Retail discount company Fred’s Inc. (NASDAQ:FRED) can be considered as a stock worth offloading by prudent investors at the moment. The stock price plunged almost 35% year to date due to sluggish retail sector, lower comps for the past few months as well as weak results in the recently concluded second quarter fiscal 2016.
Soft Results in Second Quarter and First Half
Fred’s recently reported wider second quarter loss year over year primarily on lower comps. The front stores of the company reported lower traffic resulting in lowered sales in second quarter. Further, the company’s margins were strained owing to lower average selling price in the pharmacy department. Moreover, the ongoing generic transition in the pharmacy department has also led to lower margins of the segment during the quarter.
Further, this Zacks Rank #5 (Strong Sell) company reported weak results in the first half of 2016, wherein it reported a net loss of 15 cents, wider than a loss of 13 cents incurred a year ago. Comps for the first half of 2016 decreased 0.6% compared with an increase of 0.7% in the prior-year period chiefly due to lower traffic at its front stores.
Downward Revision in Estimates
Fred’s has witnessed massive downward revision in estimates during the past 30 days. The fiscal 2016 Zacks Consensus Estimate plunged more than 86% to 2 cents during the period.
Difficult Retail Environment
The retail sector result has typically been on the weaker side in this second quarter earnings season. The primary reason behind this is a steady decline in footfall due to shifting customer preference towards online shopping. Online giant Amazon.com Inc. (NASDAQ:AMZN) has efficiently tapped into this shift in consumer behavior and has captured almost the whole of retail market. Among 86.3% of retail companies who had reported their second quarter earnings as of Aug 24, 2016, 3.9% of companies have surpassed earnings estimates, while 4.2% of these companies have reported higher year over year revenues as evident from the Zacks Earnings Trends report.
Stocks to Consider
Some better-ranked stocks in the same sector are Big Lots Inc. (NYSE:BIG) and Ross Stores Inc. (NASDAQ:ROST) . All the three stocks carry a Zacks Rank #2 (Buy).
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AMAZON.COM INC (AMZN): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis Report
BIG LOTS INC (BIG): Free Stock Analysis Report
FREDS INC (FRED): Free Stock Analysis Report
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