Recently, Fred's Inc. (FRED - Analyst Report) reported decent total sales and comparable sales for Jul 2013, compared with that of the year-ago period. Comparable store sales for the month climbed 2.5% compared with a 1.2% rise in the year-ago month.
The sales upside was backed by strong sales in general merchandise and its pharmacy department. Both the departments contributed equally to sales during the month.
Total sales went up by 4% to $142.2 million in Jul 2013 backed by higher customer traffic to the revamped and expanded Fred’s stores. The new spacious stores are part of the company’s space productivity plan.
Total sales rise was in the higher end of management’s guidance. Comps gain was higher than expected.
Customer traffic increased in July on the back of the reconfiguration of general merchandise and exploiting new opportunities in the pharmacy department.
Growth in script counts led to positive comparable store sales in the pharmacy department for the second consecutive month after suffering decline for 10 months in a row.
In the second quarter of fiscal 2013, comparable store sales increased 2.2% compared to a 1% decline in the same period a year ago. Fred's' total sales inched up 2.0% to $482.3 million in the quarter compared with $470.8 million for the same period last year.
After closing 20 stores and opening one pharmacy location and two store during second quarter,
Second Quarter of Fiscal 2013
Fred's is confident about posting earnings within the guidance range provided earlier. The company expects earnings per share to remain within 6 cents–9 cents 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.
After suffering from declining same-store sales for several months, Fred’s embarked on a 3-year reconfiguration plan in early June.
As part of this plan, Fred’s increased its focus on higher margin categories and moved away from the lower-margin consumable categories. Moreover, Fred’s is remodeling and refreshing its store layouts and allocating space to highlight the key revenue-generating categories.
Moreover, keeping in view the substantial contribution of the pharmacy department in its operating income, Fred’s is expanding their presence in all its stores.
Currently, Fred's carries a Zacks Rank #2 (Buy).
Other diversified retailers worth considering include Restoration Hardware (RH - Snapshot Report), Haverty Furniture Company Inc. (HVT - Snapshot Report) and Ross Stores (ROST - Analyst Report). While Restoration Hardware carries a Zacks Rank #1 (Strong Buy), Dollar Tree and Ross Stores hold a Zacks Rank #2 (Buy).