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Outside of its home state of Tennessee, you’re not likely to hear the name Fred’s ((FRED - Free Report) ) tossed around too often when referring to grocery stores or pharmacies.   When I Googled “FRED”, I got everything from Barney Rubble’s ole pal to a sheik French jeweler; Fred’s was on page 6 for me.

To be fair, they operate over 700 stores across the southeastern part of the US and I know that they have their loyal following. Heck, there are plenty of lesser known companies that are thriving!  But for Fred’s, it’s a matter of the revenue and EPS numbers that just aren’t adding up and competition from the likes of Walmart ((WMT - Free Report) ), Walgreens (WAG) and others that are making matters worse.

FRED is a Zacks Rank #5 and is ranked as a “sell” overall.  Even though the stock yields a 1.8% dividend, this might not be the place you want to park your investment dollars.

Earnings Hiccups
Last month, Fred’s posted fourth-quarter fiscal 2012 (quarter ended Feb 2013) earnings of 18 cents per share, missing the Zacks Consensus Estimate by a penny and was the second miss in a row after a 14.3% miss in Q32012.

Earnings declined 30.7% from the prior-year quarter due to the ongoing tough retail environment, challenging results in general merchandise departments and higher operating expenses.

Sales also missed the Zacks Consensus Estimate of $534.0 million but increased 7% year over year to $533.4 million. However, excluding the extra week in the current quarter, comparable store sales declined 3% compared to an increase of 0.1% in the same quarter last year, while comparable store customer traffic decreased 2.8% from last year.

Growth Outlook Weak
Management expects tough retail conditions to continue across the markets in fiscal 2013. Fred’s forecasts its total sales to increase 1% to down 1% in Q1of fiscal 2013,

Comparable store sales, including one extra week, are expected to decrease by 1% to 3% in the first quarter due to weak sales in March. The company expects earnings to remain within a range of 26 to30 cents per share in the quarter, compared with the Zacks Consensus for  27cents.  Keep in mind that estimates have dropped from 31 cents just 60 day ago.

For the full fiscal year 2013, Fred’s expects lower earnings of 77 to 88 cents per share compared to the Zacks Consensus for 82 cents, which again has come down substantially from $1.01 just 60 days ago.

When you exclude the impact of favorable income tax adjustment (12 cents per share) on 2012 results, earnings per share is expected to increase by 12% to 28% for the current year.

Worth the Risk?
When you back up and look at analyst momentum, it looks decidedly bearish, with almost every analysts notching down their estimates for all reporting periods over the last 60 days and only 1 moving their estimate up.

Zacks ESPs (which are a great predictor of earnings beats when coupled with the Zacks Rank) are all flat, which is not a good sign for those of you looking for a positive surprise when FRED reports next on May 16th.

With a P/E of 16.50, FRED is not the cheapest on valuation, especially when you consider a 1.6% anticipated sales growth and 11% expectations for earnings.

If you are looking for a diversified retailer, it might not be a bad idea to check out Sears Holdings , they are a Zacks Rank #1 or even Costco (COST - Free Report) , with a Zacks Rank #2.

In a tight margin industry that’s supplying a strained consumer; I would opt for the best in breed, not the long shot, come-back kid.   Let’s see if the numbers improve at their next report and decide at that point if the stock is turning a corner before putting our hard earned dollars into this trade. 

Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”. You can discover more of his insights and recommendations through his two portfolio recommendation services:

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