Will Fred's Inc. (FRED) Disappoint this Earnings Season? - Analyst Blog


Discount retailer Fred's Inc. ( FRED ) is set to report first-quarter fiscal 2014 results on May 29. Last quarter, the company posted a positive surprise of 13.33%. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

Fred's has been posting decent earnings for the past few quarters. However, lower comps in all the months of the first quarter are expected to lower earnings during the quarter.

Ice storms that affected the Southeast region of America in the initial two months (February and March) of first quarter fiscal 2014 disrupted shopping trends and offset the positive effect of Fred's' reconfiguration plan.

Although weather improved during April and shoppers returned to the stores, higher inventory due to lower sales in the first three months of the calendar year led to delayed spring sales. Moreover, increased promotional environment and competitive activity in the discount retail industry hampered sales results in April.

Management also expects these headwinds to mar results for first-quarter fiscal 2014. Hence, during the April sales conference call, the company lowered the earnings per share forecast for first quarter to a range of 18-22 cents from 23-27 cents. The Zacks Consensus Estimate is pegged at 20 cents for the first quarter of fiscal 2014.

Despite inclement weather and higher promotional activities, reconfiguration departments like hometown; auto and hardware performed are expected to perform well throughout the quarter. Fred's embarked on a 3-year reconfiguration plan in fiscal 2012 to focus more on higher-margin categories and move away from lower-margin consumable categories. The company is remodeling and refreshing its store layouts and allocating space to highlight key revenue-generating categories. The company may be able to combat the headwinds with the help of its reconfiguration strategies.

Earnings Whispers?

Our proven model does not conclusively show that Fred's is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: Earnings ESP for Fred's is 0.00%.

Zacks Rank: Fred's carries a Zacks Rank #4 (Sell).

We caution against stocks with Zacks Rank #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

Here are some other companies that investors may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Sanderson Farms Inc. ( SAFM ), Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy).

MIchael Kors Holding Limited ( KORS ), Earnings ESP of +1.47% and a Zacks Rank #3 (Hold).

United Natural Foods Inc. ( UNFI ), Earnings ESP of +2.70% and a Zacks Rank #3.

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FREDS INC (FRED): Free Stock Analysis Report

MICHAEL KORS (KORS): Free Stock Analysis Report

SANDERSON FARMS (SAFM): Free Stock Analysis Report

UTD NATURAL FDS (UNFI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: FRED , KORS , SAFM , UNFI



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