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Tough retail conditions continue in November and the holiday shopping season could not provide any spark to weak consumer sentiments. 

Comparable store sales (comps) for the off price retailer Fred’s Inc. (FRED - Analyst Report) during the four weeks of Nov 2013 were flat compared with a 3.6% fall in the year-ago month. The comps were at the bottom end of management’s expectation of a flat to up 2% growth announced during the third-quarter conference call.

Total sales for the month went up only 1% to $151.5 million compared with $150.3 million a year ago as benefits from Fred’s reconfiguration plan was offset by a general tendency among consumers to pull back their spending

Categories like Pharmacy, Hometown Auto & Hardware, Pets, Small Appliances and Consumables did well in the month. However, the strong performances of these businesses were partly offset by competitive environment which continued to exert pressure on the comps. Moreover, the holiday shopping period from Thanksgiving Day to Cyber Monday did not benefit the off-price retailer much.

Fred’s opened one store and closed five including one Xpress pharmacy location during Nov 2013. As of Nov 2013, Fred’s operated 697 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.

As part of its 3-year-long reconfiguration plan, Fred’s is increasing its focus on higher-margin categories and is moving away from the lower-margin consumable categories. The company is remodeling and refreshing its store layouts and allocating space to highlight the key revenue-generating categories.

During the recently concluded third quarter reported on Nov 27, 2013, Fred’s total sales increased 2.0% year over year to $460.5 million, slightly missing the Zacks Consensus Estimate of $461.0 million. Sales were within Fred’s’ top-line growth expectation of 1%–3%. Modest sales gain in food and tobacco and pharmaceuticals businesses/segments were offset by sales decline in household goods, apparel and linens, paper and chemicals and franchise categories.

Fred’s’ comps climbed 1.4% during the quarter, better than a 2.5% decline a year ago, and within management’s expectation of flat to up 2%. Comps improved on the back of higher customer traffic and average ticket during the quarter.

Fred’s is geared to increase pharmacy departments in all its stores, keeping in view its substantial contribution to the overall profit.

Other Stocks to Consider

Fred's currently carries a Zacks Rank #4 (Sell). Other diversified retailers worth considering include The TJX Companies Inc. (TJX - Analyst Report), Pricesmart Inc. (PSMT - Snapshot Report) and Micheal Kors Inc. (KORS - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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