 12% to 28% in the year.
We, however, are not optimistic about the outlook provided by
Fred's. A tough retail environment and declining comparable store
sales over the past several months remain a concern.
Our proven model does not conclusively show that Fred's will beat
earnings estimates this quarter. That is because a stock needs to
have both a positive Earnings ESP (Read:
Zacks Earnings ESP: A Better Method
) and a Zacks Rank #1, #2 or #3 for this to happen. That is not
the case here as you will see below.
Both the Most Accurate estimate and the Zacks Consensus Estimate
stand at 28 cents. Hence, the difference is 0.00%.
Zacks Rank #3 (Hold):
Fred's' Zacks Rank #3 (Hold) lowers the predictive power of ESP
because the Zacks Rank #3 when combined with 0.0% ESP makes
surprise prediction difficult. We caution against stocks with
Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings
announcement, especially when the company is seeing negative
estimate revisions momentum.
Other Stocks to Consider
Our model states that a stock needs to have both a positive
earnings ESP and a Zacks Rank #1, #2 or #3 to beat earnings
estimates. You could, therefore, consider these other stocks
FLOWERS FOODS (FLO): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
HARRIS TEETER (HTSI): Free Stock Analysis
ROUNDYS INC (RNDY): Free Stock Analysis
To read this article on Zacks.com click here.
Flower Foods Inc.
), Earnings ESP of +2.86% and a Zacks Rank #1 (Strong Buy)
Harris Teeter Supermarkets Inc
), Earnings ESP of +1.47% and a Zacks Rank #2 (Buy)
), Earnings ESP of +3.03% and a Zacks Rank #2 (Buy)