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Fred's' Reports Higher February Comps on Pharmacy Growth

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Fred’s Inc. has been reporting higher comparable-store sales (comps) for quite a while now driven by the sales-boosting initiatives and the recent growth in the specialty pharmacy department.

On Mar 4, Fred’s reported approximately 1% year-over-year comps growth for Feb 2016, better that the flat comps reported last year. The improvement was backed by strong growth in specialty pharmacy, along with higher general merchandise sales.

The company witnessed strong growth in both sales and scripts, despite the mild cold and flu season. General merchandise department also witnessed strong sales backed by solid performance in spring seasonal, health and beauty aids, and other categories where product assortments have been expanded and improved. However, comps for the retail pharmacy department were hurt in February due to fewer incidents of cold and flu.

Total sales for the month went up 12% to $171.1 million on the back of merchandising programs designed for the holiday season and the recent growth in the specialty pharmacy department.

As of Mar 3, 2016, Fred's operates 659 discount general merchandise stores and three specialty pharmacy-only locations in 15 states across southeastern United States.

We note that during February, the company began the 2016 new prototype remodel program with five stores.

The Zacks Rank #3 (Hold) stock is recovering after sluggish comps and intense competition in the discount retailing sector hurt results. Sales and profitability initiatives are yielding results and third-quarter comps (last reported quarter) have improved. However, we are concerned about the declining margins. 

Stocks to Consider

A couple of better-ranked stocks in the same space are Ross Stores Inc. (ROST - Free Report) and Target Corporation (TGT - Free Report) carrying a Zacks Rank #2 (Buy). In the broader retail sector, investors may consider The Kroger Co. (KR - Free Report) carrying the same Zacks Rank.

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