) is set to report second quarter fiscal 2013 results on Aug 29.
Last quarter, it posted a 10.7% positive surprise. Let's see how
things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Fred's is likely to beat earnings
because it has the right combination of two key ingredients.
Positive Zacks ESP:
The expected surprise prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
), which represents the difference between the Most Accurate
estimate and the Zacks Consensus Estimate, is +11.11%. This is
meaningful and a leading indicator of a likely positive earnings
surprise for the shares.
Zacks Rank #3 (Hold):
Fred's carries a Zacks Rank #3 (Hold). Note that stocks with a
Zacks Rank #1, #2 and #3 have a significantly higher chance of
beating earnings estimates. The sell rated stocks (#4 and #5)
should never be considered going into an earnings
The combination of Fred's Zacks Rank #3 (Hold) and a positive
ESP of +11.11% makes us confident of an earnings beat on Aug
What is Driving the Better-than-Expected
We believe that the company's strategic turnaround initiatives
to improve its same-store sales will be the driving factor in the
After suffering from declining same-store sales for several
months, Fred's embarked on a 3-year reconfiguration plan in early
As part of this plan, Fred's shifted its focus to higher
margin categories from lower-margin consumable categories. Fred's
is remodeling and refreshing its store layouts and allocating
space for the key revenue-generating categories. Moreover,
keeping in view the substantial contribution of the pharmacy
department in its operating income, Fred's is expanding the
department in all its stores. The initiatives are already bearing
fruit as the company posted decent total and comparable sales for
the months of Jun and Jul 2013. We believe the initiatives will
continue to deliver solid comps growth in the second quarter.
Other Stocks to Consider
Here are some other companies in the retail sector that can be
considered as our model shows that they have the right
combination of elements to post an earnings beat this
Dollar General Corp
), Earnings ESP of +1.35% and a Zacks Rank #2 (Buy).
Costco Wholesale Corp
), Earnings ESP of +0.69% and a Zacks Rank #3 (Hold).
Dollar Tree Inc.
), Earnings ESP of +1.70% and a Zacks Rank #3 (Hold).
COSTCO WHOLE CP (COST): Free Stock Analysis
DOLLAR GENERAL (DG): Free Stock Analysis
DOLLAR TREE INC (DLTR): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
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