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Fred's Reports Higher Third Quarter Earnings

  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
 
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