Fred’s thriving in “alternative shopping industry”

Memphis, Tenn. – To Fred’s Inc., the massive big-box retailer chains like Wal-Mart, Target and Kmart are “really our friends,” ceo Michael Hayes said at the Morgan Keegan Equity Conference late yesterday.

The $1.8 billion retailer, with 673 stores in 15 Southeastern states, is part of what Hayes called an “alternative shopping industry” based at the intersection of convenience and value.

Hayes showed statistics to back his claim of a sweet spot. Referring to shopper buying patterns at various mass merchants, dollar stores and drug stores, he pointed to average tickets at Wal-Mart ($60 to $100), Walgreens ($55), Family Dollar ($9) and Dollar General ($9).

The Fred’s average ticket: $18.

The home segment at Fred’s is not huge; Home Textiles Today pegs the 2005 volume of home textiles at $70 million. The chain breaks out apparel and linens as 14% of total, with another 22% accounted for by “household goods.” Other components include food and tobacco, paper and cleaning supplies, health and beauty, and a major growth segment already at one-third of revenues – pharmacy.

Private label will play an increasing role at the chain, Hayes emphasized. The company stated full-year 2006 guidance of 11% - 15% sales gain and 3% to 5% comp gain, with a projected earnings per share of $0.72 to $0.78.

Jerry Shore, cfo, remarked that over the past five years the chain has doubled both revenues and store count.

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