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Fred’s posts slight December decline; looks forward to strong 2013 with expansion in pharmacy, specialty drugs

BY Michael Johnsen

MEMPHIS, Tenn. — Fred’s on Thursday reported a 1% sales decline to $209.9 million for the five-week fiscal month ended Dec. 29. Comparable store sales for the month decreased 4.2% compared with a decline of 0.4% in the same period last year.

"December sales did not meet our expectations as customers limited their purchases of discretionary and weather-related merchandise again this month," stated Bruce Efird, CEO Fred’s. "The economic headwinds around the holidays overshadowed some of the positive aspects of the company’s performance in December, like the successful completion of our layaway sales program and continued script improvement in our pharmacy department." 

Efird said that, with the sales shortfall Fred’s experienced in November and December, the company now expects fourth quarter earnings per share to be in the range of $0.25 to $0.31.

"Looking ahead, we begin 2013 with many new programs and initiatives designed to improve customer traffic," Efird said. "We will accelerate pharmacy growth through expanded programs in specialty drugs and clinical services, as well as by increasing the pace of pharmacy acquisitions," he said. "We expect that 2013 will be a springboard year for Fred’s with the expansion of specialty drugs and clinical services, accelerated pharmacy acquisitions, new auto and hardware product initiatives, the rollout of a smaller drug and dollar store concept, and the beginning of the relocation of approximately 125 stores." 

In general merchandise departments, Fred’s is expecting a positive impact from discount tobacco programs and its new Hometown Auto and Hardware program, which will grow from 80 to 200 stores in 2013. Fred’s also is expanding its merchandise assortment across seasonal, which is designed to complement the new hardware program.

During the month, Fred’s opened four new stores and one Xpress pharmacy and closed two Xpress pharmacy locations.

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Safeway chief to retire in May

BY Michael Johnsen

PLEASANTON, Calif. — Safeway late Wednesday announced that Steve Burd, its long-time chairman and CEO, will retire at the company’s annual stockholders meeting on May 14, 2013. Safeway’s board will begin a search for a successor, and will consider both internal and external candidates for the job, the grocer stated.  

"I feel this is the right time to move forward with a transition plan," Burd stated. "The Company is gaining market share with each passing quarter. We have developed the most sophisticated digital marketing platform in retail, we are implementing the most comprehensive and personalized fuel loyalty program, and we will be rolling out a wellness initiative that has the potential to transform the company," he said. "While I still have the high level of energy and enthusiasm I brought to the company 20 years ago, I need more personal time and, given my extensive work in health care, I want to pursue that interest further."

Burd joined Safeway in October 1992 as president and was appointed CEO in May of the following year. Among some of his key initiatives were developing the "Lifestyle" store format and forming a prepaid payment network that has become one of the larger distributors of gift cards. 

More recently, Safeway has introduced a digital marketing/loyalty platform called just for U, a platform that allows Safeway to personalize its prices to individual shoppers. Safeway has also partnered with a technology company to bring innovative health care services to Safeway customers.

Safeway has also been recognized for its employee health plans. In the last eight years, Safeway has introduced innovative design and practice features into its health plans. As a result, while the average U.S. company experienced an 8% annual growth in employer health care costs from 2005 through 2011, Safeway averaged a 2% annual growth rate for both the employer and employee contributions, the company stated. 

Burd also accelerated Safeway’s efforts in charitable giving and sustainability. During his tenure, the company raised more than $2 billion for charities, including over $200 million for cancer research.

Burd will help with the executive search and will continue to assist the company after he transitions out of his leadership posts.

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Stock market rebounds following ‘fiscal cliff’ compromise

BY Michael Johnsen

NEW YORK — Wall Street on Wednesday celebrated the "fiscal cliff" compromise as stocks across the board were trading up by some 200 basis points. As of noon, the Dow was up 1.7% and Nasdaq 2.3%. 

And that meant a recovery of sorts for many pharma companies, who saw their stock values decline last week as the "fiscal cliff" deadline approached. Analysts speculated that the mandated sequestration cuts in government programs like Medicare would lead to tougher negotiations on drug acquisition costs and possibly lowered reimbursement rates for providers. 

Take Merck for example — in the weeks leading up to Dec. 31 Merck’s stock was off 6.7% according to an analysis posted by The Motley Fool. Today Merck is trading up slightly by some 15 cents to $41.09 per share.  

The stocks of CVS, Walgreens and Rite Aid were faring a little better in afternoon trading. CVS was up 1.9% to $49.27; Walgreens up 2.6% to $37.97; and Rite Aid up 2.6% to $1.40. 

However, the euphoria may soon wear off, especially for companies in the drug sector. 

The bill delays automatic sequestration cuts for only two months, noted Carol Kelly, SVP government affairs and public policy in an email to NACDS members. "If sequestration cannot be avoided, pharmacies would experience reimbursement reductions for Medicare Part B drugs and immunizations as well as payments for durable medical equipment," she wrote. "In addition, Medicare Part D plans facing cuts would likely reduce pharmacy reimbursement, too."

And a provision in the fiscal cliff legislation applies mail-order reimbursement rates to retail pharmacy-provided supplies on April 1. It’s a provision that may drive many independent pharmacies out of serving Medicare diabetes patients noted the National Community Pharmacists Association earlier Wednesday morning

For retailers and suppliers overall, other positives included the fact that the full package of such temporary business tax cuts as the Work Opportunity Tax Credit will be extended for one year, Kelly noted. And scheduled Medicare cuts to physicians will be delayed for one year. 

According to a Reuters report, about $46 billion in business tax breaks were included in the compromise, such as an extension through 2013 of research and development tax credits and the 50% bonus depreciation where businesses can write off half the value of new investments immediately.

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