Fred's Reports Higher Third Quarter Earnings Business Wire MEMPHIS, Tenn. -- November 26, 2013 Fred's, Inc. (NASDAQ: FRED) today reported financial results for the third quarter and nine months ended November 2, 2013. For the third quarter ended November 2, 2013, Fred's net income totaled $7.3 million or $0.20 per diluted share, up 11% from net income of $6.6 million or $0.18 per diluted share in the year-earlier period. Fred's net income for the first nine months of 2013 totaled $22.0 million or $0.60 per diluted share compared with $23.1 million or $0.63 per diluted share in the prior year, which included a benefit of approximately $4.2 million or $0.12 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 and earnings per diluted share for the first nine months of 2013 increased 18% from the comparable period last year. Fred's total sales for the third quarter of fiscal 2013 increased 2% to $460.5 million from $450.6 million for the same period last year. Comparable store sales for the quarter increased 1.4% compared with a decline of 2.5% in the third quarter last year. Fred's total sales for the first nine months of fiscal 2013 increased 2% to $1.444 billion from $1.422 billion for the same period last year. Comparable store sales for the first nine months of 2013 increased 1.1% compared with a decrease of 0.8% in the same period last year. Commenting on the results, Bruce A. Efird, Chief Executive Officer, said, "We are pleased to report an 11% increase in earnings for the third quarter, which reflected the ongoing progress we have seen with our key initiatives for the year. Our Hometown Auto & Hardware department continues to produce strong comparable store sales and the investments in pharmacy growth have been validated by the 8% increase in its total department sales. Notably, our pharmacy department accounted for more than 40% of total company sales during the quarter. To help build on this momentum, we opened our new specialty pharmacy division, EIRIS Health Services, during the third quarter, which accelerates our entry into the fastest growing area of the pharmacy industry. On the expense side of the ledger, the team successfully attained 30 basis points of leverage. "With the progress we achieved in the third quarter, we remain confident that the programs we have put in place during the year will drive continued earnings growth," Efird continued. "For the full year, we project earnings to increase from 13% to 20% over 2012, excluding the one-time tax benefit recorded last year." Fred's gross profit for the third quarter of 2013 increased 2% to $140.2 million from $138.1million in the prior-year period. Gross margin for the quarter decreased 20 basis points to 30.5% compared with 30.7% in the same quarter last year. The deleveraging for the quarter was driven by higher general merchandise markdowns combined with an increase in general merchandise shrinkage. Gross profit for the first nine months of 2013 increased 2% to $427.2 million from $417.7 million in the prior-year period. Gross margin for the nine-month period improved 20 basis points to 29.6% compared with 29.4% in the prior-year period. The increase for the year-to-date period resulted from higher pharmacy department rebates. Selling, general and administrative expenses for the quarter, including depreciation and amortization, leveraged 30 basis points to 28.2% of sales from 28.5% of sales in the prior-year quarter. The leveraging of expenses in the third quarter was driven by favorable store labor and insurance expense reductions. These improvements were partially offset by higher occupancy costs and depreciation and amortization associated with new store and pharmacy growth. In the first nine months of 2013, selling, general and administrative expenses deleveraged 10 basis points to 27.3% from 27.2% of sales in the same nine months of 2012. The deleveraging in the year-to-date period was primarily attributable to higher occupancy costs and investments in new store and pharmacy growth, which was partially offset by insurance expense reductions. For the third quarter of 2013, operating income, which is equivalent to earnings before interest and taxes, or EBIT, a non-GAAP measure, improved 5% to $10.6 million or 2.3% of sales compared with $10.1 million or 2.2% of sales in the prior-year period. For the first nine months of 2013, operating income increased 10% to $33.6 million or 2.3% of sales from $30.6 million or 2.2% of sales in the first nine months of 2012. For the third 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 6% to $21.3 million or 4.6% of sales compared with $20.0 million or 4.4% of sales in the year-earlier quarter. For the first nine months of 2013, EBITDA