Fred's Pharmacy exploring sale of assets

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Fred's Pharmacy exploring sale of assets

By Gina Acosta - 12/06/2017

Fred's Pharmacy is looking at strategic alternatives for real estate and other assets after posting disappointing third-quarter sales.

For the third quarter ended Oct. 28, Fred’s recorded a net loss of approximately $51.8 million or $1.38 per share. Net sales for the quarter were $493.6 million, down 4.5% from $516.6 million in the same period last year. Same store sales declined 0.8% versus a decrease of 3.8% in the third quarter last year.

"We recognize that our EPS results are below expectations; however, the management team, working closely with the Board of Directors, is taking the actions necessary to ensure Fred’s achieves profitability and growth over the long-term," said Michael K. Bloom, Chief Executive Officer. "Our third quarter EPS and EBITDA, excluding non-operating charges, was negatively impacted by a more aggressive inventory reduction and timing of shipments for higher margin seasonal merchandise, which led to inventory levels nearly $50 million below the prior year, as well as investments in our overall pricing strategy to ensure we remain competitive in the market. While these initiatives impacted our gross margins, our cash flow plan remains on track as we streamline our business for the benefit of the company’s long-term success.”

Fred‘s has cut costs, shut underperforming stores and introduced beverages such as beer and wine to attract customers to its stores.

“In the third quarter, we furthered our efforts to turn around the Company, and we are encouraged by our positive front store comp sales in both October and November. We are focused on driving traffic, reducing SG&A, generating free cash flow and lowering our debt. We are aggressively executing our turnaround strategy to accomplish these goals, and we are seeing traction in both front store and pharmacy. We have witnessed a complete turnaround in our tobacco business, significantly enhanced cosmetics and successfully rolled out beer to approximately 150 stores and wine to approximately 50 stores. We have also kicked off a reduced price endcap test, which is showing promising results, and we intend to roll it out to all stores. We are not yet at the point of presenting positive quarterly comp sales and traffic improvement; however, we are improving month-by-month as our initiatives are yielding results. We recognize that there is more work to be done, but we are encouraged by the traction our initiatives are gaining and look forward to capitalizing on that momentum in the coming quarters,” Bloom added.

In June Fred’s retracted its offer to acquire 1,200 Rite Aid stores after Walgreens Boots Alliance scrapped its deal to buy Rite Aid following antitrust concerns. Walgreens later agreed to buy some of Rite Aid stores.

Fred’s, Inc. operates approximately 600 general merchandise and pharmacy stores, including 13 franchised locations, and three specialty pharmacy-only locations.