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Fred’s sets forth major growth plans

BY Brian Berk

MEMPHIS, Tenn. — Fred’s Pharmacy has set forth a major initiative intended to promote growth in 2017 in its front store, retail pharmacy and specialty operations, CEO Michael K. Bloom stated Thursday during the company’s 2016 fiscal fourth-quarter earnings conference call.

In the front store, Fred’s is expecting top-line growth, led by the rollout of beer and wine and a major upgrade to its cosmetics assortment.

The company is also already undergoing improvement initiatives to improve category reporting, planograms, off shelf and seasonal planning, circular promotions and joint business planning. Fred’s expects progress in the following front-store areas:

  • Implementation of new vendor funding tool in its 2017 fiscal Q1
  • Launch of a mobile app that will integrate the existing pharmacy app
  •  Levering of its new JDA platform
  • Continuation of supply chain initiative focused on driving lower selling, general and administrative expenses

In the retail pharmacy, Fred’s will be implementing Vistaar’s retail pharmacy pricing solution; piloting concepts related to “centers of excellence” for specific disease states; and actively pursuing the use of alternative dispensing technology.

Specialty pharmacy has already been a pillar of strength for Fred’s and it expects 2017 to result in more sales growth. Recent successes in specialty pharmacy have come from internal reorganization; geographic expansion; and an infusion of new talent providing excellent patient service in hepatitis C, rheumatology, multiple sclerosis, growth hormone therapy and oncology.

“Simply stated, we have a plan,” Bloom said during the conference call. “We are executing it and seeing results.”

Bloom added to further encourage growth, Fred’s has implemented salary increases for store managers and is paying healthcare premiums for employees. “Reducing turnover improves profit,” he said.

As for Fred’s December announcement it plans to purchase at least 865 divested Rite Aid stores should the Federal Trade Commission approve the Walgreens Boots Alliance-Rite Aid merger, Bloom noted Fred’s continues to work collaboratively with Walgreens and Rite Aid to get the proposed transaction approved and remains committed to purchasing up to 1,200 stores, which would make it the third-largest drug store operator in terms of store count.

The company stated on the call it could not answer specific questions regarding the pending transaction. However, when questioned by a Wall Street analyst during the question-and-answer portion of the call regarding its ability to transition from a regional operator in 16 states to a national drug store operator, Bloom stressed Fred’s “certainly has assembled the team to get it done.”

For a rundown of Fred’s fiscal 2016 Q4, full-year 2016 results and March 2017 earnings results, click here.

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Costco sees strong March U.S. sales

BY Brian Berk

ISSAQUAH, Wash. — Costco Wholesale reported net sales of $11.64 billion for the month of March — the five weeks ended April 2, 2017 — an increase of 9% from $10.71 billion during the similar period last year. This year’s total reflects one additional sales day due to the timing of Easter, which positively impacted net and comparable sales by an estimated 1% to 1.5%.

Comparable-store sales for the five-week period were strongest in the United States, where they advanced by 7% year over year. Excluding impacts from gasoline prices and foreign exchange rates, Costco’s U.S. comparable-store sales increased by 6% year over year.

Companywide, Costco saw comparable-store sales improve by 6% year over during the five-week period, or 5% when factoring in gasoline and foreign exchange.

Costco currently operates 729 warehouses, including 508 in the U.S. and Puerto Rico.

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Fred’s initiatives pay off in 2016 fiscal Q4

BY Brian Berk

MEMPHIS, TENN. — Fred’s Pharmacy recorded a net loss of approximately $22.5 million or $0.60 per share for its 2016 fiscal fourth quarter ended Jan. 28, compared with a net loss of $3.9 million or $0.11 per share for the fourth quarter of 2015. However, much of the loss was attributed to one-time or non-continuing items on a year-over-basis, including nearly half the total net loss — 10.2 million — on a pretax basis or $0.17 per share after tax for professional and legal advisory fees incurred in connection with the proposed acquisition of 865 Rite Aid stores and the development and implementation of the company’s growth strategy.

