MEMPHIS, Tenn. — Fred's Super Dollar on Thursday posted sales of $495.1 million for the fourth quarter ended Feb. 1, representing an increase of 0.5% on an adjusted basis (fiscal 2012 fourth quarter was 14 weeks vs. 13 weeks in fiscal 2013). Total sales for fiscal 2013 totaled $1.9 billion, representing a 1.4% on an adjusted basis.
"Our company's performance in the fourth quarter reflected all the difficulties that have been cited throughout the retail sector recently as we dealt with the unusually harsh weather of the past several months and a significant 24% increase in the cost of generic drugs, which reduced gross margin by 100 basis points in our pharmacy department," stated Bruce Efird, Fred's CEO. "Despite the impact of the sales miss for the quarter, we experienced continued momentum in the performance of our reconfiguration departments," he said. "With Hometown Auto & Hardware achieving a comparable store sales increase of 1.5% for the quarter. Pharmacy department sales, relative to total sales, increased to 38.6% from 36.2% last year. Additionally, we were able to leverage selling, general and administrative expenses by 40 basis points in the fourth quarter, despite the sales loss."
Fourth quarter comparable store sales, on an adjusted basis, increased 0.1% compared with a decrease of 2.8% in the prior-year period. On an adjusted basis, comparable store sales for fiscal 2013 increased 0.6% versus a decrease of 1.4% for fiscal 2012.
"As we enter the first quarter of 2014, we estimate that the weather impact on sales and expenses and the lingering effects of the utility bills will be contained to the first quarter," Efird said. "However, the impact of generic drug price increases will be felt in both the first and second quarters, as our programs to mitigate the significant rise in generic costs are implemented and begin to take effect, and as our team works with payers to reset appropriate reimbursement rates. We estimate that these two events will have a combined impact in the range of $0.10 to $0.12 per share during the first two quarters of 2014, which is reflected in our guidance."
During the fourth quarter, Fred's opened three net new locations, consisting of four full-service store openings, four new Xpress pharmacy locations and the closure of four full-service stores and one Xpress pharmacy location. During fiscal year 2013, Fred's opened 25 new locations, comprising 11 new stores and 14 new Xpress pharmacies. Fred's also closed 25 stores and eight Xpress locations during the past year.