Fred's Q1 income dips a bit, but sales are up

MEMPHIS, Tenn. Fred’s late last week reported net income of $7.3 million, or $0.18 per diluted share, for its first quarter ending May 3, representing a decline of 1.3 percent compared to the same quarter last year.

Fred’s total sales for the first quarter of fiscal 2008 increased 5 percent to $464.3 million, however. On a comparable store basis, first quarter sales increased 2.1 percent compared with 1.9 percent in the year-earlier period.

“We are pleased with Fred’s sales and earnings performance in the first quarter as well as our progress in implementing a strategic plan to enhance the company’s growth and profitability over the long term,” stated Michael Hayes, Fred’s chief executive officer. “Our focus on the initiatives that comprise this plan has resulted in higher comparable store sales this year versus the year-earlier quarter, despite an arguably more challenging economic environment, and has driven per share earnings to the top end of our forecasted range.”

The net income decline may be explained in part by an increase in income tax expenses. Income tax increased to 37.3 percent of pre-tax income for the first quarter of fiscal 2008 compared with 33.9 percent last year, the company reported. The increase in the tax rate resulted from the expiration of certain jobs tax credits available to the company in the prior year.

During the first quarter, Fred’s opened eight new stores. The company expects to open 18 stores and 15 pharmacies in 2008. Also, Fred’s closed 17 stores and 21 pharmacies in the first quarter. Fred’s plans to close 75 stores and 22 pharmacies during the year.

In the second quarter, the company expects total sales to increase in the range of 1 percent to 3 percent. Comparable store sales are expected to increase in the range of 2 percent to 4 percent. The total sales projections include the effect of closing approximately 70 stores and 22 pharmacies by the end of the second quarter. The financial effect of the store closings in the second quarter is anticipated to negatively affect earnings by approximately $0.07 to $0.10 per share. Accordingly, total earnings per diluted share, including the effects of store closings, are projected to be approximately flat in the second quarter.

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