Fred’s Inc. sees Q1 sales, comp gains, thanks in part to success in home

Memphis, Tenn. – Fred’s Inc.’s “strong” sales in home products, particularly home furnishings, helped drive gains in the regional general merchandise chain’s first quarter.

“We are pleased overall with the trends we are seeing relative to the Core 5 areas – the best growth we saw in home, and party and celebration,” explained Bruce Efird, ceo, during the retailer’s quarterly earnings presentation this morning. “Strong sales in lawn and garden and home products – specifically furniture and home furnishings – were strong throughout the period.”

For the first quarter ended May 1, Fred's total sales increased almost 3% to $471.6 million compared with $458.4 million for the same period last year. Comparable store sales for the quarter increased 2.2% on top of a 2.8% increase in the first quarter last year.

Quarterly net income totaled $8.2 million or 21cents per diluted share compared with net income of $8.6 million or 21cents per diluted share in the year-earlier period.

“We are pleased to report earnings above guidance in the first quarter driven by better-than-expected comparable store sales growth and a favorable sales mix, which together resulted in a 90-basis-point improvement in gross margins,” Efird said.

During the first quarter, Fred's opened one new store and five new pharmacies.

In the second quarter of 2010, the 670-unit regional discount chain said it expects total sales to increase 5% to 7% and comparable store sales to increase 2% to 4% versus a decrease of 1.3% in the second quarter last year. The company also expects earnings per diluted share to be in the range of $0.12 to $0.15 for the second quarter compared with earnings per share of 11 cents in the same period last year. Based on this outlook, Fred’s Inc. expects total earnings per diluted share for 2010 to be in the range of 72 cents to 79 cents.

"Although we are still in the early stages of implementing our current initiatives, the progress to date has been encouraging, along with the positive feedback we have received from our customers on Fred's new direction," Efird continued. "Looking forward, we will continue investing in our prototype stores, increasing the marketing of our Core 5 departments, and implementing the new merchandising layout in more than 200 stores this year. With the passage of the new healthcare bill, we see both opportunities and challenges, and remain committed to growing our pharmacy business – both organically and through acquisitions. The team is confident that these efforts will translate into improved financial performance throughout the year and provide the catalyst for achieving Fred's 2010 earnings goals."


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