Fred's Dismal Comps Trend Continues, September Sales Fall

Fred’s Inc. (NASDAQ:FRED) made a soft start to the third quarter of fiscal 2016 with comps demonstrating a year-over-year decrease in the first two months of the quarter. After posting a year-over-year decline in Aug 2016, the trend was repeated in the five-week fiscal month of September, which ended on Oct 1, 2016. Fred’s also reported a decline in sales figures for the above mentioned period.

During the month of September, Fred’s comps declined 4.9% compared to an increase of 4.2% recorded a year ago. Total sales slipped 5.5% to $199.9 million for the month under review.

Sales in Sep 2016 were below management’s expectations, as was announced during the second quarter of fiscal 2016 earnings conference held on Aug 30.

Sales were lower primarily due to unfavorable year-over-year comparisons. The front store categories were also negatively affected due to calendar shifts for federal assistance payments. Competitive pressure in pricing strategies, particularly in consumables categories also negatively impacted sales.

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Moreover, the pharmacy department continued to perform dismally and reported lower-than-expected comps during the month mainly due to industry-wide slowdown in specialty pharmacy sales. Further, the sector was affected negatively due to industry wide slowdown in Hepatitis C drugs.

For the first nine months of fiscal 2016, Fred’s sales increased 0.5% to $1.4 billion from same period last year, while comps decreased 1.5% versus an increase of 1.3% for the year-ago period.

Based on soft results for the first half of fiscal 2016, Fred’s stated that it expects total sales and comparable store sales to range between negative 1% and positive 1% for the second half of 2016 during the last earnings conference call. Additionally, Fred’s anticipates loss per share in the range of 18 cents to 23 cents for the second half.

Fred’s has been undertaking sales boosting initiatives, however intense competition in the discount retail sector over the past few quarters is a major hurdle.

Fred’s, which competes with companies like Burlington Stores Inc. (NYSE:BURL) , The TJX Companies Inc. (NYSE:TJX) and Ross Stores Inc. (NASDAQ:ROST) outlines its key areas of emphasis to optimize its store fleet and supply chain, focus on comparatively stronger markets, and make additional investments in marketing and technology to drive growth.

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