increased 10% to $65.1 million or 4.5% of sales, up from $59.3 million or 4.2% of sales in the first nine months of 2012. During the third quarter, Fred's opened eight new locations and closed four locations. During the first nine months of the year, Fred's opened 17 new locations, comprising seven new stores and 10 new Xpress pharmacies. Fred's also closed 21 stores and seven Xpress locations. In the fourth quarter of 2013, the Company expects total sales to increase in the range of 1% to 3%. Comparable store sales are expected to be in the range of flat to up 2% versus a decrease of 2.8% in the comparable 13-week fourth quarter last year. Fourth quarter 2013 earnings per diluted share are forecasted to be in the range of $0.18 to $0.23 compared with earnings per diluted share of $0.18 in the 14-week quarter last year or $0.15 in the comparable 13-week quarter last year. Based on results for the first nine months of 2013 and this outlook, the Company now expects total earnings per diluted share for 2013 to be in the range of $0.78 to $0.83. Currently, Fred's, Inc. operates 701 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 third 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 December 26, 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 November 2, October 27, Change 2013 2012 Net sales $ 460,542 $ 450,574 2.2 % Operating income $ 10,636 $ 10,120 5.1 % Net income $ 7,308 $ 6,561 11.4 % Net income per share: Basic $ 0.20 $ 0.18 11.1 % Diluted $ 0.20 $ 0.18 11.1 % Average shares outstanding: Basic 36,558 36,443 Diluted 36,723 36,583 39 Weeks 39 Weeks Ended Ended Percent November 2, October 27, Change 2013 2012 Net sales $ 1,444,213 $ 1,421,895 1.6 % Operating income $ 33,633 $ 30,587 10.0 % Net income $ 22,049 $ 23,073 (4.4 )% Net income per share: Basic $ 0.60 $ 0.63 (4.8 )% Diluted $ 0.60 $ 0.63 (4.8 )% Average shares outstanding: Basic 36,532 36,626 Diluted 36,679 36,761 FRED'S, INC. Unaudited Fiscal 2013 Third Quarter Results (in thousands, except per share amounts) 13 Weeks 13 Weeks Ended % of Ended % of November 2, Total October 27, Total 2013 2012 Net sales $ 460,542 100.0 % $ 450,574 100.0 % Cost of goods sold 320,305 69.5 % 312,441 69.3 % Gross profit 140,237 30.5 % 138,133 30.7 % Depreciation & 10,631 2.3 % 9,880 2.2 % amortization Selling, general and administrative 118,970 25.9 % 118,133 26.3 % expenses Operating income 10,636 2.3 % 10,120 2.2 % Interest expense, 113 0.0 % 129 0.0 % net Income before income 10,523 2.3 % 9,991 2.2 % taxes Provision for income 3,215 0.7 % 3,430 0.7 % taxes Net income $ 7,308 1.6 % $ 6,561 1.5 % Net income per share: Basic $ 0.20 $ 0.18 Diluted $ 0.20 $ 0.18 Weighted average shares outstanding: Basic 36,558 36,443 Diluted 36,723 36,583 Unaudited Fiscal 2013 Nine-month Results (in thousands, except per share amounts) 39 Weeks 39 Weeks Ended % of Ended % of November 2, Total October 27, Total 2013 2012 Net sales $ 1,444,213 100.0 % $ 1,421,895 100.0 % Cost of goods sold 1,016,972 70.4 % 1,004,162 70.6 % Gross profit 427,241 29.6 % 417,733 29.4 % Depreciation & 31,459 2.2 % 28,718 2.0 % amortization Selling, general and administrative 362,149 25.1 % 358,428 25.2 % expenses Operating income 33,633 2.3 % 30,587 2.2 % Interest expense, 377 0.0 % 402 0.1 % net Income before income 33,256 2.3 % 30,185 2.1 % taxes Provision for income 11,207 0.8 % 7,112 0.5 % taxes Net income $ 22,049 1.5 % $ 23,073 1.6 % Net income per share: Basic $ 0.60 $ 0.63 Diluted $ 0.60 $ 0.63 Weighted average shares outstanding: Basic 36,532 36,626 Diluted 36,679 36,761 FRED'S, INC. Unaudited Balance Sheet (in thousands) November 2, October 27, 2013 2012 ASSETS: Cash and cash equivalents $ 21,585 $ 16,119 Inventories 385,552 392,523 Receivables 36,772 30,584 Other non-trade receivables 33,531 36,252 Prepaid expenses and other current assets 15,442 11,515 Total current assets 492,882 486,993 Property and equipment, net 155,893 158,143 Intangibles 44,801 37,601 Other non-current assets 3,258 3,386 Total assets $ 696,834 $ 686,123 LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable $ 145,278 $ 153,526 Current portion of indebtedness 1,130 1,281 Accrued expenses and other 52,740 43,220 Deferred income taxes 24,980 24,870 Total current liabilities 224,128 222,897 Long-term portion of indebtedness 4,158 5,438 Deferred income taxes 1,454 6,541 Other non-current liabilities 17,466 18,074 Total liabilities 247,206 252,950 Shareholders' equity 449,628 433,173 Total liabilities and shareholders' equity $ 696,834 $ 686,123 Contact: Fred's, Inc. Jerry A. Shore, 901-362-3733, Ext. 2217 Executive Vice President and Chief Financial Officer
Fred's Reports Higher Third Quarter Earnings
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