Fred's Super Dollar highlights pharmacy gains despite flat Q1 performance

MEMPHIS, Tenn. — Fred's Super Dollar on Thursday reported total sales for the first quarter of fiscal 2014 were $498.3 million, a 0.6% decline. Comparable store sales for the quarter dropped 1.9% versus a decrease of 1.3% for the first quarter last year.

"As we outlined in our April sales release, the first quarter was a challenging period for Fred's due to a number of headwinds," stated Bruce Efird, CEO Fred's. "These challenges included intense competitive promotions and poor weather throughout much of the spring, which affected general merchandising. In addition to the sales impact of these issues, we also encountered extraordinary inflationary pressures on generic drugs in the first quarter, as we forecasted in our year-end 2013 press release," he said. "Third-party payers have been slow to increase reimbursement rates to match higher drug costs, lowering pharmacy margin for the first quarter."

But pharmacy continues to perform well, Efird said. "We were pleased with sales trends in our pharmacy department, reflecting ongoing comparable script growth, and its continued expansion, as we added seven new pharmacies during the quarter," Efird added. "EIRIS Health Services, Fred's specialty pharmacy division, added several new team members and experienced solid script and sales growth, as we continue to accelerate our penetration of this fast-expanding segment of the pharmacy industry.

Positioning for the future, Fred's is emphasizing the company's convenience in an effort to capture more fill-in trips. "Fred's new strategy takes into consideration the ongoing emergence of internet shopping," Efird said. "This trend continues to reduce trips to conventional brick-and-mortar stores, but, at the same time, potentially expands the number of convenience, need-based shopping trips. We will be marketing the diverse categories we carry compared with other small box competitors to emphasize convenience, using a new marketing and signage strategy," he said. "The front end of our stores will be re-laid with power displays and pallets, along with a faster check-out configuration, all focused on ease of shopping and designed to emphasize the advantages of shopping at Fred's 15,000-square-foot box. With these changes, Fred's will be better positioned to serve more of the need-based categories, providing our customers with an easier and more convenient shopping experience.

During the first quarter, Fred's net new locations were unchanged, but activity consisted of two full-service store openings, four new Xpress pharmacy locations and the closure of four full-service stores and two Xpress pharmacy locations, one of which was converted to a full-service store.