FRED

Fred's, Inc. (FRED)

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Industry: Consumer Services
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Fred's, Inc. (FRED)

Q4 2013 Earnings Conference Call

March 27, 2014 10:00 ET

Executives

Pat Watson - Corporate Communications

Jerry Shore - Chief Financial Officer

Michael Hayes - Chairman

Bruce Efird - Chief Executive Officer

Rick Chambers - Executive Vice President, Pharmacy Operations

Analysts

Andrew Wolf - BB&T Capital Markets

Paul Trussell - Deutsche Bank

Jill Nelson - Johnson Rice

Mike Richardson - Sidoti

Presentation

Operator

Good day, and welcome to Fred’s Fourth Quarter Conference Call. Today’s call is being recorded. At this time, for opening remarks, I would like to turn the call over to Mr. Pat Watson. Please go ahead sir.

Pat Watson

Good morning, everyone. This is Pat Watson with Corporate Communications. Thank you for joining Fred’s to review the company’s financial and operating results for the fourth fiscal quarter and fiscal year ended February 1, 2014.

Before we begin, I would like to remind everyone that management’s comments in this conference call that are not based on historical facts are forward-looking statements. These statements are made in reliance on the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued earlier this morning in the company’s Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

Lastly, I would like to point out that management’s remarks during this conference call are based on information and understandings believed accurate as of today’s date, March 27, 2013. Because of the time-sensitive nature of this information, it is Fred’s policy to limit the archived replay of this conference call webcast to a period of 30 days. This call is the property of Fred’s. Any distribution, transmission, broadcast or rebroadcast of this call for commercial purposes, in any form, without the expressed written consent of the company is prohibited.

With those announcements, I will turn the call over to Jerry Shore, the company’s Chief Financial Officer. Good morning, Jerry.

Jerry Shore

Good morning, Pat and good morning to everyone on the call. Thank you for joining us for our discussion of the fourth quarter and fiscal 2013 results.

With me this morning and available for questions are Michael Hayes, Chairman; Bruce Efird, Chief Executive Officer; and Rick Chambers, EVP of Pharmacy Operations.

As council has reminded me, the company announced on January 9, 2014 that it hired financial advisors to review strategic opportunities to enhance shareholder value. The company does not intend to comment further regarding this process until such time as it’s Board of Directors has determined the outcome of the process or otherwise determined that disclosure is required or appropriate. Therefore, I will not be making any comments regarding the process.

As the company reported in its press release earlier this morning, for the fourth quarter of 2013 total sales decreased 7% to $495 million compared with $533.4 million for the same quarter last year. Total sales for fiscal 2013 decreased 1% to $1.939 billion from $1.955 billion for fiscal 2012. I will remind you that the fourth quarter of 2013 consisted of 13 weeks compared to 14 weeks last year and the 2013 year at 52 weeks compared with 53 weeks. To adjust the prior year results, the comparable 13-week and 52-week periods, we eliminated the first week of the quarter and the year in 2012. On the adjusted basis, sales for the fourth quarter of 2013 increased 0.5% over the prior year and sales for fiscal 2013 increased 1.4% over last year.

The fourth quarter comparable store sales on an adjusted basis increased 10 basis points compared to a decrease of 2.8% in the same quarter last year. During January, sales were heavily impacted by poor weather, which included over 120 store closings and additional reduced hours of operations in many other stores. We estimate the impact of weather to be approximately 100 basis points during the quarter. Fiscal 2013 comparable store sales on an adjusted basis increased 60 basis points compared with a decrease of 1.4% for fiscal 2012.

The sales mix for the quarter was as follows: household goods were 22.4% in the fourth quarter, which decreased from 23.2% last year; apparel and linens was 5.6% in this quarter decreased from 6.3%; health and beauty 6.7% decreased from 7.5%; paper and chemical 7.9% decreased from 8.5%; food and tobacco 17.2% increased from 16.7%; pharmaceuticals 38.6% increased from 36.2%; and franchise 1.6% flat with the same quarter last year. For the quarter, comparable store customer traffic decreased 2% from last year, while the average customer transaction increased 2.1% to $21.75.

The sales mix for the full year was as follows: household goods were 21.8% this fourth quarter, which decreased from 22.6% last year; apparel and linens 5.8% this quarter decreased from 6.3%; health and beauty 7% decreased from 7.5%; paper and chemical 8.4% decreased from 8.8%; food and tobacco 17.6% increased from 16.7%; pharmaceuticals 37.7% increased from 36.3%; and franchise 1.7% increased from 1.8%. For the full year, comparable store customer traffic increased 0.7%, while the average customer ticket increased 1.3% to $21.03. Sales per selling square foot in 2013 increased slightly, but both this year and the last rounded to $204 per foot.

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