Earnings Recap: Fred’s, Inc. (NASDAQ: FRED)

On Tuesday, Shares of Fred’s, Inc. (NASDAQ: FRED) gained 1.95% to $2.61. The stock opened its trade at $2.56 and after floating in a price range of $2.53 to $2.67; the stock grabbed the investor’s attention and traded 1,103,587 shares as compared to its average daily volume of 1.38M shares. The stock’s institutional ownership stands at 67.90%.

Fred’s, Inc. (FRED) stated financial results for the second quarter and six months ended August 4, 2018.

Second Quarter Fiscal 2018 vs. Second Quarter Fiscal 2017

  • Net sales down 4.3% to $419.70M in Q2 2018 as compared to $438.50M in Q2 2017. Comparable store sales reduced 3.5% in Q2 2018 as compared to a 3.0% decline in Q2 2017.
  • Gross profit reduced to $100.50M in Q2 2018 as compared to $122.70M in Q2 2017. Gross margin as a percentage of sales reduced 410 basis points to 23.9% in Q2 2018 as compared to 28.0% in Q2 2017.
  • Selling, general, and administrative expenses were $121.90M in the second quarter of 2018 contrast to $150.40M in Q2 2017.
  • Selling, general, and administrative expenses, adjusted for non-recurring items, were $119.40M in Q2 2018, or 28.5% of sales contrast to $131.70M in Q2 2017 or 30.0% of sales.
  • Net loss from continuing operations was $22.90M, or $(0.62) per share in Q2 2018, contrast to a loss of $28.90M, or $(0.77) per share in Q2 2017.
  • Adjusted EBITDA, a non-GAAP financial measure, was $(7.8)0M in Q2 2018 contrast to $2.00M in Q2 2017.

Second Quarter Fiscal 2018 Results:

Fred’s net sales for the second quarter of fiscal 2018 reduced 4.3% to $419.70M from $438.50M in the second quarter last year. Comparable store sales for the quarter reduced 3.5% contrast to a 3.0% decrease the second quarter of last year. Comparable store sales were down 6.1% for the front store and down 0.5% in the retail pharmacy.  A noteworthy reduction in circular marketing was the main driver of reduced comparable store sales in the front store for the quarter.  During August, the Company reinstated marketing programs consistent with prior levels, which it anticipates will improve the trend seen in the front store during Q2.

Fred’s gross profit for the second quarter of 2018 reduced 18.2% to $100.50M from $122.80M in the prior year period. Gross profit percentage for the quarter reduced 405 basis points to 23.9% from 28.0% in the same quarter last year. Factors contributing to the decline in gross profit percentage were prescription rebates in 2017 that did not recur in 2018, a boost in direct and indirect remuneration fees in 2018, and a shift in sales mix. Fred’s recorded LIFO adjustments of $0.30M in the second quarter of both 2018 and 2017.

Adjusted selling, general and administrative expenses, counting depreciation and amortization, a non-GAAP financial measure that excludes non-recurring items, reduced to $119.40M or 28.5% of sales in Q2 of 2018 contrast to $131.70M or 30.0% of sales in Q2 of 2017.  Much of this decrease can be attributed to aggressive operating cost reduction programs in our pharmacies as well as in the front store side of the business, mainly on the personnel side. Another large component of the decrease is the ongoing reduction in corporate employee expenses.  Overall, our headcount is down over 13% as compared to the second quarter of 2017 resulting in lower employee-related expenses.

For the second quarter of 2018, Fred’s recorded a net loss from continuing operations of about $22.90M, or $(0.62) per share, contrast to a net loss of $28.90M, or $(0.77) per share, for the same period in 2017.

Adjusted EBITDA, a non-GAAP financial measure that further excludes depreciation and amortization and non-recurring items from EBIT, was $(7.8)0M contrast to $2.00M in the second quarter of 2017.

First Six Months Fiscal 2018 vs. First Six Months Fiscal 2017

  • Net sales down 5.1% to $856.80M in the first six months of 2018 as compared to $902.70M in the comparable 2017 period.
  • Comparable store sales reduced 3.7% in the first six months of 2018 as compared to a 3.6% decline in the first six months of 2017.
  • Gross profit reduced to $212.10M in the 26 weeks ended August 4, 2018 as compared to $251.30M in the 26 weeks ended July 29, 2017.
  • Gross margin as a percentage of sales reduced 300 basis points to 24.8% in the first six months of 2018 as compared to 27.8% in the first six months of 2017.
  • Selling, general, and administrative expenses were $251.60M in the 26 weeks ended August 4, 2018 contrast to $314.10M for the same period in 2017.
  • Selling, general, and administrative expenses, adjusted for non-recurring items, were $245.20M in the first half of 2018, or 28.6% of sales contrast to $265.00M in the first half of 2017 or 29.4% of sales.
  • Net loss from continuing operations was $42.80M, or $(1.17) per share, in the first six months of 2018, contrast to a loss of $66.70M, or $(1.78) per share, in the first six months of 2017.
  • Adjusted EBITDA, a non-GAAP financial measure, was $(11.1)0M for the 26 weeks ended August 4, 2018 contrast to $8.10M in for the 26 weeks ended July 29, 2017.

First Six Months Fiscal 2018 Results:

Fred’s net sales for the first half of fiscal 2018 reduced 5.1% to $856.80M from $902.70M in the first half of fiscal 2017. Comparable store sales for the six month period reduced 3.7% contrast to a 3.6% decrease the first six months of last year. Comparable store sales were down 5.1% for the front store and down 2.0% in the retail pharmacy.

Fred’s gross profit for the first six months of 2018 reduced 15.6% to $212.10M from $251.30M in the prior year period. Gross profit percentage for the six months reduced 300 basis points to 24.8% from 27.8% in the same period last year. Factors contributing to the decline in gross profit percentage were prescription rebates in 2017 that did not recur in 2018, a boost in direct and indirect remuneration fees in 2018, and a shift in sales mix. Fred’s recorded a LIFO reserve increase of $0.070M in the first six months of 2018 contrast with a LIFO reserve reduction of $1.30M in the same period last year.

Adjusted selling, general and administrative expenses, counting depreciation and amortization, a non-GAAP financial measure that excludes non-recurring items, reduced to $245.20M, or 28.6% of sales, in the first six months of 2018 contrast to $265.00M, or 29.4% of sales, in the first six months of 2017.

For the first half of 2018, Fred’s recorded a net loss from continuing operations of about $54.30M, or $(1.17) per share, contrast to a net loss of $66.00M, or $(1.78) per share, in 2017.

Adjusted EBITDA, a non-GAAP financial measure that further excludes depreciation and amortization and non-recurring items from EBIT, was $(11.1)0M contrast to $8.10M in the first half of 2017.

FRED has a market value of $100.80M while its EPS was booked as $-3.11 in the last 12 months. The stock has 38.62M shares outstanding. In the profitability analysis, the company has gross profit margin of 23.90%. Beta value of the company was 0.57; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 3.00.

Penny Cook

Penny Cook is passionate about business and finance news with over 5 years in the industry starting as a writer working her way up into senior positions. She is the driving force behind www.nasdaqjournal.com with a vision to broaden the company’s readership throughout 2016. Cook is an editor and reporter of “Services” Category.

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