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Fred's weathers storms in 2Q but braces for more impacts

Fred's weathers storms in 2Q but braces for more impacts

 Memphis - Southeastern regional discount chain Fred's Inc. managed a 16% net income gain as well some modest increases in sales and comps in its first quarter despite the harsh weather conditions that plagued the areas served by this regional chain.

"First-quarter challenges included a historic number of tornadoes, flooding and other weather issues that cut across the heart of our markets," noted Bruce Efird, ceo. "This was on top of more persistent problems, like the significant run-up in fuel costs and ongoing high unemployment."

He added that through it all, Fred's staff kept stores open during and after the storms.

Even so, Fred's is bracing for potentially deeper impacts on future results as the region works toward recovery.

"When we have witnessed this type of community devastation in the past, markets typically have remained slow for a period of up to 90 days or so, and then average tickets historically have increased as customers recover and regain confidence," Efird continued.

First-quarter results included: a 16% jump in net income to $9.5 million or 24 cents per share compared with $8.2 million or 21 cents per share last year; sales of $484.4 million, up 3%; and comparable store sales up 1% on top of a 2.2% increase for the first quarter last year.

Pharmacy continues to be Fred's core business, occupying the largest share at 33.6% of sales. Home linens and apparel is the 673-unit chain's fifth largest business, comprising 7.5% of total sales in the first quarter.

Home was among the categories that performed better than planned in the first quarter, Efird noted during Fred's earnings call this morning.

In the second quarter, Fred's anticipates that May and June comparable sales may trend to a range of 1% to 2% versus an increase of 2.5% in the second quarter last year.

"The lower may guidance is indicative of the severity of the weather we have seen during the month," Efird said. "As late as this week we continue to see the persistence of the bad storms."

Also in the second quarter, Fred's is expecting total sales to increase 2% to 4%, and earnings per diluted share to increase 8% to 23% to a range of 14 to 16 cents compared with earnings per share of 13 cents in the same period last year.

He added that the programs and initiatives now underway "that have proven successful in driving traffic, along with the efforts of our operations team, are keys factors that give us confidence to keep our forecast unchanged for the second quarter and 2011."


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