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 THIRD QUARTER RESULTS
MEMPHIS, Tenn. (November 23, 2004) - Fred's Inc. (NASDAQ/NM: FRED) today
reported financial results for the third fiscal quarter and nine-month period
ended October 30, 2004.
In line with expectations the Company announced earlier this month, Fred's
net income for the third quarter of 2004 totaled $7.5 million or $0.19 per
diluted share versus $9.0 million or $0.23 per diluted share in the year-earlier
period. For the first nine months of 2004, net income was $18.0 million or $0.46
per diluted share compared with $21.3 million or $0.54 per diluted share in the
same period last year.
Retail sales by Company stores for the third quarter of 2004 increased 13%
and total sales for the quarter rose 12% to $349.1 million versus $311.7 million
in the same period last year. On a comparable store basis, sales increased 3.6%
for the quarter. For the first nine months of 2004, retail sales by Company
stores increased 12% and total sales for the period also rose 12% to $1.031
billion compared with $924.6 million in the year-earlier period. Comparable
store sales for the first nine months of 2004 increased 3.3% over the same
period last year.
Commenting on the results, Michael J. Hayes, Chief Executive Officer, said,
"Although our comparable sales performance this year remains positive, it has
nonetheless fallen short of plan. With the significant added expense of gasoline
this year, our customers are more cautious in their spending and more focused on
lower-margin merchandise, and this impact is reflected in both our sales and
gross profit lines. This, along with the unusual expenses incurred as a result
of the hurricanes and associated clean-up, as well as a surge in our fuel,
transportation and utility expenses, led to the reduced financial results.
"As we look ahead to the final months of the fiscal year and the upcoming
holiday season, our stores are well prepared, well stocked, and ready for
customers, who we expect will return to a livelier holiday shopping spirit,"
Hayes continued. "We still are optimistic that sales will bounce back as
Christmas approaches. However, since sales have remained below plan so far this
month, we believe it may be more realistic to expect a continuing impact from
these factors in the fourth quarter even as we prepare for a strengthening
retail climate. Consequently, we currently project fourth quarter earnings in
the range of $0.30 to $0.34 per diluted share."
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FRED'S Reports Third Quarter Results
Page 2
November 23, 2004
Fred's gross profit for the third quarter was $101.2 million compared with
$91.2 million in the prior-year period, representing an increase of 11% for the
period. Gross margin for the quarter was 29.0% versus 29.3% last year, with the
decline reflecting an ongoing shift in product mix toward basic products, as
well as higher freight costs. Gross profit for the first nine months of 2004
increased 11% to $292.0 million from $264.1 million in the first nine months of
2003. Gross margin for the 2004 year-to-date period was 28.3% versus 28.6% in
the same period last year.
Selling, general and administrative expenses for the third quarter of 2004
increased to 25.8% of sales from 24.8% of sales in the year-earlier period. On a
year-to-date basis in 2004, selling, general and administrative expenses
increased to 25.6% of sales from 25.1% of sales in the first nine months of
2003. The increase in the expenses for the quarter and year-to-date period
reflected reduced sales leverage on store expenses, insurance costs, and
utilities and fuel-related expenses.
Operating income for the third quarter of 2004 declined 19% to $11.3
million from $13.9 million in the year-earlier period. Operating income was 3.2%
of sales in the third quarter of 2004 compared with 4.5% of sales in the third
quarter of 2003. Operating income for the first nine months of 2004 declined 15%
to $27.7 million from $32.6 million in the prior-year period. Operating income
for the first nine months of 2004 was 2.7% of sales compared with 3.5% of sales
in the first nine months of last year.
Fred's Inc. operates 574 discount general merchandise stores, including 25
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 third quarter
conference call may be accessed at the Company's web site or at
www.companyboardroom.com. The simulcast will begin at approximately 5:00 p.m.
Eastern Time today and a replay of the call will be available beginning at
approximately 8:00 p.m. Eastern Time and will run until December 23, 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.
