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Fred’s reviews its options after releasing Q3 results

BY Michael Johnsen

MEMPHIS, Tenn. Fred’s may soon be on the sales block, Michael Hayes, the company’s chief executive officer stated Thursday morning in announcing the company’s third-quarter results. According to Hayes, Fred’s has received multiple inquiries from qualified parties and the company has retained Merrill Lynch to review a range of strategic and financial alternatives.

In addition, Fred’s has suspended its stock repurchase program, suggesting that a deal may be imminent.

“The inquiries that came in were from different types of players [meaning both strategic and financial],” Hayes told analysts during a conference call Thursday morning. “What triggered it, as you can understand, is our stock is trading around book value,” Hayes said, even though the company has a strong balance sheet.

Fred’s reported total sales of $419.9 million, a 3 percent increase for the third quarter ending Nov. 3. On a comparable store basis, sales increased 1.1 percent for the quarter versus a 3 percent increase in the year-earlier period.

“As announced earlier this month, we now have completed our refresher program, which involved a substantial revamping of our store look and merchandise across our chain,” Hayes stated. “Obviously, a project of that scale caused some disruption to our store operations; however, we think this initiative will strengthen Fred’s competitive position over the long term by making our stores easier to shop and more appealing to customers. Still, early indications from our holiday sales while strong in the new expansion departments, thus far show that consumers remain conservative in spending.”

Fred’s also reported a slow start to the flu season to date, citing three sources—internal trackings, the FAN report and the FluSTAR report. “All of those are very indicative” of a slower start to the season as compared to last year, commented Rick Chambers, Fred’s executive vice president of pharmacy operations. “We saw our first spike around December of last year with the main spike coming in February, but we’re still anticipating a month or two off before we start seeing any relevant flu activity.”

The company reported a drop in its third-quarter sales mix in both health and beauty aids and pharmacy as compared to the year-ago period. The company’s mix included an 8.2 percent of HBA sales, 8.4 percent last year, and a 33.9 percent pharmacy share, compared to 34 percent in last year’s third quarter.

Fred’s gross profit for the third quarter increased 5 percent to $124.9 million, representing a 40 basis point increase in gross margin to 29.7 percent, primarily reflecting the impact of increasing generic drug penetration in the pharmacy department, Fred’s reported.

Fred’s total annual sales for 2006 were $1.8 billion. According to Drug Store News, it is the 26th largest retail pharmacy operator in America, just ahead of Kinney Drugs and Kerr Drug.

Fred’s, Inc. operates 708 discount general merchandise stores mainly in the southeastern United States, including 24 franchised Fred’s stores.

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FTC accepts A&P’s proposed Pathmark acquisition

BY Antoinette Alexander

MONTVALE, N.J. The Federal Trade Commission has accepted a proposed consent agreement relating to A&P’s acquisition of Pathmark, according to grocer A&P. In addition, the Hart-Scott-Rodino Act waiting period has expired, permitting the parties to close the transaction.

A&P expects to complete the acquisition, which includes 140 Pathmark stores in New York, New Jersey, Pennsylvania and Delaware, on or about Dec. 3. According to Drug Store News estimates, the combined company will have total pharmacy revenues of more than $700 million, making it roughly the 24th largest pharmacy retailer in America, behind Duane Reade.

The terms of the consent agreement require A&P to divest six stores located in New York within a short period following completion of the acquisition. A&P noted that it has entered agreements to sell all of the stores required to be divested, and those sales have been approved by the FTC.

Those six stores being sold under the consent agreement: four Waldbaum’s stores, at 3251 Richmond Avenue South, 778 Manor Road, 4343 Amboy Road, and 1441 Richmond Avenue, and the Pathmark store at 2660 Hylan Boulevard, all on Staten Island, N.Y., to King Kullen Grocery Co.; and the Waldbaum’s store at 999 Montauk Highway, Shirley, N.Y., to Stop & Shop Supermarket Cos.

The stores being divested represent combined annualized sales of approximately $149 million and EBITDA of approximately $6 million.

The consent agreement will be subject to a 30-day public comment period, after which the FTC may propose modifications before the consent order is made final. However, A&P is not required to delay closing of the acquisition for the comment period.

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Kroger celebrates Daytona 500 50th anniversary with largest NASCAR promotion ever

BY Allison Cerra

CINCINNATI Kroger is hoping that their shoppers think NASCAR when they shop in one of its many stores.

Kroger and 50-plus brands are carrying what is being considered the largest promotion for NASCAR ever.

The brands, which include goods from General Mills, ConAgra, Kellogg and PepsiCo, will be sporting the Daytona 500 race logo in honor of the event’s 50th anniversary.

Kroger is one of the largest grocers in the United States with 2,500 stores in 37 states.

The retail effort will run for seven months, according to reports.

From accessories to soft drinks, nearly every product category will be under the promotional umbrella via newspaper circulars and advertisements in-store and in the media.

Kroger will also roll out NASCAR displays and host appearances by drivers.

According to the ISC, the Daytona 500 generated 30 million viewers last year, it was sold out attendance-wise, and a 30-second spot during broadcasts cost $500,000. Corporate sponsors of the 50th anniversary race run the gamut from Holiday Inn to Gatorade.

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