Exhibit 99.1
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 REPORTS FIRST QUARTER RESULTS
MEMPHIS, Tenn. (May 20, 2004) - Fred's, Inc. (NASDAQ/NM: FRED) today reported
financial results for the first quarter ended May 1, 2004.
Net income for the first quarter of fiscal 2004 totaled $7.4 million or
$0.19 per diluted share, matching the analysts' mean estimate for the period. In
the year-earlier quarter, net income was $7.9 million or $0.20 per diluted share
(the prior-year per share amount is adjusted for a three-for-two stock split
distributed on July 1, 2003).
As previously reported, retail sales by Company stores for the first
quarter increased 10% and total sales also rose 10% to $341.5 million compared
with $310.7 million in the same period last year. On a comparable store basis,
sales increased 2.7% for the quarter.
Commenting on the results, Michael J. Hayes, Chief Executive Officer, said,
"As the earnings comparison for the period suggests, the first quarter was
challenging for us due to lower-than-expected comparable store sales growth,
which adversely affected our store expense leverage, and as we faced the impact
of rising fuel, utilities, and other costs. While the deceleration of Fred's
comparable store sales growth is consistent with trends we have witnessed among
our chief competitors in the discount retail sector, we know that our
performance reflects other Company-specific issues. These problems include
delays in merchandise deliveries from vendors, out-of-stock merchandise
conditions on promotional items, and the lag related to the reinstatement of our
Saturday double coupon program.
"There were, however, some bright points in the quarter," Hayes continued.
"Pharmacy sales and margins remained on plan throughout the quarter, helping
offset some of the softness we have seen in other merchandise categories.
Productivity at our new distribution center continues to improve, providing a
solid foundation for expense leveraging and new store growth. Concurrently, our
store expansion program remains on pace for the opening of a record 80-100
stores this year - with 21 of those new stores opening during the first quarter.
"Fortunately, the issues we control can and have been addressed directly,"
Hayes added. "Already, in-stock positions for our May and June circulars have
recovered, revised logistics plans have cleared vendor backlogs, and our double
coupon program is steadily building weekend traffic. We believe the results from
these and other merchandising programs will get our comparable store sales
performance back on plan as the year continues. With our new programs and the
adjustments we have made, the worst should be behind us and our goal to increase
earnings for the year 14%-18%, to a range of $0.97 and $1.00 versus $0.85 for
fiscal 2003, remains in tact."
Fred's gross profit for the first quarter of 2004 was $96.8 million
compared with $87.9 million in the same period last year, representing an
increase of 10% for the period. Gross margin for the quarter was 28.3% of sales,
the same as in the year-earlier period.
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FRED Reports First Quarter Results
Page 2
May 20, 2004
Selling, general and administrative expenses for the first quarter of 2004
increased to 24.9% of sales versus 24.5% of sales in the first quarter last
year. This increase was primarily attributable to an increase in store labor and
advertising costs as a percent of sales, as well as increases in fuel prices and
utilities expenses.
Operating income for the first quarter of 2004 declined 4% to $11.5 million
from $12.0 million in the year-earlier period. Operating income for the quarter
was 3.4% of sales versus 3.8% of sales in the first quarter of 2003.
Fred's, Inc. operates 534 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 first quarter
conference call may be accessed at the Company's web site or at
www.fulldisclosure.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 June 20, 2004.
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 center 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.
FRED'S, INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
May 1, May 3, Percent
2004 2003 Change
------------- ------------- -------------
Net sales $ 341,486 $ 310,689 9.9%
Operating income $ 11,483 $ 11,977 -4.1%
Net income $ 7,424 $ 7,857 -5.5%
Net income per share:
Basic $ 0.19 $ 0.20 -5.0%
Diluted $ 0.19 $ 0.20 -5.0%
Average shares outstanding:
Basic 39,060 38,456
Diluted 39,706 39,438
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FRED Reports First Quarter Results
Page 3
May 20, 2004
FRED'S, INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
May 1, % of May 3, % of
2004 Total 2003 Total
----------- --------- ----------- ---------
Net sales $ 341,486 100.0% $ 310,689 100.0%
Cost of goods sold 244,692 71.7% 222,741 71.7%
----------- --------- ----------- ---------
Gross profit 96,794 28.3% 87,948 28.3%
Selling, general and administrative expenses 85,311 24.9% 75,971 24.5%
----------- --------- ----------- ---------
Operating income 11,483 3.4% 11,977 3.8%
Interest (income)/expense, net 62 0.0% 97 0.0%
----------- --------- ----------- ---------
Income before income taxes 11,421 3.4% 11,880 3.8%
Provision for income taxes 3,997 1.2% 4,023 1.3%
----------- --------- ----------- ---------
Net income $ 7,424 2.2% $ 7,857 2.5%
=========== ========= =========== =========
Net income per share:
Basic $ 0.19 $ 0.20
=========== ===========
Diluted $ 0.19 $ 0.20
=========== ===========
Weighted average shares outstanding:
Basic 39,060 38,456
=========== ===========
Diluted 39,706 39,438
=========== ===========
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FRED Reports First Quarter Results
Page 4
May 20, 2004
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
May 1, May 3,
2004 2003
------------- --------------
ASSETS:
Cash and cash equivalents $ 4,573 $ 7,277
Inventories 263,689 212,480
Receivables and other current assets 26,370 20,646
------------- -------------
Total current assets 294,632 240,403
Property and equipment, net 139,269 120,665
Other noncurrent assets 4,078 4,745
------------- -------------
Total assets $ 437,979 $ 365,813
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 75,962 $ 71,028
Current portion of indebtedness 18 36
Current portion of capital lease obligation 689 676
Accrued expenses 16,595 15,100
Current deferred tax liability 11,855 10,895
Income taxes 2,836 2,735
------------- --------------
Total current liabilities 107,955 100,470
Indebtedness 21,660 104
Deferred tax liability 6,539 1,503
Capital lease obligations 1,543 2,239
Other noncurrent liabilities 2,507 2,555
------------- -------------
Total liabilities 140,204 106,871
Shareholders' equity 297,775 258,942
------------- -------------
Total liabilities and shareholders' equity $ 437,979 $ 365,813
============= =============
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