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Fred's forwards hard-lines push

Retail Editor 2 -- Home Textiles Today, August 29, 2013

Memphis, Tenn. - As Fred's focuses on traffic-driving pharmacies and consumable goods, sales from soft goods continue to shrink as part of the overall revenue stream.

During the second quarter, sales of apparel and linens at the 697-unit discounter accounted for 5.7% of sales, or $9.6 million, compared to 6.2% of sales in the year-ago period, executives said during the company's quarter call with analysts this morning. Year-to-date, apparel and linens sales represented 6.1% of total sales compared to 6.5% during last year's first half.

The home department is growing overall - on the hard goods side. The addition of Hometown Auto & Hardware centers in home is attracting more DIY customers, executives said.

For the second quarter ended August 3, 2013, Fred's profit performance was impacted by a one-time event in the year-ago quarter that gave the retailer roughly $4.0 million in favorable tax credits. Absent the event, net income jumped 63%. Including the event, net income tumbled 45% to $3.3 million, or 9 cents per share.

Sales rose 2% to $482.2 million. Same-store sales increased 2.2% compared with a decline of 1.0% in the second quarter last year.
For the first half of the fiscal year, net income declined 14.7% when the impact of the tax credits is included. Absent the comparison, net income rose 18% to $14.7 million. Sales were up 1% to $983.7 million. Comps increased 0.5% compared with a decrease of 0.5% in the same period last year.

"Sales growth, customer traffic, average ticket, gross margin, and expense management were all positive factors in the quarter," said Bruce Efird, ceo. "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."

Fred's is also testing five Yazoo Trading Company concept stores, a combination hardware/automotive products format that also provides pet and lawn & garden goods. The first store opened in June and the other four opened last week.

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