Exhibit 99.1
Fred's Second Quarter Net Income Rises 24%
MEMPHIS, Tenn.--(BUSINESS WIRE)--Aug. 24, 2006--Fred's Inc.
(NASDAQ: FRED) today reported financial results for the second fiscal
quarter and six-month period ended July 29, 2006.
Net income for the second quarter of 2006 totaled $4.3 million or
$0.11 per diluted share versus $3.5 million or $0.09 per diluted share
in the year-earlier period, representing an increase of 24% in net
income and 22% in net income per diluted share. The Company's earnings
for the second quarter included stock compensation expense associated
with the implementation of Statement of Financial Accounting Standards
No. 123R, "Share-Based Payments" (SFAS 123R), totaling $0.01 per
diluted share; the Company recorded no stock compensation expense in
the comparable period last year.
For the first half of 2006, net income was $11.6 million or $0.29
per diluted share compared with $10.2 million or $0.26 per diluted
share in the same period last year, representing an increase of 14% in
net income and 12% in net income per diluted share. The Company's
earnings for the first half of 2006 included stock compensation
expense totaling $0.01 per diluted share; the Company recorded no
stock compensation expense in the year-earlier period.
Total sales for the second quarter of 2006 increased 9% to $406.9
million from $373.3 million in the same period last year. On a
comparable store basis, sales increased 3.1% for the quarter versus a
0.8% increase in the year-earlier period. For the first half of 2006,
total sales also increased 9% to $823.8 million compared with $756.1
million in the year-earlier period. Comparable store sales for the
first six months of 2006 increased 2.5% versus a 2.1% increase in the
same period last year.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "As we announced earlier this month, we have seen
increased momentum in Fred's sales through the first half of the year,
especially in the second quarter. Today, we are pleased to report that
this momentum has carried over to a strong bottom-line performance, as
we exceeded earnings expectations for the second quarter. Our higher
earnings for the quarter, 22% ahead of last year on a per share basis,
reflect the positive impact of the sales and operational initiatives
that we have set for 2006. In the second quarter we continued with
initiatives focused on better inventory control, managing markdowns to
a favorable level, and gaining leverage of our store and distribution
center expenses. As we look forward, facing a challenging economic
environment, we expect that these initiatives will continue to make a
positive impact on our performance and help us achieve our sales and
profit goals for the year."
Fred's gross profit for the second quarter increased 10% to $115.0
million from $104.7 million in the prior-year period. Gross margin for
the quarter was 28.3% versus 28.1% last year, reflecting the
improvement in markdown controls. Gross profit for the first six
months of 2006 also increased 10% to $234.9 million from $213.8
million in the first half of 2005. Gross margin for the 2006
year-to-date period was 28.5% versus 28.3% in the same period last
year.
Selling, general and administrative expenses for the second
quarter of 2006 increased to 26.8% of sales versus 26.6% of sales in
the year-earlier period. The recognition of stock compensation expense
this year under SFAS 123R accounted for most of the year-over-year
increase in selling, general and administrative expenses relative to
sales. On a year-to-date basis in 2006, selling, general and
administrative expenses increased to 26.4% of sales compared with
26.2% of sales in the first half of 2005.
Operating income for the second quarter of 2006 increased 13% to
$6.2 million from $5.5 million in the year-earlier period. Operating
income was 1.5% of sales in the second quarter of 2006, the same
percentage as last year even though operating income for the second
quarter of 2006 included a 14-basis-point impact from stock
compensation expense. Operating income for the first half of 2006
increased 10% to $17.3 million from $15.7 million in the prior-year
period. Operating income for the first half of 2006 was 2.1% of sales,
unchanged from last year.
Fred's Inc. operates 673 discount general merchandise stores,
including 24 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.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 1:00 p.m. Eastern Time and will run until
September 25, 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, 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
July 29, July 30, Percent
2006 2005 Change
--------- --------- -------
Net sales $ 406,925 $ 373,319 9.0%
Operating income $ 6,205 $ 5,500 12.8%
Net income $ 4,323 $ 3,483 24.1%
Net income per share:
Basic $ 0.11 $ 0.09 22.2%
Diluted $ 0.11 $ 0.09 22.2%
Average shares outstanding:
Basic 39,753 39,638
Diluted 39,849 39,791
26 Weeks 26 Weeks
Ended Ended
July 29, July 30, Percent
2006 2005 Change
--------- --------- -------
Net sales $ 823,803 $ 756,057 9.0%
Operating income $ 17,253 $ 15,691 10.0%
Net income $ 11,621 $ 10,205 13.9%
Net income per share:
Basic $ 0.29 $ 0.26 11.5%
Diluted $ 0.29 $ 0.26 11.5%
Average shares outstanding:
Basic 39,732 39,593
Diluted 39,831 39,758
FRED'S INC.
