Fred's Reports Fourth Quarter and Full Fiscal Year 2012 Results

  Fred's Reports Fourth Quarter and Full Fiscal Year 2012 Results

Business Wire

MEMPHIS, Tenn. -- March 28, 2013

Fred's, Inc. (NASDAQ: FRED) today reported financial results for the fourth
quarter and fiscal year ended February 2, 2013.

For the fourth quarter ended February 2, 2013, Fred’s net income totaled $6.6
million or $0.18per diluted share compared with net income of $9.8 million or
$0.26 per diluted share in the fourth quarter ended January 28, 2012. For
fiscal year 2012, Fred's net income totaled $29.6 million or $0.81 per diluted
share compared with $33.4 million or $0.87 per diluted share in the prior
year. Net income for 2012 included approximately $4.2 million or $0.12 per
diluted share related to a state income tax settlement, as well as adjusting
other tax-related assumptions and estimates.

Fred's total sales for the 14-week fourth quarter of fiscal 2012 increased 7%
to $533.4 million from $497.6 million for the same period last year.
Comparable store sales for the quarter increased 4.8%. Fred's total sales for
53-week fiscal 2012 increased 4% to $1.955 billion from $1.879 billion for the
same period last year. Comparable store sales for fiscal year 2012 increased
1.1%.

To adjust these results for 13- and 52-week periods, the Company eliminated
from 2012 the week ended February 2, 2013. Excluding the effect of the extra
week in the current year, fourth quarter comparable store sales decreased 2.8%
from the year-earlier period. Excluding the effect of the extra week in the
current year, fiscal 2012 comparable store sales for the year decreased 1.4%
from the year-earlier period.

Commenting on the results, Bruce A. Efird, Chief Executive Officer, said, "The
fourth quarter brought to a close a challenging year in 2012 as our customers
remained under economic pressures and our operating costs trended higher than
forecast. We were disappointed by the results, but now move forward with
optimism about future opportunities and embark on a three-year reconfiguration
plan designed to help us regain the momentum we experienced in the prior three
years in driving toward our goal of increasing our operating margin to 4%.

"Fred's business comprises two distinct focal points," Efird continued, "one
being our pharmacy department, which continues to perform well, and the other
being our general merchandise departments, which overall have seen challenging
results. Our reconfiguration plan will seek to elevate our general merchandise
performance by shifting our general merchandise business to a healthier
balance of higher gross margin, discretionary departments and consumables,
while accelerating our pharmacy and healthcare services growth. Through these
efforts, we believe we can improve overall store productivity and space
efficiency and enhance product selection in stores with pharmacies. In
summary, we look forward to driving improved performance in 2013, delivering
earnings growth in the range of 12% to 28% higher than in 2012."

Fred's gross profit for the fourth quarter of 2012 increased 8% to $148.6
million from $137.7 million in the prior-year period. Gross margin for the
quarter increased to 27.9% compared with 27.7% in the same quarter last year.
During the fourth quarter, pharmacy department margins improved while general
merchandise gross margin decreased in the quarter primarily due to a
significant sales mix shift affecting initial markup.

Gross profit for fiscal 2012 increased 5% to $566.3 million from $538.5
million in the prior-year period. Gross margin for fiscal 2012 increased to
29.0% compared with 28.7% in the prior-year period.

Selling, general and administrative expenses for the quarter, including
depreciation and amortization, deleveraged 150 basis points to 26.3% of sales
from 24.8% of sales in the prior-year quarter. During the quarter, the
deleveraging of expenses is primarily attributed to the top-line impact of the
pharmacy department brand-to-generic drug shift as well as depreciation and
amortization resulting from new pharmacy growth. In addition to pharmacy
department expense deleveraging, we also incurred higher store occupancy costs
and increased insurance expense. For fiscal 2012, selling general and
administrative expenses deleveraged 100 basis points to 27.0% from 26.0% of
sales in fiscal 2011.

For the fourth quarter of 2012, operating income, which is equivalent to
earnings before interest and taxes or EBIT, a non-GAAP measure, was $8.5
million or 1.6% of sales compared with $14.2 million or 2.9% of sales in the
prior-year period. For fiscal 2012, operating income or EBIT was $39.1 million
or 2.0% of sales from $51.2 million or 2.7% of sales in fiscal 2011.

