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Fred's 'Refresher' Plan Working

Discount general merchandiser Fred's Inc. said in its earnings call last week that its strategic "store refresher" program is yielding positive results, with its emphasis on better merchandise selection, less cluttered in-store presentations, stronger inventory controls, and more attention to store managers' personnel issues.

The company reported fiscal year 2006 net income increased 2% to $26.7 million or $0.67 per diluted share, from net income of $26.1 million or $0.66 per diluted share for 2005.

Quarterly earnings were $9.2 million or $0.23 per diluted share, off from net income in the prior-year period of $9.6 million or $0.24 per diluted share.

Michael Hayes, ceo of the 701-store southeastern small-town chain, "I am pleased with the way we executed our plan in the fourth quarter, meeting goals for sales, expenses and operating income. On a comparable basis, excluding the effect of restructuring costs and stock option expense, fourth-quarter operating income improved approximately 20% over the same period last year, as earnings per diluted share, excluding the impact of restructuring, reached the high end of our forecast."

Hayes emphasized, "The roll-out of our store refresher program and new merchandising strategies will improve the look and feel of our stores. This will be backed by a new branding campaign."

For 2006, total sales increased 11% to $1.77 billion compared with $1.59 billion in the year-earlier period, while fourth-quarter sales accelerated, growing 17% to $535.6 million from $456.5 million in the same period last year.

Jerry Shore, executive vp and cfo, pointed out some key metrics. He said the comparative store sales gain was 2.0% for the quarter and 2.4% for the year. In the quarter, comparative store customer traffic was down 1.4%, while the average ticket climbed 3.4% to $19.32. For the year, comp traffic fell 1.1% and the ticket rose 3.5% to $18.57. Productivity for chainwide selling space in fiscal 2006 was $185 per square foot.

Total inventories at yearend were up only 0.4% — the result of a successful effort to restrain costs — very healthy against the incremental sales volume of 11%.

HTT research pegged Fred's 2005 home textiles sales at $70.0 million, about 4.4% of total revenues.

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