“Over the last several months we have started to recognize the positive impact of the initiatives we began implementing in 2016. We are now seeing bottom-line improvement driven by sequential growth in retail pharmacy adjusted script comps, sequential progress in sales trends in our specialty pharmacy business, front store margin expansion and strong holiday seasonal category sales,” said CEO Michael K. Bloom. “We are pleased to report that our comprehensive strategy and plan to improve our performance is on target. Notably, we have rolled out a series of initiatives that will continue to lay the foundation for Fred’s Pharmacy’s success. We are upgrading talent; investing in technology; diversifying our specialty pharmacy portfolio; improving the patient and customer experience; increasing supply chain efficiencies; expanding margins; and optimizing assets to improve performance and cash flow.”

During its 2016 fourth quarter, Fred’s net sales for 2016’s fourth quarter decreased 4.5% to $529.7 million from $554.6 million for the fourth quarter last year. Comparable- store sales for the quarter decreased 3.6% versus a 1.7% increase in comparable store sales in the fourth quarter of last year. Comparable store sales in the fourth quarter of 2016 included a negative 2.6% impact as a result of the sale of low productive discontinued inventory versus the fourth quarter of 2015.

Fred’s gross profit for the fourth quarter of 2016 decreased 2.5% to $129.6 million from $132.9 million in the prior year period. Gross profit margin for the quarter increased 50 basis points to 24.5% from 24.0% in the same quarter last year. The margin includes a $3.1 million benefit on a pretax basis or $0.05 per share after tax resulting from the successful sale of discontinued inventory above estimated marked down cost.’

Fred’s also announced full-year fiscal 2016 results. For its 2016 fiscal year, Fred’s net loss totaled $66.5 million or $1.80 per share compared with a net loss of $7.4 million or $0.20 per share for fiscal year 2015. Gross profit for fiscal year 2016 decreased 6.2% to $510.3 million from $544.2 million the year before. Gross margin for fiscal year 2016 decreased 130 basis points to 24.0% of sales compared with 25.3% in the prior-year period. Most of the decrease was related to inventory write-downs during 2016 associated with store closures and discontinued unproductive inventory.

“While we are pleased with the progress we’ve made in such a short time, we encountered headwinds that contributed to particularly challenging second and third quarters. We began to reap the benefits of our strategic initiatives in the fourth quarter as evidenced by our strong sequential improvement. We expect the positive trends we experienced in the fourth quarter to continue. Looking at the organization as a whole, we expect to see continued sequential bottom-line improvement in 2017 as the initiatives underway take hold. We are keenly focused on positioning the company for long-term growth and enhancing value for our shareholders.”

Fred’s also announced results for its just-completed month of March 2017. Fred’s total sales for the month decreased 2.7% to $208.6 million from $214.3 million in March 2016. Comparable store sales for March decreased 0.5% versus an increase of 1.8% in the year-earlier month. The March 2017 comparable store sales reflected the benefit of tax refunds, which were delayed from February to March, but were offset by a later Easter (April 16 this year versus March 27 last year), shifting holiday sales into April.

Regarding the proposed Walgreens Boots Alliance-Rite Aid proposed merger that would result in Fred’s buying 865 divested stores for $950 million, and a commitment to purchase up to 1,200 Rite Aid stores should it be required as a closing condition by the Federal Trade Commission, Fred’s issued the following statement:

“The proposed acquisition of the stores, which are based in highly attractive markets, is a transformative event that will add substantial scale to the company and transform Fred’s Pharmacy, the largest regional pharmacy player, into an even stronger competitor and the third-largest drugstore chain in the nation. The transaction will accelerate the company’s healthcare growth strategy, generating considerable benefits for our customers, patients, payers, supplier partners, team members and shareholders.”

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