Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,543.84 27.57 0.19%
TOPIX 1,173.15 -0.22 -0.02%
HANG SENG 22,760.24 64.23 0.28%

Fred's Reports Higher Second Quarter Earnings, Excluding Tax Benefit Recorded in Year-Earlier Period



  Fred's Reports Higher Second Quarter Earnings, Excluding Tax Benefit
  Recorded in Year-Earlier Period

Business Wire

MEMPHIS, Tenn. -- August 29, 2013

Fred's, Inc. (NASDAQ: FRED) today reported financial results for the second
quarter and six months ended August 3, 2013.

For the second quarter ended August 3, 2013, Fred's net income was $3.3
million or $0.09 per diluted share compared with net income of $6.1 million or
$0.17 per diluted share in the year-earlier period. However, the prior-year
quarter included a benefit of approximately $4.0 million or $0.11 per diluted
share for favorable tax credits related to a state income tax settlement as
well as adjustments for other tax related assumptions and estimates. Excluding
the favorable tax credits, Fred's net income for the second quarter of 2013
increased 63% from the second quarter of 2012 while earnings per diluted share
increased 50%. Fred's net income for the first half of 2013, excluding the tax
benefit recorded last year, increased 18% to $0.40 per diluted share.

Fred's total sales for the second quarter of fiscal 2013 increased 2% to
$482.2 million from $470.8 million for the same period last year. Comparable
store sales for the quarter increased 2.2% compared with a decline of 1.0% in
the second quarter last year. Fred's total sales for the first half of fiscal
2013 increased 1% to $983.7 million from $971.3 million for the same period
last year. Comparable store sales for the first half of 2013 increased 0.5%
compared with a decrease of 0.5% in the same period last year.

Commenting on the results, Bruce A. Efird, Chief Executive Officer, said, "We
are pleased by the Company's performance during the second quarter, which was
highlighted by a strong increase in both operating income and net income,
excluding last year's tax benefits. Sales growth, customer traffic, average
ticket, gross margin, and expense management were all positive factors in the
quarter. We also were pleased with the progress of the first phase of our
reconfiguration plan as the penetration of stores with pharmacies increased
from 50% to 52% and we experienced strong comparable sales performance in our
expanded Hometown Auto & Hardware departments.

"Reviewing recent comments expressed by competitors in their quarterly reports
and outlooks expressed by industry analysts, we anticipate that the
competitive climate will be intense and the operating environment challenging
in the second half of the year," Efird continued. "Discretionary spending for
lower-income consumers – a key customer segment for Fred's – is expected to
remain under pressure. The programs we put in place earlier this year,
combined with our pharmacy expansion and the aggressive general merchandising
initiatives we have planned in the back half of the year, are designed to meet
these economic and competitive challenges. We remain confident that our
earnings for the year will fall in the middle to the upper end of the range we
earlier projected, with earnings in the second half increasing 14% to 28% over
the same period last year and earnings for the full year increasing 17% to 25%
over 2012, excluding the tax benefit recorded last year."

Fred's gross profit for the second quarter of 2013 increased 3% to $136.0
million from $131.8 million in the prior-year period. Gross margin for the
quarter increased 20 basis points to 28.2% compared with 28.0% in the same
quarter last year. Gross profit for the first half of 2013 increased 3% to
$287.0 million from $279.6 million in the prior-year period. Gross margin for
the six-month period improved 40 basis points to 29.2% compared with 28.8% in
the prior-year period. The improvements for the quarter and year-to-date
period were driven by an increased pharmacy department gross margin,
specifically reflecting the impact of the brand-to-generic mix shift, and
better shrinkage control.

Selling, general and administrative expenses for the quarter, including
depreciation and amortization, leveraged 20 basis points to 27.1% of sales
from 27.3% of sales in the prior-year quarter. The leveraging of expenses in
the second quarter was driven by store expense management as well as favorable
insurance expense reductions. These improvements were partially offset by the
sales impact of the pharmacy department brand-to-generic shift and investments
in new pharmacies. In the first half of 2013, selling general and
administrative expenses deleveraged 20 basis points to 26.9% from 26.7% of
sales in the first half of 2012. The deleveraging in the year-to-date period
was primarily attributable to the sales impact of the pharmacy department
brand-to-generic shift and investments in new pharmacies.

For the second quarter of 2013, operating income, which is equivalent to
earnings before interest and taxes, or EBIT, a non-GAAP measure, improved 55%
to $5.2 million or 1.1% of sales compared with $3.4 million or 0.7% of sales
in the prior-year period. For the first half of 2013, operating income
increased 12% to $23.0 million or 2.3% of sales from $20.5 million or 2.1% of
sales in the first half of 2012.

For the second quarter of 2013, earnings before interest, taxes, depreciation
and amortization, or EBITDA, also a non-GAAP measure that further excludes
depreciation and amortization from EBIT, improved 23% to $15.7 million or 3.3%
of sales compared with $12.8 million or 2.7% of sales in the year-earlier
quarter. For the first half of 2013, EBITDA increased 11% to $43.8 million or
4.5% of sales, up from $39.3 million or 4.0% of sales in the first half of
2012.

During the second quarter, Fred's opened two new stores and one new Xpress
location and closed 21 locations. During the first half of 2013, Fred's opened
seven new locations, consisting of three new stores and four Xpress
pharmacies, and closed 22 locations.

