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Fred’s Inc.’s (FRED - Analyst Report) sales results improved during May 2014 after suffering for the past three months due to inclement weather and stiff competition in the discount retail sector.

Though comparable store sales for Fred’s during the four weeks ended May 31, 2014 declined 0.4%, it was better than a 0.5% fall in the year-ago month, backed by higher store traffic. Comps were also better than a 2.3% decline in the previous month — Apr 2014. Same-store sales, however, missed management’s expectation of a flat to up 2% growth announced during the first-quarter fiscal 2014 conference call.

Total sales for the month remained flat at $151.9 million, better than the respective declines of 1.6%, 1% and 1.1% in the last three months. A harsh winter led to frequent shop shutdowns and competition emanating from improved weather disrupted sales during the early months of 2014.

However, conditions turned for the better during the reported month and the company’s new marketing and branding program helped it to generate higher revenues during the month. Moreover, Fred’s’ first ad broadcast during the month helped attract traffic and heightened consumer awareness of its products.

As of May 31, 2014, Fred’s operated 704 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States.

Management is optimistic about the company’s performance in the upcoming months. It believes that its revamped stores boasting 15,000 square feet area will enable the company to serve the more need-based categories and provide an easy shopping experience. 

Fred’s first-quarter fiscal 2014 earnings of 17 cents missed both the Zacks Consensus Estimate and year-ago results by 19.04% and 45.2%, respectively. The first-quarter results also missed the company’s expected range of 18 to 22 cents. 

In its guidance provided during the earnings conference call, Fred’s announced that for the second-quarter fiscal 2014, Fred’s expects total sales to increase in the range of 1% to 3% on a year-over-year basis. Comparable store sales are expected to be flat to up 2%, backed by new marketing initiatives and pharmacy department sales growth. Earnings per share are forecasted in the range of 4 to 9 cents compared with 9 cents in the year-ago quarter.

Fred’s plans to make several strategic pharmacy store acquisitions in fiscal 2014. While eight acquisitions are scheduled to be completed in the second quarter, 12 more are on the cards for the third.

Other Stocks to Consider

Fred’s currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail sector worth considering include Citi Trends Inc. (CTRN - Analyst Report), Foot Locker Inc. (FL - Snapshot Report) and American Apparel Inc. (APP - Snapshot Report). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot Locker and American Apparel have a Zacks Rank #2 (Buy).

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