Fred's Q1 earnings 'above guidance' despite net income loss

MEMPHIS, Tenn. Despite posting a 4.2% loss in its net income for the quarter, Fred's was optimistic about the future.

Although the retailer's first-quarter net income dropped to $8.2 million from $8.6 million, earnings per diluted were flat at 21 cents. Fred's total sales for the first quarter of fiscal 2010 increased 3% to $471.6 million, compared with $458.4 million for the same period last year. Comparable-store sales for the quarter increased 2.2% on top of a 2.8% increase in the first quarter last year. Additionally, Fred's gross profit for the first quarter of 2010 increased 6% to $136.9 million from $129 million in the prior-year period.

Commenting on the results, Bruce Efird, CEO, said, "We are pleased to report earnings above guidance in the first quarter driven by better-than-expected comparable-store sales growth and a favorable sales mix, which together resulted in a 90-basis-point improvement in gross margins."

Efird also added that Fred's is looking to invest in prototype stores, as well as increasing marketing of five departments and implementing a new merchandising layout in 200 locations. For its pharmacy business, Fred's CEO is confident it will become more lucrative.

"With the passage of the new healthcare bill, we see both opportunities and challenges, and remain committed to growing our pharmacy business – both organically and through acquisitions," Efird said. "The team is confident that these efforts will translate into improved financial performance throughout the year and provide the catalyst for achieving Fred's 2010 earnings goals."

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