Unaudited Fiscal 2006 Second Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
July 29, % of July 30, % of
2006 Total 2005 Total
-------- ----- -------- -----
Net sales $406,925 100.0% $373,319 100.0%
Cost of goods sold 291,881 71.7% 268,587 71.9%
-------- ----- -------- -----
Gross profit 115,044 28.3% 104,732 28.1%
Selling, general and
administrative expenses 108,839 26.8% 99,232 26.6%
-------- ----- -------- -----
Operating income 6,205 1.5% 5,500 1.5%
Interest expense, net 220 0.0% 302 0.1%
-------- ----- -------- -----
Income before income taxes 5,985 1.5% 5,198 1.4%
Provision for income taxes 1,662 0.4% 1,715 0.5%
-------- ----- -------- -----
Net income $ 4,323 1.1% $ 3,483 0.9%
======== ===== ======== =====
Net income per share:
Basic $ 0.11 $ 0.09
======== ========
Diluted $ 0.11 $ 0.09
======== ========
Weighted average shares
outstanding:
Basic 39,753 39,638
======== ========
Diluted 39,849 39,791
======== ========
Unaudited Fiscal 2006 Six-Month Results
(in thousands, except per share amounts)
26 Weeks 26 Weeks
Ended Ended
July 29, % of July 30, % of
2006 Total 2005 Total
-------- ----- -------- -----
Net sales $823,803 100.0% $756,057 100.0%
Cost of goods sold 588,915 71.5% 542,296 71.7%
-------- ----- -------- -----
Gross profit 234,888 28.5% 213,761 28.3%
Selling, general and
administrative expenses 217,635 26.4% 198,070 26.2%
-------- ----- -------- -----
Operating income 17,253 2.1% 15,691 2.1%
Interest expense, net 215 0.0% 460 0.1%
-------- ----- -------- -----
Income before income taxes 17,038 2.1% 15,231 2.0%
Provision for income taxes 5,417 0.7% 5,026 0.7%
-------- ----- -------- -----
Net income $ 11,621 1.4% $ 10,205 1.3%
======== ===== ======== =====
Net income per share:
Basic $ 0.29 $ 0.26
======== ========
Diluted $ 0.29 $ 0.26
======== ========
Weighted average shares
outstanding:
Basic 39,732 39,593
======== ========
Diluted 39,831 39,758
======== ========
FRED'S INC.
Unaudited Balance Sheet
(in thousands)
July 29, July 30,
2006 2005
-------- --------
ASSETS:
Cash and cash equivalents $ 2,483 $ 18,226
Inventories 337,320 302,651
Receivables 23,777 19,434
Other non-trade receivables 13,658 15,538
Prepaid expenses and other current assets 9,067 8,082
-------- --------
Total current assets 386,305 363,931
Property and equipment, net 138,270 143,630
Other noncurrent assets 10,432 6,760
-------- --------
Total assets $535,007 $514,321
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 79,243 $ 88,944
Current portion of indebtedness 243 18
Current portion of capital lease obligation 447 622
Accrued expenses and other 38,406 27,674
Deferred tax liability 18,690 17,995
Income taxes payable 0 3,934
-------- --------
Total current liabilities 137,029 139,187
Long-term portion of indebtedness 29,137 38,336
Deferred income taxes 10,780 8,579
Long-term portion of capital lease obligations 287 734
Other noncurrent liabilities 6,111 2,944
-------- --------
Total liabilities 183,344 189,780
Shareholders' equity 351,663 324,541
-------- --------
Total liabilities and shareholders' equity $535,007 $514,321
======== ========
CONTACT: Fred's Inc.
Jerry A. Shore, 901-362-3733, ext. 2217
www.fredsinc.com