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Recently, Fred's Inc. (FRED - Analyst Report) reported decent total sales and comparable sales for Jun 2013, against the year-ago period. Comparable store sales for the month climbed 4.5% compared with a fall of 4.0% in the year-ago month.

Customer traffic increased in June on the back of the reconfiguration of general merchandise and improved weather conditions.

Growth in script counts led to positive comparable store sales in the pharmacy department for the first time in 10 months.

Decent sales in the Lawn & Garden, Summer Toys and Seasonal departments boosted total sales for the month by 3.0% year over year to $187.7 million.

For the first five months of fiscal 2013, comparable store sales were flat compared to the same period a year ago. Fred’s’ total sales inched up 1.0% to $841.6 million compared with $835.1 million for the same period last year.

After closing 20 stores and opening a net of two new stores and one new pharmacy locationduring Jun 2013 Fred’s now operates 697 discount general merchandise stores, including 21 franchised Fred's stores.

Guidance

Second quarter of fiscal 2013

Fred’s reiterated its second-quarter guidance keeping in view the results of the first two months of the quarter. 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 cents – 9 cents per share in the quarter.

Management is well on track to improve its pharmacy department growth, expand its specialty drug program, and roll out its expanded auto and hardware programs. 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 remains a concern.

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

Other diversified retailers worth considering include Restoration Hardware (RH - Snapshot Report), Dollar Tree, Inc. (DLTR - Analyst Report) and Ross Stores (ROST - Analyst Report). While Restoration carries a Zacks Rank #1 (Strong Buy), Dollar Tree and Ross Stores hold a Zacks Rank #2.

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