For the fourth quarter of 2012, earnings before interest, taxes, depreciation
and amortization or EBITDA, also a non-GAAP measure that further excludes
depreciation and amortization from EBIT, was $19.3 million or 3.6% of sales
compared with $24.1 million or 4.8% of sales in the prior-year period. For
fiscal 2012, EBITDA was $78.6 million or 4.0% of sales from $85.3 million or
4.5% of sales in fiscal 2011.

During the fourth quarter, Fred's opened four net new locations consisting of
six full-service store openings, two new Xpress pharmacy locations and the
closure of one full-service store and three Xpress pharmacy locations. For
fiscal 2012, the Company opened 12 net new locations consisting of 20
full-service store openings, 15 new Xpress pharmacy locations and the closure
of 14 full-service stores and nine Xpress pharmacy locations. For fiscal 2012,
the Company added 21 net new pharmacies.

The Company provides the following guidance for the first quarter of 2013 and
the upcoming full fiscal year, noting that there will be 52 weeks of operating
results in the fiscal year:

  *The change in total sales for the first quarter of 2013 is expected to
    range from up 1% to down 1%.
  *Comparable store sales for the first quarter are expected to be down 1% to
    3%, reflecting poor weather in March that affected Lawn & Garden and other
    seasonal merchandise, versus a decrease of 0.3% in the first quarter last
    year.
  *Earnings per diluted share for the first quarter are forecasted to be in
    the range of $0.26 to $0.30 compared with $0.28 last year.
  *Based on this outlook, the Company expects total earnings per diluted
    share for 2013 to be in the range of $0.77 to $0.88. Excluding the impact
    of the $0.12 per share favorable income tax adjustment on 2012 results,
    the increase in earnings per share is projected to be 12% to 28% in 2013.

Currently, Fred's, Inc. operates 713 discount general merchandise stores,
including 21 franchised Fred's stores, in the southeastern United States. For
more information about the Company, visit Fred's website at www.fredsinc.com.

A public, listen-only simulcast and replay of Fred's fourth quarter and fiscal
year-end 2012 conference call may be accessed at the Company's web site or at
www.earnings.com. The simulcast will begin at approximately 10:00 a.m. Eastern
Time today; a replay of the call will be available beginning at approximately
1:00 p.m. Eastern Time and will run until April 28, 2013.

Comments in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, those associated with the Company's announced strategic plan,
lease buyouts and the underlying assumptions and projections upon which they
are based, as well as risks that intended results may not be achieved or may
not occur as quickly as expected; general economic trends; changes in consumer
demand or purchase patterns; delays or interruptions in the flow of
merchandise between the Company's distribution centers and its stores or
between the Company's suppliers and same; a disruption in the Company's data
processing services; costs and delays in acquiring or developing new store
sites; and other contingencies discussed in the Company's Securities and
Exchange Commission filings. Fred's undertakes no obligation to release
revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of unforeseen
events, except as required to be reported under the rules and regulations of
the Securities and Exchange Commission.

                                                    
FRED'S, INC.

Unaudited Financial Highlights

(In thousands, except per share amounts)
                                           

                              14 Weeks      13 Weeks      Percent
                              Ended         Ended         Change
                              February 2,   January 28,
                              2013          2012
Net sales                     $  533,380    $  497,592    7.2   %
Operating income              $  8,491      $  14,205     (40.2 )%
Net income                    $  6,556      $  9,796      (33.1 )%
Net income per share:
Basic                         $  0.18       $  0.27       (33.3 )%
Diluted                       $  0.18       $  0.26       (30.8 )%
Average shares outstanding:
Basic                            36,478        36,831
Diluted                          36,579        36,941

                                           
                                                      
                             53 Weeks      52 Weeks      Percent
                              Ended         Ended         Change
                              February 2,   January 28,
                              2013          2012
Net sales                     $ 1,955,275   $ 1,879,059   4.1   %
Operating income              $ 39,078      $ 51,155      (23.6 )%
Net income                    $ 29,629      $ 33,428      (11.4 )%
Net income per share:
Basic                         $ 0.81        $ 0.88        (8.0  )%
Diluted                       $ 0.81        $ 0.87        (6.9  )%
Average shares outstanding:
Basic                           36,584        38,176
Diluted                         36,711        38,268

                                                                  
FRED'S, INC.

