Fred's pharmacy sales up 13%, representing 44% of the revenue mix
MEMPHIS, Tenn. — Fred's Super Dollar on Tuesday reported total sales for the third quarter ended Nov. 1 of $476.2 million, up 3%. However, Fred's net loss totaled $10.4 million or minus 28 cents per diluted share compared with net income of $7.3 million or 20 cents per share in the year-ago period.
In second-quarter 2014, Fred's announced its plan to close stores not meeting the company's operational performance targets. The company closed five stores in the third quarter and will close 47 stores in the fourth quarter. Included in the third quarter results are provisions to establish reserves for closed-store inventory and additional above-cost markdowns on low-productive inventory.
"As we forecasted, the third quarter was difficult as we aggressively cleared inventory, cut receipts of overstocked high-margin product, brought prices in line with competitors, and revamped the ad programs to drive traffic," said Jerry Shore, Fred's CEO. "Overall, inventory was down 9% at the end of the quarter, with general merchandise inventory down 11% on a per-store basis. These reductions highlight the success of the programs implemented during the year."
Excluding reserve impacts and non-operational charges, Fred's net loss for the quarter was $6.2 million or minus 16 cents per share.
"Pharmacy department inventory was in line with pharmacy revenue growth and matched our expectations," Shore continued. "Pharmacy department sales increased 13% during the third quarter and increased to 44% of our total sales mix in the third quarter. With 30 pharmacy acquisitions year to date, a more favorable distribution contract in place, better pharmacy dynamics overall, growth in our specialty pharmacy, and expansion of our healthcare services, we expect strong pharmacy sales growth for the balance of the year and 2015."
Fred's posted a 0.3% lift in comparable store sales for the quarter on top of an increase of 1.4% for the year-earlier period.
Fred's total sales for the first nine months of fiscal 2014 increased 2% to $1.5 billion. On a comparable store basis, year-to-date sales decreased 0.5% compared with an increase of 1.1% in the same period last year.
"With the new year only months away, we remain confident in our ability to achieve our 2015 financial goals as we now have pharmacy momentum, positive test results from our convenience model and an upgrade in executive talent, which includes our sourcing team now in place, our new GMM, Craig Barnes, and the prospects of a new president and COO in place before fiscal 2015," Shore said.
During the third quarter, Fred's opened six new Xpress pharmacy locations, and closed five full-service stores and two Xpress pharmacy locations. During the first nine months of the year, Fred's opened 15 new locations, comprising of two new stores and 13 new Xpress pharmacy locations. Fred's also closed 10 stores and six Xpress pharmacy locations.
In fourth-quarter 2014, the company expects total sales to increase in the range of 4% to 6%. Comparable store sales are expected to increase from flat to up 2%. The net loss per diluted share for the fourth quarter 2014 is forecasted to be in the range of 8 cents per share to 12 cents per share compared with earnings per diluted share of 11 cents per share in the fourth quarter last year. Excluding the costs of store closures in the fourth quarter and other non-operational costs of clearing low-productive inventory, operational earnings per share are expected to be flat to up $4 cents per share.