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Fred's Stronger Under the Hood

Memphis, Tenn. —Hobbled by sharply higher income-tax expense, fourth-quarter profits at Fred's Inc. slipped by 8.1%, to $9.6 million from $10.4 million.

Without the effect of the higher taxes, which more than doubled, and operating profits jumped up by 16.0%, to $14.5 million from $12.5 million last year, helped by stronger sales, somewhat lower costs and cuts in interest expense.

Sales at the discount general merchandise chain climbed by 11.3%, to $456.5 million from $410.3 million last year, and same-store sales improved by 2.5%.

Michael Hayes, ceo, commented, “Achieving a 16% operating improvement in the fourth quarter was no small feat, considering the unfavorable regulatory changes we encountered in the pharmacy department.”

Hayes also said, “We had the impact on our merchandising efforts from the changing shopping habits of our customers as they adapted to reduced discretionary income due to higher energy costs.”

Hayes said, “The effect of these factors, especially the weakness they created in our pharmacy sales, was evident in missed expectations in the fourth quarter. Our gross margin came under pressure due to continued mix shift and lower soft-line sales.”`

The retailer said it expects same-store sales during the first quarter to rise by 1% to 3%, and by 3% to 5% for the entire year. About 60 to 70 new stores will be opened, and 20 to 25 pharmacies.

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