Unaudited Fiscal 2012 Fourth Quarter Results

(in thousands, except per share amounts)
                                                                       
                                                        
                                                                      
                                 14 Weeks                13 Weeks
                                 Ended         % of      Ended         % of
                                 February 2,   Total     January 28,   Total
                                 2013                    2012
Net sales                        $  533,380    100.0 %   $  497,592    100.0 %
Cost of goods sold                 384,781    72.1  %     359,891    72.3  %
Gross profit                        148,599    27.9  %      137,701    27.7  %
Depreciation & amortization         10,823     2.0   %      9,878      2.0   %
Selling, general and               129,285    24.3  %     113,618    22.8  %
administrative expenses
Operating income                    8,491      1.6   %      14,205     2.9   %
Interest expense, net              147        0.0   %     134        0.0   %
Income before income taxes          8,344      1.6   %      14,071     2.9   %
Provision for income taxes         1,788      0.4   %     4,275      0.9   %
Net income                       $  6,556      1.2   %   $  9,796      2.0   %
Net income per share:
Basic                            $  0.18                 $  0.27
Diluted                          $  0.18                 $  0.26
Weighted average shares
outstanding:
Basic                               36,478                  36,831
Diluted                             36,579                  36,941

                                                                  
Unaudited Fiscal 2012 Results

(in thousands, except per share amounts)
                                                                       
                                                        

                                 53 Weeks      % of      52 Weeks      % of
                                 Ended         Total     Ended         Total
                                 February 2,             January 28,
                                 2013                    2012
Net sales                        $ 1,955,275   100.0 %   $ 1,879,059   100.0 %
Cost of goods sold                1,388,943   71.0  %    1,340,519   71.3  %
Gross profit                       566,332     29.0  %     538,540     28.7  %
Depreciation & amortization        39,541      2.0   %     34,190      1.8   %
Selling, general and              487,713     25.0  %    453,195     24.2  %
administrative expenses
Operating income                   39,078      2.0   %     51,155      2.7   %
Interest expense, net             549         0.0   %    397         0.0   %
Income before income taxes         38,529      2.0   %     50,758      2.7   %
Provision for income taxes        8,900       0.5   %    17,330      0.9   %
Net income                       $ 29,629      1.5   %   $ 33,428      1.8   %
Net income per share:
Basic                            $ 0.81                  $ 0.88
Diluted                          $ 0.81                  $ 0.87
Weighted average shares
outstanding:
Basic                              36,584                  38,176
Diluted                            36,711                  38,268

                                                       
FRED'S, INC.

Unaudited Balance Sheet

(in thousands)
                                                           
                                             February 2,   January 28,

                                             2013          2012
ASSETS:
Cash and cash equivalents                    $  8,129      $  27,130
Inventories                                     353,266       331,882
Receivables                                     35,943        31,883
Other non-trade receivables                     33,273        32,090
Prepaid expenses and other current assets      13,134       12,321
Total current assets                            443,745       435,306
Property and equipment, net                     158,457       161,209
Intangibles                                     41,873        32,191
Other non-current assets                       3,078        3,276
Total assets                                 $  647,153    $  631,982
                                                           
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable                             $  115,830    $  106,886
Current portion of indebtedness                 1,263         658
Accrued expenses and other                      44,000        44,876
Deferred income taxes                          24,234       23,878
Total current liabilities                       185,327       176,298
                                                           
Long-term portion of indebtedness               12,241        6,640
Deferred income taxes                           4,732         5,633
Other non-current liabilities                  13,581       19,799
Total liabilities                               215,881       208,370
Shareholders' equity                           431,272      423,612
Total liabilities and shareholders' equity   $  647,153    $  631,982

Contact:

Fred's, Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Executive Vice President and
Chief Financial Officer