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Fred’s misses analyst expectations, points to aggressive pharmacy expansion as future growth driver

BY Michael Johnsen

MEMPHIS, Tenn. — The consumer’s wallet isn’t the only headwind blowing out of a still-struggling economy. Higher operating costs have also helped to undercut Fred’s Super Dollar performance in the past year, Fred’s CEO Bruce Efird explained to analysts Thursday morning.

Fred’s total sales for the 53-week fiscal 2012 increased 4% to $2 billion from $1.9 billion for the same period last year. Comparable store sales increased 1.1%. Excluding the effect of the extra week in the current year, fiscal 2012 comparable store sales for the year decreased 1.4% from the year-earlier period. 

For the year, profit fell 11% to $29.6 million, or 81 cents per share. Fred’s projected 2013 earnings to fall between 77 cents per share and 88 cents per share in 2013. Analysts had expected 95 cents per share, according to published reports. Fred’s shares were down 1.8% to $13.85 in early morning trading.

But Fred’s focus on pharmacy is paying off. Fiscal 2012 pharmacy sales totaled $709.8 million, up 8.2% vs. the year-ago period. 

Fred’s realized a 3.7% lift in comparable prescriptions filled, Efird said, adding that stores with a pharmacy "consistently exceed a 4% operating profit on a full P&L basis." Fred’s will be looking to extend its pharmacy penetration to as high as 70% of all stores in the next three years.

Fred’s plans to remodel between 15 and 20 stores each year, adding a pharmacy operation. All new store openings — between 25 and 30 each year — will include a pharmacy operation. Fred’s will also continue its pursuit of between five and 10 independent pharmacy acquisitions per year. 

Sales across the front-end proved challenging, Efird said. "We were disappointed by the results, but now move forward with optimism about future opportunities and embark on a three-year reconfiguration plan designed to help us regain the momentum we experienced in the prior three years," he said. "Our reconfiguration plan will seek to elevate our general merchandise performance by shifting our general merchandise business to a healthier balance of higher gross margin, discretionary departments and consumables, while accelerating our pharmacy and healthcare services growth. Through these efforts, we believe we can improve overall store productivity and space efficiency and enhance product selection in stores with pharmacies," he said. 

"We will aggressively accelerate our pharmacy presence … while tailoring our merchandise mix toward pharmacy customers in stores with pharmacies," Efird told analysts Thursday morning. Fred’s plans to expand categories including health and beauty aids, cosmetics, eye care, vitamins, pain relief and durable medical equipment. 

Efird expects those efforts to yield 2013 earnings growth in the range of 12% to 28% higher than in 2012. 

Through fiscal 2012, Fred’s opened 12 net new locations consisting of 20 full-service store openings, 15 new Xpress pharmacy locations and the closure of 14 full-service stores and nine Xpress pharmacy locations. For fiscal 2012, the company added 21 net new pharmacies.

Currently, Fred’s operates 712 discount general merchandise stores, including 21 franchised Fred’s stores. Within those stores are 346 pharmacies. Fred’s may open as many as 30 new pharmacies through fiscal 2013. 

 

 

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Doylestown ShopRite, local hospital pilot in-store health resource center

BY Antoinette Alexander

DOYLESTOWN, Pa. — Doylestown Hospital has teamed up with a ShopRite located here to pilot a new community outreach program called “Health Connections by Doylestown Hospital.” Health Connections will be a retail-based health resource center located within the ShopRite of Warminster in the Warminster Town Center shopping center.


Health Connections, which celebrated the grand opening on March 24, is located across from ShopRite’s in-store pharmacy. It includes a reception area with literature racks and a concierge desk, as well as a private conference space that can accommodate health screenings, individual or group meetings and more detailed educational displays. 

Doylestown Hospital’s Healthcare Concierge staffs the location, interacting with customers, coordinating onsite screenings and displays and helping members of the community connect with appropriate health services in the area.

The Health Connections program provides an opportunity to broaden a proactive outreach in health promotion and education to meet the needs of additional community members. Doylestown Hospital stated that it regularly schedules health screenings, lectures and awareness programs at the main Doylestown campus as well as the Health & Wellness Center in Warrington. Still, a recent Community Health Needs Assessment identified unmet needs for health promotion and education for a broader segment of the community. The survey suggested the need to offer screening and educational programs at additional locations in the community, including retail locations, the hospital stated. 



“The partnership with the Cowhey Family Shop Rite of Warminster is a terrific opportunity to make health information accessible and personal for the prevention of illness, and to help residents find the appropriate care when the need arises. We hope this joint effort will help motivate the community to adopt healthier lifestyles, building on a shared vision between Doylestown Hospital and ShopRite owner Joe Cowhey,” stated Scott S. Levy, VP and chief medical officer of Doylestown Hospital.




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ABC divests Canadian distribution arm to Kohl & Frisch

BY Michael Johnsen

VALLEY FORGE, Pa. — AmerisourceBergen on Thursday announced that it has divested its Canadian pharmaceutical distribution business, AmerisourceBergen Canada Corporation, to Kohl & Frisch Limited, a Canadian-owned national full-line distributor. ABCC represented approximately 2% of AmerisourceBergen’s total revenues.

The estimated sale price is expected to be between $80 million and $100 million, of which approximately half will be financed by AmerisourceBergen. As a result of the agreement, the Pennsylvania wholesaler expects to record an estimated loss on sale and other impairment charges of between $160 million and $180 million when it reports its quarterly results for the March quarter of fiscal 2013. 

The transaction is expected to close in the third quarter of fiscal 2013, and is subject to customary closing conditions, including certain regulatory approvals. AmerisourceBergen will retain its Canadian specialty business.

 

 

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