Fred's Q1 Profit Down; Guides Q2 - Quick Facts

(RTTNews) - Fred's Inc. (FRED) reported that its net income for the first quarter ended May 3, 2014 declined to $6.1 million or $0.17 per share from $11.4 million or $0.31 per share in the first quarter ended May 4, 2013. Analysts polled by Thomson Reuters expected the company to report earnings of $0.20 per share for the quarter. Analysts' estimates typically exclude special items.

Quarterly net sales for the first quarter were $498.3 million compared with $501.5 million for the first quarter last year. Wall Street expected revenues of $499.66 million. Comparable store sales for the quarter declined 1.9% versus a decrease of 1.3% for the first quarter last year.

Commenting on the results, Bruce Efird, Chief Executive Officer, said, "As we outlined in our April sales release, the first quarter was a challenging period for Fred's due to a number of headwinds. These challenges included intense competitive promotions and poor weather throughout much of the spring, which affected general merchandising. In addition to the sales impact of these issues, we also encountered extraordinary inflationary pressures on generic drugs in the first quarter, as we forecasted in our year-end 2013 press release."

For the second quarter of 2014, the company expects earnings per share on an operating basis to be in the range of $0.04 to $0.09 compared with $0.09 last year. The lower earnings are primarily attributed to the continued impact of higher generic drug pricing on pharmacy department gross margin. Total sales are expected to increase in the range of 1% to 3%. Comparable store sales are expected to be in the range of flat to up 2%, reflecting the new marketing initiatives and continued growth in Pharmacy department sales. Analysts expect the company to report earnings of $0.08 per share and revenues of $487.52 million for the second-quarter.

Looking ahead, the company said it is confident that full-year operating earnings per share will reach a range of $0.60 to $0.68. Analysts project annual earnings per share of $0.70.

The company said in March that it expected earnings per share to be in a range of $0.74 to $0.80 for fiscal 2014.