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Recently, Fred's Inc. (FRED - Analyst Report) reported higher total sales and comparable sales for Sep 2013 compared with that of the year-ago period.

Comparable store sales for the month increased 2.8% compared with a 3.8% fall in the year-ago month. The comps were at the higher end of management’s expectation backed by strong gains in the general merchandise and pharmacy departments.

Total sales for the month also went up 4% to $177.3 million compared to $170.9 million a year ago. Strong sales in categories like Pharmacy, Hometown Auto & Hardware, backed by Fred’s’ reconfiguration plans boosted sales during the month.

Year-to-date, total sales were up 1% year over year to $1.3 billion and comps increased 0.8% compared with a 1.2% drop in the year-ago period.

Keeping in view the substantial contribution of the pharmacy department to the overall profit, Fred’s is geared to put greater focus on the sector and is increasing pharmacy departments in all its stores.

Including two stores and one Xpress pharmacy location opened during September, Fred’s operates 702 discount general merchandise stores, including 21 franchised Fred's stores, in the south-eastern United States as of Sep 2013.

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%, 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 launch the 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 The TJX Companies Inc. (TJX - Analyst Report), Dollar General Inc. (DG - Analyst Report) and Ross Stores (ROST - Analyst Report) all carrying a Zacks Rank #2 (Buy).

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