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Fred’s income even on wider sales   

Memphis, Tenn. – While growing its first-quarter sales by 5% to $464.3 million, neighborhood general merchandiser Fred’s Inc. fought to keep profits roughly flat at $7.3 million, down from $7.4 million for the year-ago period.

Comp-store sales rose 2.1%.

While gross profit was up 4% to $132.5 million, gross margin was off 20 basis points to 28.5% of sales, as the company said “pricing pressure, a mix shift of general merchandise products and higher inbound freight costs” were to blame. At the same time, SG&A costs were trimmed by 20 basis points.

Michael Hayes, ceo, said Fred’s adherence to its strategic plan “has resulted in higher comparable-store sales this year vs. the year-earlier quarter, despite an arguably more challenging economic environment, and has driven per-share earnings to the top end of our forecasted range.”

Hayes emphasized, “A key to our first-quarter performance was the strong 1.7% improvement in comparable customer traffic. Although we will see pressure on the gross margin over the balance of the year due to a shift in sales mix and the impact of inflation, we are pushing forward aggressively on our performance initiatives to continue driving customer traffic into our stores.”

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