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Recently, Fred's Inc. (FRED - Analyst Report) reported soft total sales and comparable sales for May 2013 compared to the year-ago period. Comparable store sales for the month slipped 0.5% compared with an increase of 1.3% in the year-ago month. The unusually cold and wet weather was responsible for the weak sales during the month. Total sales for May 2013 increased 0.2% to $152.4 million compared with $152.1 million a year ago.

Growth in script counts was more than offset by the negative impact of the ongoing brand-to-generic conversion in the pharmacy department.


For the first four months of fiscal 2013, comparable store sales slipped 1.1% compared to a 0.1% rise in the same period a year ago. Fred’s’ total sales inched up 0.2% to $653.9 million compared with $652.6 million for the same period last year.

Guidance

Second quarter of fiscal 2013

For the second quarter of fiscal 2013, Fred’s forecasts its total sales to increase in the range of 2% to 4%, while it expects comparable store sales to be flat in the second quarter. The company expects earnings to remain within a range of 6–9 cents per share in the quarter.

Fiscal 2013 Outlook Retained

For the fiscal 2013, Fred’s continues to expect earnings in the range of 77–88 cents per share, which is lower than the year-ago level. However, excluding the impact of favorable income tax adjustment of 12 cents per share on the 2012 results, earnings per share are expected to increase 12% to 28% in the year.

Management is well on track to improve its pharmacy department growth, expand its specialty drug program, and roll out its expanded auto and hardware program. However, the company continues to expect tough retail conditions to continue across the markets in fiscal 2013. In addition, declining comparable store sales over the past several months remain a concern.

Currently, Fred’s carries a Zacks Rank #2 (Buy).


Other diversified retailers worth considering include The TJX Company (TJX - Analyst Report), Ross Stores (ROST - Analyst Report) and Gap Inc. (GPS - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy)

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