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FRED'S Reports Third Quarter Results
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November 23, 2004
FRED'S INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
October 30, November 1, Percent
2004 2003 Change
------------- ----------- ---------
Net sales $ 349,139 $ 311,668 12.0%
Operating income $ 11,263 $ 13,888 -18.9%
Net income $ 7,521 $ 9,028 -16.7%
Net income per share:
Basic $ 0.19 $ 0.23 -17.4%
Diluted $ 0.19 $ 0.23 -17.4%
Average shares outstanding:
Basic 39,220 38,901
Diluted 39,517 39,838
39 Weeks 39 Weeks
Ended Ended
October 30, November 1, Percent
2004 2003 Change
------------- ----------- ---------
Net sales $ 1,031,475 $ 924,627 11.6%
Operating income $ 27,726 $ 32,550 -14.8%
Net income $ 18,039 $ 21,270 -15.2%
Net income per share:
Basic $ 0.46 $ 0.55 -16.4%
Diluted $ 0.46 $ 0.54 -14.8%
Average shares outstanding:
Basic 39,130 38,680
Diluted 39,585 39,594
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FRED'S Reports Third Quarter Results
Page 4
November 23, 2004
FRED'S INC.
Unaudited Fiscal 2004 Third Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
October 30, % of November 1, % of
2004 Total 2003 Total
------------- --------- ----------- ---------
Net sales $ 349,139 100.0% $ 311,668 100.0%
Cost of goods sold 247,890 71.0% 220,477 70.7%
------------- --------- ----------- ---------
Gross profit 101,249 29.0% 91,191 29.3%
Selling, general and administrative expenses 89,986 25.8% 77,303 24.8%
------------- --------- ----------- ---------
Operating income 11,263 3.2% 13,888 4.5%
Interest expense, net 260 0.1% 93 0.0%
------------- --------- ----------- ---------
Income before income taxes 11,003 3.1% 13,795 4.5%
Provision for income taxes 3,482 1.0% 4,767 1.6%
------------- --------- ----------- ---------
Net income $ 7,521 2.1% $ 9,028 2.9%
============= ========= =========== =========
Net income per share:
Basic $ 0.19 $ 0.23
============= ===========
Diluted $ 0.19 $ 0.23
============= ===========
Weighted average shares outstanding:
Basic 39,220 38,901
============= ===========
Diluted 39,517 39,838
============= ===========
Unaudited Fiscal 2004 Nine-Month Results
(in thousands, except per share amounts)
39 Weeks 39 Weeks
Ended Ended
October 30, % of November 1, % of
2004 Total 2003 Total
------------- --------- ----------- ---------
Net sales $ 1,031,475 100.0% $ 924,627 100.0%
Cost of goods sold 739,462 71.7% 660,544 71.4%
------------- --------- ----------- ---------
Gross profit 292,013 28.3% 264,083 28.6%
Selling, general and administrative expenses 264,287 25.6% 231,533 25.1%
------------- --------- ----------- ---------
Operating income 27,726 2.7% 32,550 3.5%
Interest expense, net 542 0.1% 290 0.0%
------------- --------- ----------- ---------
Income before income taxes 27,184 2.6% 32,260 3.5%
Provision for income taxes 9,145 0.9% 10,990 1.2%
------------- --------- ----------- ---------
Net income $ 18,039 1.7% $ 21,270 2.3%
============= ========= =========== =========
Net income per share:
Basic $ 0.46 $ 0.55
============= ===========
Diluted $ 0.46 $ 0.54
============= ===========
Weighted average shares outstanding:
Basic 39,130 38,680
============= ===========
Diluted 39,585 39,594
============= ===========
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FRED'S Reports Third Quarter Results
Page 5
November 23, 2004
FRED'S INC.
Unaudited Balance Sheet
(in thousands)
October 30, November 1,
2004 2003
------------- --------------
ASSETS:
Cash and cash equivalents $ 5,303 $ 2,279
Inventories 318,271 260,589
Receivables and other current assets 30,629 21,779
------------- --------------
Total current assets 354,203 284,647
Property and equipment, net 143,705 130,281
Other noncurrent assets 4,141 4,256
------------- --------------
Total assets $ 502,049 $ 419,184
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 91,088 $ 78,427
Current portion of indebtedness 11,800 125
Current portion of capital lease obligation 660 735
Accrued expenses & other 20,814 16,416
Current deferred tax liability 13,506 11,016
Income taxes 4,481 6,663
------------- --------------
Total current liabilities 142,349 113,382
Indebtedness 40,072 19,284
Deferred tax liability 8,103 3,445
Capital lease obligations 1,178 1,844
Other noncurrent liabilities 2,406 2,755
------------- --------------
Total liabilities 194,108 140,710
Shareholders' equity 307,941 278,474
------------- --------------
Total liabilities and shareholders' equity $ 502,049 $ 419,184
============= ==============
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