Fred’s sees sales, comps dip as it continues to right its ship
Memphis-based retailer Fred’s swung to a net loss in its second quarter as it looked to button up its expenses and continued to explore and execute transactions — all aimed at reducing its debt load, building up its cash flow and generating positive EBITDA.
For the quarter ended Aug. 4, the company saw net sales decline 4.3% to $419.7 million, alongside a comparable-store sales slide of 3.5%. Gross profit decreased to $100.5 million, with selling, general and administrative expenses totaling $121.9 million in the quarter — down from the year-ago period. The company’s net loss from continuing operations was $22.9 million, or $0.62 per share — an improvement over the $28.9 million net loss the company posted in Q2 2017.
“We are continuing to make progress against our two main goals of eliminating our debt balance and returning to profitability by Q4 of this year,” Fred’s interim CEO and CFO Joe Anto said. “While there is still much work to be done, we are moving in the right direction and are excited about the momentum we have at the Company.”
The results come shortly after the announcement that Fred’s would be selling the prescription files and inventory from 185 of its locations to Walgreens for $165 million, and several months after it announced that it was exploring options for the retail pharmacy side of the business. With the Walgreens transaction, Fred’s will still operate roughly 163 pharmacies in its stores.
“This transaction will be transformative for the company and should allow us to almost entirely eliminate our ABL Facility balance, enabling us to focus on returning our remaining business to profitability,” Anto said on a call with analysts. “We expect to close this transaction enrolling closings over the course of the fourth quarter and we’ll continue to evaluate strategic opportunities for the remainder of our retail pharmacy business.”
Fred’s attributed its comps drop to a “significant reduction in circular marketing,” and noted that its August marketing saw programs consistent with prior levels to improve on the front-store trend it saw in Q2.
For the six months ended Aug. 6, Fred’s saw net sales down 5.1% to $856.8 million, compared with $902.7 million in the comparable period in 2017. Comps decreased 3.8% for the first six months of 2018 as gross profit dipped to $212.1 million (compared with $251.3 million in the prior-year period. SG&A expenses for the first half of the year were $245.2 million — roughly 28.6% of sales and down from the $256 million they made up in the first half of 2017. Adjusted EBITDA was -$11.1 million for the first six months of the year, compared with $8 million in the first six months of 2017.
“We have made significant strides in recent months in right-sizing our cost structure and working towards reducing our debt. We remain confident that over the balance of 2018 we will be able to stabilize our revenues and improve our free cash flow, setting us up to enter 2019 with significant momentum,” said Fred’s chairman Heath Freeman.
Walgreens readies support for areas in path of Hurricane Florence
As Hurricane Florence prepares to make landfall, Walgreens has been taking steps to help customers, associates and communities that are expected to be affected by the storm, both in the lead-up and aftermath, the company announced Wednesday.
“Walgreens is fully mobilizing to support the health and wellness needs of our customers and communities facing this dangerous storm,” Walgreens president of operations Richard Ashworth said. “We urge our patients and customers to follow evacuation orders and get to a safe location first and then refill medications at the nearest pharmacy. Walgreens has approximately 9,800 locations nationwide that are able to access patient’s records,” said Richard Ashworth, Walgreens president of operations. “We have a dedicated team in our Emergency Operations Center working to ensure our team members in the impacted areas remain safe and are preparing to rapidly restore operations in order to best serve our patients and communities.”
Walgreens’ efforts include prescription drug preparedness efforts, as the state of emergency declared in North and South Carolina means pharmacists can refill up to a 30-day supply without requiring refill authorization for any non-controlled substance. The company also recommended patients take a waterproof bag with current medications, even if the bottle is empty, as the label info can help pharmacy staff with refill requests.
Walgreens also said it was proactively staging temporary mobile pharmacies near the region that it can deploy to stores that might be damaged or unable to open in a timely manner if necessary.
Additionally, the company said it will evaluate a philanthropic response in the immediate aftermath of the hurricane, with plans to activate its store base to donate to American Red Cross hurricane relief work. It also said it would prepare to donated necessary items to emergency shelters — in the aftermath of Hurrican Harvey, Walgreens said its customers donated more than $10 million to Red Cross relief efforts.
Walmart to acquire grocery delivery platform in Mexico, Chile
Walmart is enhancing its online grocery delivery capabilities south of the border.
The purchase is intended to ramp up multi-platform capabilities in the region, and follows similar investments in China and Japan.
The discounter has entered into a definitive agreement to acquire Cornershop, an online marketplace for on-demand delivery of food, health & wellness and packaged goods from supermarkets, pharmacies and specialty food retailers in Mexico and Chile, for $225 million.
Under the terms of the agreement, Cornershop will remain an open platform that will continue to deliver from a variety of retailers. Its three founders — Oskar Hjertonsson, CEO; Daniel Undurraga, COO; and Juan Pablo Cuevas, chief technology officer, and their teams — will continue to lead the business.
“Cornershop’s digital expertise, technology and capabilities will strengthen our successful businesses in Mexico and Chile and provide learning for other markets in which we operate,” said Judith McKenna, president and CEO of Walmart International. “Combining Cornershop’s innovative, crowdsourced delivery platform with Walmart’s unique assets will allow us to accelerate growth for both companies, delighting our customers by saving them both time and money.”
Closing of the transaction is subject to regulatory approval and is expected by the end of the year.