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Fred's takes net income hit in Q3

Memphis - As the result of a shift in layaway sales, higher operating expenses, and other impacts, regional discount chain Fred's Inc. reported a steep decline in its third quarter net income - down 27% to $6.6 million or 18 cents per share.

Total sales for the quarter, which ended October 27, increased 1% to $450.6 million. But comparable store sales were also a casualty, dipping 2.5%, compared with an increase of 1.5% last year.

Year-to-date net income was virtually flat - $23.1 million or 63 cents per share versus $23.6 million or 61 cents per share a year ago. Sales were up 3% to $1.422 billion, while comps decreased 0.8% versus a 0.7% increase a year ago.

Bruce A. Efird, ceo, explained 708-unit Fred's third quarter "reflected the intensely challenging retail climate we face and the effects of the brand-to-generic shift on pharmacy sales throughout the quarter. Despite this negative impact on top-line sales, our pharmacy department produced strong results for the quarter, with growth in comparable prescription counts and increased gross margins."

Still, general merchandise sales and traffic improve during the final month of the quarter, he noted, in response to our increased marketing initiatives.

Looking to the holiday season, Efird said Fred's stores are "ready and well stocked and our merchandising and marketing plans are in place to deliver great values...We believe Fred's remains well positioned for a solid finish to 2012, and that the company will continue to generate momentum in the upcoming fiscal year."

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