Fred's Q3 Profit Rises, Cuts Annual View - Update

(RTTNews) - Discount retailer Fred's Inc. (FRED) Tuesday reported increased profit for the third quarter that met Wall Street estimates, amid a marginal growth in revenues. Looking ahead, the company lowered its earnings forecast for the year.

Net income increased to $7.3 million or $0.20 per share from $6.6 million or $0.18 per share in the year-earlier period.

On average, 9 analysts polled by Thomson Reuters expected earnings per share of $0.20 for the quarter. Analysts' estimates typically exclude one-time items.

Total sales grew 2.2 percent to $460.5 million from $450.6 million. Comparable store sales increased 1.4 percent compared with a decline of 2.5 percent in the third quarter last year.

Bruce Efird, Chief Executive Officer, said, "Our Hometown Auto & Hardware department continues to produce strong comparable store sales and the investments in pharmacy growth have been validated by the 8% increase in its total department sales.''

Gross profit rose 2 percent to $140.2 million while gross margin decreased 20 basis points to 30.5 percent. According to the firm, the deleveraging was driven by higher general merchandise markdowns combined with an increase in general merchandise shrinkage.

During the third quarter, Fred's opened eight new locations and closed four locations.

Looking ahead, fourth-quarter earnings per share are forecast to be in the range of $0.18 to $0.23 compared with $0.18 in the 14-week quarter last year or $0.15 in the comparable 13-week quarter last year. Analysts project earnings of $0.20 per share.

In the fourth quarter, the company expects total sales to increase in the range of 1 to 3 percent while comparable store sales are expected to be in the range of flat to up 2 percent compared to a decrease of 2.8 percent in the comparable 13-week fourth quarter last year.

The company now expects total earnings per share for 2013 to be in the range of $0.78 to $0.83. Analysts expect full-year earnings of $0.80 per share.

"For the full year, we project earnings to increase from 13% to 20% over 2012, excluding the one-time tax benefit recorded last year," Efird added.

In August, the firm forecast earnings in a range of $0.81 to $0.86 per share, which represents an increase of 17 to 25 percent over last year, excluding the 2012 favorable tax credit..

FRED closed up 1.3 percent on Monday at $16.92.