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Recently, Fred's Inc. (FRED - Analyst Report) reported flat total sales and comparable sales for the month of August compared with that of the year-ago period.

Comparable store sales for the month were flat compared with a 2.8% fall in the year-ago month.

Total sales for the month were almost flat at $140.0 million compared to $139.9 million a year ago. Strong sales in categories like Pharmacy, Hometown Auto & Hardware, Pet, Lawn & Garden, and other consumable products were offset by an unfavorable calendar shift in the month.

However, sales were within the guidance of a range of flat to up 2% provided by management during the second-quarter earnings conference call.

Year-to-date, total sales were up 1% year over year to $124 million and comps increased  0.5% compared to a decline of 0.8% in the year-ago period.

After closing one store and opening one Xpress pharmacy location during the Aug 2013, Fred’s operates 69 discount general merchandise stores, including 21 franchised Fred's stores, in the south-eastern United States as of Aug 2013.

Second Quarter of Fiscal 2013

In the recently concluded second-quarter sales increased only 2.0% year over year to $482.2 million, missing the Zacks Consensus Estimate of $483.0 million. Sales were also at the bottom end of Fred’s top-line growth expectations of 2%-4%. Categories like tobacco, consumables, paper, pet, beverage and lawn and garden reported modest sales in the quarter.

Comparable store sales climbed 2.2% during the quarter better than a 1% decline a year ago. Comparable sales improved on the back of higher customer traffic and average ticket during the quarter.

Guidance

Third Quarter of Fiscal 2013

For the third quarter of fiscal 2013, Fred’s forecasts its total sales to increase in the range of 1% to 3%, while comparable store sales to be flat to up to 2% in the third quarter, better than a decline of 2.5% a year ago.

Fiscal 2013 Outlook Retained

Management expects competitive climate to be intense and the operating environment to be challenging in the second half of the year. Discretionary spending is expected to remain low, especially among the lower-income consumers which comprise Fred’s’ principal customers.

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.

Other Stocks to Consider

Currently, Fred's carries a Zacks Rank #3 (Hold). 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 Haverty Furniture carries a Zacks Rank #1 (Strong Buy), Restoration Hardware and Ross Stores hold a Zacks Rank #2 (Buy).

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