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Recently, Fred's Inc. (FRED - Analyst Report) reported total sales and comparable sales for Feb 2012. While total sales increased marginally from the comparable period in the prior year, comparable sales declined. Deferred sales related to the spring layaway program would have added 60 bps of growth to both total and comparable store sales.

Comparable store sales for the month fell 1.5% compared to a slip of 0.7% in the year-ago month. The decline was attributed to lower transactions due to economic headwinds, ongoing tax processing and refunds, and higher payroll taxes.

Comparable store sales for general merchandise was however positive for the second straight quarter, helped by new products in auto/hardware and strength at its discount tobacco shop. Pharmacy department sales saw positive script growth that was offset by the ongoing brand-to-generic shift in the pharmacy industry, which affected comparable sales by 280 basis points.

Total sales for Feb 2013 marginally increased to $159.2 million compared to $159.0 million a year ago.

The company opened one store and an Xpress pharmacy during the month.

Guidance Lowered

Keeping in view higher insurance and operating cost and lowering of prices on basic and consumable products, the company lowered its fourth quarter 2012 earnings to the range of 16 cents to 21 cents per share compared to the previously announced range of 25 cents to 31 cents announced in Jan 2013.

Delayed tax refunds, increased payroll taxes and high gas prices resulted in soft sales gains for most retailers including Gap Inc. (GPS - Analyst Report), Limited Brands Inc. and Costco Wholesale Corporation (COST - Analyst Report), which registered comps growth of 3%, 3% and 6%, respectively.

A tough retail environment and declining comparable store sales over the past several months remain a concern. Currently, Fred’s carries a Zacks Rank #3 (Hold).

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