FRED'S 4300 New Getwell Road, Memphis, Tennessee 38118
Contact: Jerry A. Shore
Executive Vice President and
Chief Financial Officer
(901) 362-3733, Ext. 2217
FRED'S net income increases 20% for the SECOND QUARTER
MEMPHIS, Tenn. (August 21, 2003) - Fred's Inc. (Nasdaq/NM: FRED) today reported
record financial results for the second fiscal quarter and six-month period
ended August 2, 2003.
Net income for the second quarter of 2003 increased 20% to $4.4 million or
$0.11 per diluted share from $3.7 million or $0.09 per diluted share in the
year-earlier period. For the first half of 2003, net income increased 23% to
$12.2 million or $0.31 per diluted share from $9.9 million or $0.25 per diluted
share in the same period last year.
The Company's per share results have been adjusted for a three-for-two
stock split distributed on July 1, 2003.
Retail sales by Company stores for the second quarter of 2003 increased 19%
and total sales for the quarter rose 18% to $302.3 million versus $256.5 million
in the same period last year. On a comparable store basis, sales increased 5.5%
for the quarter. For the first half of 2003, retail sales by Company stores
increased 20% and total sales for the period rose 19% to $613.0 million compared
with $514.9 million in the year-earlier period. Comparable store sales for the
first six months of 2003 increased 5.8% over the same period last year.
Commenting on the results, Michael J. Hayes, Chief Executive Officer, said,
"Fred's performance in the second quarter was outstanding. With continued strong
momentum in sales and 20% growth in earnings, the Company remains firmly on
track through the mid-year point to achieve its financial objectives for 2003.
"Beyond steady financial growth, several operational accomplishments
highlighted the second quarter," Hayes added. "These included a successful
ramp-up in the operations of our new Georgia distribution center, which
experienced its first quarter of operation. We are pleased to acknowledge the
hard work and dedication of our employees who contributed to this important
undertaking, helping us begin shipments on schedule and expand the new center's
operations so quickly and ahead of schedule. Also, we continued our accelerated
store expansion program with the opening of 24 new stores during the second
quarter. We now have added 54 new stores through the first half of the year,
increasing our total selling square footage approximately 12% thus far in 2003.
With this progress, we remain well positioned to reach our goal of opening a
total of 70-75 stores this year, which should result in an increase in selling
space of 17%-18% in fiscal 2003. This ongoing expansion in infrastructure and
financial strength provides Fred's with a solid foundation for growth well into
the future."
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FRED Reports Second Quarter Results
Page 2
August 21, 2003
Fred's gross profit for the second quarter was $84.9 million compared with
$69.6 million in the prior period, representing an increase of 22% for the
period. Gross margin for the quarter improved to 28.1% versus 27.2% last year,
with the increase reflecting improved initial markup on shipments and vendor
allowances associated with the opening of the Company's Georgia distribution
center. Gross profit for the first six months of 2003 increased 24% to $172.9
million from $139.1 million in the first half of 2002. Gross margin for the 2003
year-to-date period was 28.2% versus 27.0% in the same period last year.
Selling, general and administrative expenses for the second quarter of 2003
increased to 25.9% of sales versus 25.0% of sales in the year-earlier period. On
a year-to-date basis in 2003, selling, general and administrative expenses
increased to 25.2% of sales compared with 24.1% of sales in the first half of
2003. The increase in expenses in the quarter and year-to-date periods was
attributable to costs associated with the Company's expansion of store and
distribution facilities, as well as higher insurance costs.
Operating income for the second quarter of 2003 increased 18% to $6.7
million from $5.6 million in the year-earlier period. Operating income was 2.2%
of sales in both the second quarter of 2003 and the second quarter of 2002.
Operating income for the first half of 2003 increased 24% to $18.7 million from
$15.1 million in the prior-year period. Operating income for the first half of
2003 was 3.0% of sales compared with 2.9% of sales in the first six months of
last year.
Fred's Inc. operates 494 discount general merchandise stores, including 26
franchised Fred's stores in the southeastern United States. For more information
about the Company, visit Fred's website on the Internet at www.fredsinc.com. A
public, listen-only simulcast and replay of Fred's second quarter conference
call may be accessed at the Company's web site or at www.companyboardroom.com.
The simulcast will begin at approximately 10:00 a.m. Eastern Time today and a
replay of the call will be available beginning at approximately noon Eastern
Time and will run until September 21, 2003.
Comments in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties which could
cause actual results to differ materially from those projected in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, general economic trends, changes in consumer demand or purchase
patterns, delays or interruptions in the flow of merchandise between the
Company's distribution centers and its stores or between the Company's suppliers
and same, a disruption in the Company's data processing services, costs and
delays in acquiring or developing new store sites, and other contingencies
discussed in the Company's Securities and Exchange Commission filings. Fred's
undertakes no obligation to release revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unforeseen events, except as required to be reported
under the rules and regulations of the Securities and Exchange Commission.
