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Fred's Dismal Comps Trend Continues, February Sales Fall

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Fred’s Inc. witnessed a soft start to fiscal 2017, with comps exhibiting a year-over-year decrease in the first month of the first quarter fiscal 2017. After posting a year-over-year decline in comps in Jan 2017, the trend was repeated in the four-week period ended Feb 25, 2017. The company also reported a decline in sales in the above-mentioned period.

During the month of February, Fred’s comps declined 4% compared with an increase of almost 1% recorded a year ago. However, pharmacy department reported an increase in comps driven by positive adjusted prescription comparisons. Comparable sales in front store categories improved in the last week of February as individual refunds were received by customers.

Fred’s expects comps to improve in March and the remainder of the first quarter as customer spending continues to increase after tax refunds were received.

Total sales slipped 3.5% to $165.4 million in the month. Sales in February were hurt by tax refund delay impacting a significant percentage of customer base and front store sales.

As of Feb 25, 2017, Fred’s operates 643 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern U.S. Included in the store count are 14 franchised locations. Further, there are 354 full service pharmacy departments located within Fred's stores, including one franchised location.

However, the company is set to more than double store count at the earliest. In Dec 2016, Fred’s entered into an agreement with Rite Aid Corporation and Walgreen Corporation (WBA - Free Report) to acquire 865 stores in the Eastern and Western U.S. The newly-added stores will boost its urban presence. The agreement, scheduled to close in first-half 2017, should position Fred’s as one of the largest pharmacy retailer in 2017.

The agreement provided a boost to investor confidence which helped the stock stage a comeback, rallying 81% in the past three months. The stock also outshined the Zacks categorized Retail Wholesale industry’s decline of 6% despite the decline in comps in the same time frame.

Zacks Rank and a Stock to Consider

Fred’s carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same space is Burlington Stores Inc. (BURL - Free Report) sporting a Zacks Rank #2 (Buy). Further, the company has an expected earnings growth rate of 19.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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