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Why Should You Dump Fred's (FRED) from Your Portfolio Now?
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Fred's, Inc. or Fred’s Pharmacy has been disappointing investors of late. Shares of this discount retailer have lost 25.0% over the past three months.
Should investors dump this stock from their portfolio? Let’s find out.
Estimates Moving South
Estimates for the company for fiscal 2017 and fiscal 2018, have moved south in the past seven days, reflecting the negative outlook of analysts. While estimates for fiscal 2017 dropped 86.4% from earnings of 22 cents to just 3 cents, for fiscal 2018, the same declined 6.3% to 9 cents per share.
Fred’s posted losses in the last reported quarter, which was in line with the Zacks Consensus Estimate. In the trailing four quarters, the company posted an average negative earnings surprise of 0.61%.
Disappointing Q1
Fred’s posted weaker-than-expected sales in the first quarter of fiscal 2017, while losses were in line with the Zacks Consensus Estimate. Adjusted quarterly loss of 6 cents per share was also unfavorable compared with the year-ago quarter figure 3 cents. Decline in sales along with lower comps and gross margin contraction led to the decline.
First-quarter sales slipped 3.1% year over year to $532.2 million, while comparable store sales dipped 1.2%, as a result of the sale of low productive discontinued inventory. The company is also facing headwinds in the competitive consumable categories.
Gross profits declined 5.9% year over year to $132.9 million, while gross margins declined 70 basis points (bps) to 25.0%, due to the closure of 39 underperforming stores. In the first quarter, Fred’s incurred an operating loss of $34.2 million, compared with an income of $2.4 million incurred a year ago.
Losses were due to higher selling, general and administrative expenses mainly due to higher professional, legal, banking and integration planning fees incurred in connection with the announced agreement to acquire Rite Aid stores and the development and implementation of the company's growth strategy.
Notably, Fred’s is working collaboratively with Walgreens Boots Alliance, Inc. (WBA - Free Report) , Rite Aid Corp. and the Federal Trade Commission (“FTC”) to help obtain the FTC’s approval of Walgreen Boots Alliance’s pending acquisition of Rite Aid (announced in Oct 2015) and the divestiture of certain Rite Aid assets to Fred’s.
Price Performance
Fred’s stock has lost around 25.2% in the past three months, underperforming the Zacks categorized Retail-Discount & Variety industry which gained 0.5% over the same time frame.
Unfavorable Zacks Rank & Score
Fred’s currently carries a Zacks Rank #4 (Sell) and a VGM Score of “D”. Here 'V' stands for Value, 'G' for Growth and 'M' for Momentum. Fred’s score is a weighted combination of these three scores (Value - F, Growth - D, Momentum - A). A score of ‘A’ or ‘B’ is generally considered favorable and allow investors to rule out the negative aspects of stocks and select the valuable picks.
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Why Should You Dump Fred's (FRED) from Your Portfolio Now?
Fred's, Inc. or Fred’s Pharmacy has been disappointing investors of late. Shares of this discount retailer have lost 25.0% over the past three months.
Should investors dump this stock from their portfolio? Let’s find out.
Estimates Moving South
Estimates for the company for fiscal 2017 and fiscal 2018, have moved south in the past seven days, reflecting the negative outlook of analysts. While estimates for fiscal 2017 dropped 86.4% from earnings of 22 cents to just 3 cents, for fiscal 2018, the same declined 6.3% to 9 cents per share.
Fred's, Inc. Price, Consensus and EPS Surprise
Fred's, Inc. Price, Consensus and EPS Surprise | Fred's, Inc. Quote
Negative Surprise History
Fred’s posted losses in the last reported quarter, which was in line with the Zacks Consensus Estimate. In the trailing four quarters, the company posted an average negative earnings surprise of 0.61%.
Disappointing Q1
Fred’s posted weaker-than-expected sales in the first quarter of fiscal 2017, while losses were in line with the Zacks Consensus Estimate. Adjusted quarterly loss of 6 cents per share was also unfavorable compared with the year-ago quarter figure 3 cents. Decline in sales along with lower comps and gross margin contraction led to the decline.
First-quarter sales slipped 3.1% year over year to $532.2 million, while comparable store sales dipped 1.2%, as a result of the sale of low productive discontinued inventory. The company is also facing headwinds in the competitive consumable categories.
Gross profits declined 5.9% year over year to $132.9 million, while gross margins declined 70 basis points (bps) to 25.0%, due to the closure of 39 underperforming stores. In the first quarter, Fred’s incurred an operating loss of $34.2 million, compared with an income of $2.4 million incurred a year ago.
Losses were due to higher selling, general and administrative expenses mainly due to higher professional, legal, banking and integration planning fees incurred in connection with the announced agreement to acquire Rite Aid stores and the development and implementation of the company's growth strategy.
Notably, Fred’s is working collaboratively with Walgreens Boots Alliance, Inc. (WBA - Free Report) , Rite Aid Corp. and the Federal Trade Commission (“FTC”) to help obtain the FTC’s approval of Walgreen Boots Alliance’s pending acquisition of Rite Aid (announced in Oct 2015) and the divestiture of certain Rite Aid assets to Fred’s.
Price Performance
Fred’s stock has lost around 25.2% in the past three months, underperforming the Zacks categorized Retail-Discount & Variety industry which gained 0.5% over the same time frame.
Unfavorable Zacks Rank & Score
Fred’s currently carries a Zacks Rank #4 (Sell) and a VGM Score of “D”. Here 'V' stands for Value, 'G' for Growth and 'M' for Momentum. Fred’s score is a weighted combination of these three scores (Value - F, Growth - D, Momentum - A). A score of ‘A’ or ‘B’ is generally considered favorable and allow investors to rule out the negative aspects of stocks and select the valuable picks.
Key Picks from the Sector
Investors interested in the broader retail space may consider Burlington Stores Inc. (BURL - Free Report) , which carries a Zacks Rank #2 (Buy) and has long-term earnings growth of 15.85%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>