Fred's Super Dollar: Pharmacy is key contributor to overall success

MEMPHIS, Tenn. — Fred's Super Dollar on Tuesday credited an 8% lift in pharmacy department sales as a key factor accounting for the company's third-quarter success. "The investments in pharmacy growth have been validated by the 8% increase in its total department sales," said Bruce Efird, Fred's CEO. "Notably, our pharmacy department accounted for more than 40% of total company sales during the quarter. To help build on this momentum, we opened our new specialty pharmacy division, EIRIS Health Services, during the third quarter, which accelerates our entry into the fastest growing area of the pharmacy industry."

"Our pharmacy department continues to grow and out-perform our expectations," Efird told analysts. "Our team drove traffic in the pharmacy department with a total script increase of 4.4% [and] a sales increase of over 8.2% during the quarter while maintaining our track record of positive script counts," he said. "We're exceptionally pleased with the growth of our immunizations within the pharmacy department. So far this year we have expanded immunizations given by over 78% during a delayed flu season on top of a 43% increase during Q3 of last year."

Specialty pharmacy prescriptions, up 13% year-over-year, contributed a 50 basis point lift to overall pharmacy sales, Rick Chambers, Fred's EVP pharmacy operations, told analysts Tuesday morning. "It's basically coming out of the two or three different categories, primarily the auto-immune arthritis areas," he said. "That's been our focus right now because those typically are dispensed through more typical retail channels as well as our newest facility of Eiris Health Services."

"With 2013 being our initial entry into the specialty pharmacy segment, we are experiencing an 8% increase in specialty scripts and a 13% increase in sales associated with those scripts," Efird added. 

For 2014, Hepatitis C is expected to be a significant growth driver within specialty with some of the new entities expected to reach the market next year, Chambers said.  

Sales of pharmaceuticals comprised 40.1% of sales, up from 37.9% in the third quarter of last year. Sales of HBA made up 7% of Fred's revenue mix. 

Efird also spoke about the company's loyalty program, which now boasts 2.1 million activated cards. "Sales from activated SmartCard customers are approximately 12% of total general merchandise during the quarter," he said. "Enrolled SmartCard customers are generating basket sizes that are approximately 41% higher than non-card transactions, and they are visiting the store twice as often." Fred's is presently accumulating shopper data from the cards and plans to target promotions to these higher-value shoppers in the near future, Efird said. 

For the discount retailer's third quarter ended Nov. 2, total sales increased 2% to $460.5 million. Comparable store sales for the quarter increased 1.4% compared with a decline of 2.5% in the third quarter last year. Fred's total sales for the first nine months of fiscal 2013 increased 2% to $1.4 billion. Comparable store sales for the first nine months of 2013 increased 1.1% compared with a decrease of 0.8% in the same period last year.

During the third quarter, Fred's opened eight new locations and closed four locations. During the first nine months of the year, Fred's opened 17 new locations, comprising seven new stores and 10 new Xpress pharmacies. Fred's also closed 21 stores and seven Xpress locations.

In the fourth quarter of 2013, the company expects total sales to increase in the range of 1% to 3%. Comparable store sales are expected to be in the range of flat to up 2% versus a decrease of 2.8% in the comparable 13-week fourth quarter last year.

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