Exhibit 99.1
Fred's Reports First Quarter Results
MEMPHIS, Tenn.--(BUSINESS WIRE)--May 24, 2006--Fred's, Inc.
(NASDAQ/NM:FRED) today reported financial results for the first
quarter ended April 29, 2006.
Net income for the first quarter of fiscal 2006 increased 9% to
$7.3 million or $0.18 per diluted share compared with net income of
$6.7 million or $0.17 per diluted share in the year-earlier quarter.
As reported earlier, total sales for the first quarter rose 9% to
$416.9 million compared with $382.7 million in the same period last
year. On a comparable store basis, sales increased 2.3% on top of the
3.0% gain reported in the same period last year.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "We are pleased to report earnings that hit the top end
of our expected range for the first quarter. These results reflected
sound performance in several phases of our business, including
in-range comparable store sales growth, increased store traffic, and
good control of markdowns, stores expenses, and inventory growth. With
this solid start to the fiscal year, we are encouraged by the progress
of our current initiatives to improve Fred's performance, such as our
merchandising refresher program, as well as those planned for later in
2006. Moreover, the pharmacy department is enjoying a more stable
environment as well as an excellent response to our initiatives to
educate and assist customers in registering for Medicare Part D."
Concluding, Hayes added, "As we look forward, we continue to
believe that total sales for 2006 will increase in the range of 11% to
15% and that comparable store sales will increase in the range of 3%
to 5%."
Fred's gross profit for the first quarter of 2006 was $119.8
million compared with $109.0 million in the same period last year,
representing an increase of 10% for the period. Gross margin for the
quarter was 28.7% of sales compared with 28.5% of sales in the
year-earlier period. The improvement in gross margin is primarily a
result of controlling markdowns as the quality of inventory remained
strong.
Selling, general and administrative expenses for the first quarter
of 2006 increased to 26.0% of sales versus 25.8% of sales in the first
quarter last year. This increase was primarily attributable to higher
costs of fuel and energy.
Operating income for the first quarter of 2006 rose 8% to $11.0
million from $10.2 million in the year-earlier period. Operating
income for the quarter was 2.7% of sales, the same as in the first
quarter of 2005.
Fred's Inc. operates 663 discount general merchandise stores,
including 24 franchised Fred's stores in the southeastern United
States. For more information about the Company, visit Fred's Web site
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.earnings.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
24, 2006.
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, and costs and delays in
acquiring or developing new store sites. 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
April 29, April 30, Percent
2006 2005 Change
-------- -------- -------
Net sales $416,678 $382,738 8.9%
Operating income $ 11,048 $ 10,191 8.4%
Net income $ 7,298 $ 6,722 8.6%
Net income per share:
Basic $ 0.18 $ 0.17 5.9%
Diluted $ 0.18 $ 0.17 5.9%
Average shares outstanding:
Basic 39,711 39,549
Diluted 39,840 39,714
FRED'S, INC.
Unaudited Fiscal 2006 First Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
April 29, % of April 30, % of
2006 Total 2005 Total
--------- ----- --------- -----
Net sales $ 416,878 100.0% $ 382,738 100.0%
Cost of goods sold 297,034 71.3% 273,709 71.5%
--------- ----- --------- -----
Gross profit 119,844 28.7% 109,029 28.5%
Selling, general and
administrative
expenses 108,796 26.0% 98,838 25.8%
--------- ----- --------- -----
Operating income 11,048 2.7% 10,191 2.7%
Interest (income)
expense, net (5) 0.0% 158 0.0%
--------- ----- --------- -----
Income before income
taxes 11,053 2.7% 10,033 2.7%
Provision for income
taxes 3,755 0.9% 3,311 0.9%
--------- ----- --------- -----
Net income $ 7,298 1.8% $ 6,722 1.8%
========= ===== ========= =====
Net income per share:
Basic $ 0.18 $ 0.17
========= =========
Diluted $ 0.18 $ 0.17
========= =========
Weighted average shares
outstanding:
Basic 39,711 39,549
========= =========
Diluted 39,840 39,714
========= =========
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
April 29, April 30,
2006 2005
-------- --------
ASSETS:
Cash and cash equivalents $ 2,749 $ 16,488
Inventories 317,012 297,039
Receivables 26,268 20,609
Other non-trade receivables 12,595 11,872
Prepaid expenses and other current assets 9,085 6,568
-------- --------
Total current assets 367,709 352,576
Property and equipment, net 138,366 140,519
Other noncurrent assets 9,282 6,551
-------- --------
Total assets $515,357 $499,464
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 84,079 $ 88,190
Current portion of indebtedness 243 18
Current portion of capital lease obligation 510 655
Accrued expenses and other 37,276 29,680
Deferred income taxes 18,608 17,829
Income taxes payable 2,659 2,277
-------- --------
Total current liabilities 143,375 138,649
Long-term portion of indebtedness 7,749 27,928
Deferred income taxes 11,252 8,279
Long-term portion of capital lease obligations 370 879
Other noncurrent liabilities 5,507 2,486
-------- --------
Total liabilities 168,253 178,221
Shareholders' equity 347,104 321,425
-------- --------
Total liabilities and shareholders' equity $515,357 $499,646
======== ========
CONTACT: Fred's Inc., Memphis
Jerry A. Shore, 901-362-3733, Ext. 2217