Discount chain Fred’s posts 2Q net income jump of 17 percent on improving traffic, margins

Thursday, August 26, 2010

More traffic bumps Fred’s 2Q net income up 17 pct

MEMPHIS, Tenn. — Discount merchant Fred’s Inc. posted a 17 percent jump in second-quarter net income Thursday, riding a wave of stronger sales from better foot traffic and higher margins on the products it sold.

Even as general merchandise sales gain traction, the company’s pharmacy business is feeling the effects of an industry-wide slump.

CEO Bruce Efird said in the next 18 months the company will be hurt by changes in third-party reimbursement rates, falling sales because of greater use of generic drugs and expansion of pricing for generics at $4.

Still, even with those challenges, overall revenue at stores open at least a year rose 2.5 percent in the quarter, a key measurement of growth in the industry.

The general store operator said it earned nearly $5 million, or 13 cents per share, during the three-month period that ended on July 31. That compares with earnings of $4.2 million, or 11 cents per share, a year earlier.

Net revenue rose 3.5 percent to $449.5 million, up from $434.2 million last year.

Excluding higher income taxes, the company earned 14 cents per share.

That’s in line with expectations of analysts polled by Thomson Reuters, who typically exclude one-time items in their estimates.

The company, based in Memphis, Tenn., expects its revenue to rise between 4 percent and 5 percent in the current quarter, and revenue at stores open at least a year to jump 2 percent to 4 percent. It expects net income to range from 16 cents to 19 cents per share, and maintained its annual guidance of earnings per share to range from 72 cents to 79 cents.

Analysts expect full-year net income of 75 cents per share with third quarter earnings per share of 18 cents.

Fred’s has 674 stores around the country.

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