In the third quarter of 2013, the Company expects total sales to increase in
the range of 1% to 3%. Comparable store sales are expected to be flat to up 2%
versus a decrease of 2.5% in the third quarter last year. Third quarter 2013
earnings per diluted share are forecasted to be in the range of $0.19 to $0.23
compared with earnings per diluted share of $0.18 in the same period last
year. Based on results for the first half of 2013 and this outlook, the
Company now expects total earnings per diluted share for 2013 to be in the
range of $0.81 to $0.86.

Currently, Fred's, Inc. operates 697 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 second quarter 2013
conference call may be accessed at the Company's web site. 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 September 29, 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)
 
                                13 Weeks    13 Weeks
                                Ended       Ended       Percent
                                August 3,   July 28,    Change
                                2013        2012
Net sales                       $ 482,176   $ 470,816   2.4   %
Operating income                $ 5,213     $ 3,366     54.9  %
Net income                      $ 3,330     $ 6,054     (45.0 )%
Net income per share:
Basic                           $ 0.09      $ 0.17      (47.1 )%
Diluted                         $ 0.09      $ 0.17      (47.1 )%
Average shares outstanding:
Basic                             36,521      36,493
Diluted                           36,685      36,621

                                26 Weeks    26 Weeks
                                Ended       Ended       Percent
                                August 3,   July 28,    Change
                                2013        2012
Net sales                       $ 983,671   $ 971,321   1.3   %
Operating income                $ 22,997    $ 20,467    12.4  %
Net income                      $ 14,741    $ 16,512    (10.7 )%
Net income per share:
Basic                           $ 0.40      $ 0.45      (11.1 )%
Diluted                         $ 0.40      $ 0.45      (11.1 )%
Average shares outstanding:
Basic                             36,525      36,738
Diluted                           36,664      36,871
                                                         

 
FRED'S, INC.
Unaudited Fiscal 2013 Second Quarter Results
(in thousands, except per share amounts)
                                                                      
                                   13 Weeks              13 Weeks
                                   Ended                 Ended
                                   August 3,   % of      July 28,      % of
                                   2013        Total     2012          Total
Net sales                          $ 482,176   100.0 %   $ 470,816     100.0 %
Cost of goods sold                   346,191   71.8  %     339,058     72.0   
Gross profit                         135,985   28.2  %     131,758     28.0
Depreciation & amortization          10,527    2.2   %     9,474       2.0
Selling, general and                 120,245   24.9  %     118,918     25.3   
administrative expenses
Operating income                     5,213     1.1   %     3,366       0.7
Interest expense, net                129       0.0   %     136         0.0    
Income before income taxes           5,084     1.1   %     3,230       0.7
Provision for income taxes           1,754     0.4   %     (2,824  )   (0.6  )
Net income                         $ 3,330     0.7   %   $ 6,054       1.3   %
Net income per share:
Basic                              $ 0.09                $ 0.17
Diluted                            $ 0.09                $ 0.17
Weighted average shares
outstanding:
Basic                                36,521                36,493
Diluted                              36,685                36,621
                                                                        

 
Unaudited Fiscal 2013 Six-month Results
(in thousands, except per share amounts)
                                                                      
                                     26 Weeks              26 Weeks
                                     Ended                 Ended
                                     August 3,   % of      July 28,    % of
                                     2013        Total     2012        Total
Net sales                            $ 983,671   100.0 %   $ 971,321   100.0 %
Cost of goods sold                     696,667   70.8  %     691,721   71.2   
Gross profit                           287,004   29.2  %     279,600   28.8
Depreciation & amortization            20,828    2.1   %     18,838    1.9
Selling, general and                   243,179   24.8  %     240,295   24.8   
administrative expenses
Operating Income                       22,997    2.3   %     20,467    2.1
Interest expense, net                  264       0.0   %     273       0.0    
Income before income taxes             22,733    2.3   %     20,194    2.1
Provision for income taxes             7,992     0.8   %     3,682     0.4    
Net income                           $ 14,741    1.5   %   $ 16,512    1.7   %
Net income per share:
Basic                                $ 0.40                $ 0.45
Diluted                              $ 0.40                $ 0.45
Weighted average shares
outstanding:
Basic                                  36,525                36,738
Diluted                                36,664                36,871
                                                                        

 
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
                                                          
                                               August 3,   July 28,
                                               2013        2012
ASSETS:
Cash and cash equivalents                      $ 7,937     $ 23,123
Inventories                                      348,324     340,109
Receivables                                      36,169      29,601
Other non-trade receivables                      33,019      32,850
Prepaid expenses and other current assets        12,533      6,798
Total current assets                             437,982     432,481
Property and equipment, net                      156,720     158,453
Intangibles                                      42,943      35,360
Other non-current assets                         3,259       3,276
Total assets                                   $ 640,904   $ 629,570
                                                            
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable                               $ 103,557   $ 103,105
Current portion of indebtedness                  1,148       1,614
Accrued expenses and other                       45,605      44,719
Deferred income taxes                            23,868      24,374
Total current liabilities                        174,178     173,812
                                                            
Long-term portion of indebtedness                4,209       5,509
Deferred income taxes                            3,656       6,298
Other non-current liabilities                    15,220      15,746
Total liabilities                                197,263     201,365
Shareholders' equity                             443,641     428,205
Total liabilities and shareholders' equity     $ 640,904   $ 629,570
                                                              

Contact:

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