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FRED Reports Second Quarter Results
Page 3
August 21, 2003
FRED'S INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
August 2, August 3, Percent
2003 2002 Change
------------ ------------- --------
Net sales $ 302,270 $ 256,470 17.9%
Operating income $ 6,685 $ 5,648 18.4%
Net income $ 4,385 $ 3,667 19.6%
Net income per share:*
Basic $ 0.11 $ 0.10 10.0%
Diluted $ 0.11 $ 0.09 22.2%
Average shares outstanding:*
Basic 38,695 38,229
Diluted 39,510 39,167
26 Weeks 26 Weeks
Ended Ended
August 2, August 3, Percent
2003 2002 Change
------------ ------------ --------
Net sales $ 612,959 $ 514,897 19.0%
Operating income $ 18,662 $ 15,061 23.9%
Net income $ 12,242 $ 9,942 23.1%
Net income per share:*
Basic $ 0.32 $ 0.26 23.1%
Diluted $ 0.31 $ 0.25 24.0%
Average shares outstanding:*
Basic 38,569 38,133
Diluted 39,328 39,164
* All share and per share amounts have been adjusted to reflect the distribution
of a three-for-two stock split on July 1, 2003.
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FRED Reports Second Quarter Results
Page 4
August 21, 2003
FRED'S INC.
Unaudited Fiscal 2003 Second Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
August 2, % of August 3, % of
2003 Total 2002 Total
------------ -------- ----------- ------
Net sales $ 302,270 100.0% $ 256,470 100.0%
Cost of goods sold 217,326 71.9% 186,832 72.8%
----------- -------- ----------- ------
Gross profit 84,944 28.1% 69,638 27.2%
Selling, general and administrative expenses 78,259 25.9% 63,990 25.0%
----------- -------- ----------- ------
Operating income 6,685 2.2% 5,648 2.2%
Interest expense, net 100 0.0% 7 0.0%
----------- -------- ----------- ------
Income before income taxes 6,585 2.2% 5,641 2.2%
Provision for income taxes 2,200 0.7% 1,974 0.8%
----------- -------- ----------- ------
Net income $ 4,385 1.5% $ 3,667 1.4%
----------- -------- ----------- ------
Net income per share: *
Basic $ 0.11 $ 0.10
----------- -----------
Diluted $ 0.11 $ 0.09
----------- -----------
Weighted average shares outstanding: *
Basic 38,695 38,229
----------- -----------
Diluted 39,510 39,167
----------- -----------
Unaudited Fiscal 2003 Six-Month Results
(in thousands, except per share amounts)
26 Weeks 26 Weeks
Ended Ended
August 2, % of August 3, % of
2003 Total 2002 Total
----------- -------- ----------- -------
Net sales $ 612,959 100.0% $ 514,897 100.0%
Cost of goods sold 440,067 71.8% 375,834 73.0%
----------- -------- ----------- -------
Gross profit 172,892 28.2% 139,063 27.0%
Selling, general and administrative expenses 154,230 25.2% 124,002 24.1%
----------- -------- ----------- -------
Operating income 18,662 3.0% 15,061 2.9%
Interest expense, net 197 0.0% (67) 0.0%
----------- -------- ----------- -------
Income before income taxes 18,465 3.0% 15,128 2.9%
Provision for income taxes 6,223 1.0% 5,186 1.0%
----------- -------- ----------- -------
Net income $ 12,242 2.0% $ 9,942 1.9%
----------- -------- ----------- -------
Net income per share: *
Basic $ 0.32 $ 0.26
----------- -----------
Diluted $ 0.31 $ 0.25
----------- -----------
Weighted average shares outstanding: *
Basic 38,569 38,133
----------- -----------
Diluted 39,328 39,164
----------- -----------
* All share and per share amounts have been adjusted to reflect the distribution
of a three-for-two stock split on July 1, 2003.
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FRED Reports Second Quarter Results
Page 5
August 21, 2003
FRED'S INC.
Unaudited Balance Sheet
(in thousands)
August 2, August 3,
2003 2002
-------------- --------------
ASSETS:
Cash and cash equivalents $ 2,202 $ 2,593
Inventories 218,770 183,003
Receivables and other current assets 22,073 18,914
Current deferred income tax benefit 0 1,034
------------- --------------
Total current assets 243,045 205,544
Property and equipment, net 126,837 91,401
Other noncurrent assets 4,345 4,962
------------- --------------
Total assets$ 374,227 $ 301,907
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 54,327 $ 43,437
Current portion of indebtedness 36 422
Current portion of capital lease obligation 705 742
Accrued expenses 17,839 14,696
Current deferred tax liability 11,273 0
Income taxes 0 1,407
------------- --------------
Total current liabilities 84,180 60,704
Indebtedness 8,489 2,705
Deferred tax liability 7,328 696
Capital lease obligations 2,031 2,106
Other noncurrent liabilities 2,655 2,255
------------- --------------
Total liabilities 104,683 68,466
Shareholders' equity 269,544 233,441
------------- --------------
Total liabilities and shareholders' equity $ 374,227 $ 301,907
------------- --------------
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