Exhibit 99.1
Fred's Reports Third Quarter Results
MEMPHIS, Tenn.--(BUSINESS WIRE)--Nov. 21, 2006--Fred's, Inc.
(NASDAQ: FRED) today reported financial results for the third fiscal
quarter and nine-month period ended October 28, 2006.
Net income for the third quarter of 2006 totaled $6.0 million or
$0.15 per diluted share, representing a decline of 6% from $6.3
million or $0.16 per diluted share in the year-earlier period. The
Company's earnings for the third quarter included stock compensation
expense of $0.01 per diluted share associated with the implementation
of Statement of Financial Accounting Standards No. 123R, "Share-Based
Payments" (SFAS 123R); the Company recorded no stock compensation
expense in the comparable period last year.
For the nine months ended October 28, 2006, net income was $17.6
million or $0.44 per diluted share compared with $16.5 million or
$0.42 per diluted share in the same period last year, representing
increases of 6% in net income and 5% in net income per diluted share.
The Company's earnings for the first nine months of 2006 included
stock compensation expense totaling $0.02 per diluted share; the
Company recorded no stock compensation expense in the year-earlier
period.
Total sales for the third quarter of 2006 increased 8% to $407.9
million from $376.8 million in the same period last year. On a
comparable store basis, sales increased 3.0% for the quarter versus a
1.0% increase in the year-earlier period. For the first nine months of
2006, total sales increased 9% to $1.232 billion compared with $1.133
billion in the year-earlier period. Comparable store sales for the
first nine months of 2006 increased 2.7% versus a 1.0% increase in the
same period last year.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "As we announced earlier this month, October
interrupted eight consecutive months of on-target sales growth for
Fred's. Against the backdrop of an already challenging retail climate,
the hurricane relief funding that poured into the Gulf Coast area last
year made it difficult to project just how strong recurring sales
would be once we lapped those efforts. As we learned, October's sales
performance was difficult and caused earnings for the third quarter to
fall short of our original plan. On a positive note, these softer
sales were offset to some extent by higher gross margins in the third
quarter as we continued to focus on reducing markdowns and controlling
shrinkage.
"Looking ahead to the fourth quarter of the year, we remain
cautious about the competitive environment and the absence of the
relief funds that benefited the fourth quarter of 2005," Hayes
continued. "In view of these issues, we expect that comparable store
sales performance in the fourth quarter will range from 0% to 3% and,
accordingly, diluted earnings per share for the quarter should range
from $0.23 to $0.28."
Fred's gross profit for the third quarter increased 10% to $119.5
million from $108.8 million in the prior-year period. Gross margin for
the quarter was 29.3% versus 28.9% last year, reflecting improvements
in markdowns and shrinkage controls. Gross profit for the first nine
months of 2006 increased 10% to $354.4 million from $322.6 million in
the same period last year. Gross margin for the 2006 year-to-date
period was 28.8% versus 28.5% in the same period last year.
Selling, general and administrative expenses for the third quarter
of 2006 increased to 27.0% of sales versus 26.3% of sales in the
year-earlier period. The increase for the quarter is primarily
attributed to greater store expenses to process the heavy seasonal
inventory levels. On a year-to-date basis in 2006, selling, general
and administrative expenses increased to 26.6% of sales compared with
26.2% of sales in the first nine months of 2005.
Operating income for the third quarter of 2006 declined 6% to $9.3
million from $9.9 million in the year-earlier period. Operating income
was 2.3% of sales in the third quarter of 2006 compared with 2.6% of
sales last year. Operating income for the first nine months of 2006
increased 4% to $26.6 million from $25.6 million in the prior-year
period. Operating income for the first nine months of 2006 was 2.2% of
sales versus 2.3% of sales last year.
In the third quarter, Fred's opened 16 stores and four pharmacies.
The Company closed two stores and one pharmacy. Fred's anticipates
that it will open 12 stores and eight pharmacies in the fourth
quarter, bringing the total openings for the year to 58 stores and 20
pharmacies.
Fred's, Inc. operates 687 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 third 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
December 21, 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
Oct. 28, Oct. 29, Percent
2006 2005 Change
----------------- ----------------- ----------
Net sales $ 407,872 $ 376,754 8.3%
Operating income $ 9,302 $ 9,861 -5.7%
Net income $ 5,953 $ 6,321 -5.8%
Net income per share:
Basic $ 0.15 $ 0.16 -6.3%
Diluted $ 0.15 $ 0.16 -6.3%
Average shares
outstanding:
Basic 39,794 39,661
Diluted 39,905 39,759
39 Weeks 39 Weeks
Ended Ended
Oct. 28, Oct. 29, Percent
2006 2005 Change
----------------- ----------------- ----------
Net sales $ 1,231,675 $ 1,132,811 8.7%
Operating income $ 26,555 $ 25,552 3.9%
Net income $ 17,574 $ 16,526 6.3%
Net income per share:
Basic $ 0.44 $ 0.42 4.8%
Diluted $ 0.44 $ 0.42 4.8%
Average shares
outstanding:
Basic 39,753 39,616
Diluted 39,857 39,761
FRED'S, INC.
Unaudited Fiscal 2006 Third Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
Oct. 28, % of Oct. 29, % of
2006 Total 2005 Total
--------- ------ --------- ------
Net sales $407,872 100.0% $376,754 100.0%
Cost of goods sold 288,374 70.7% 267,942 71.1%
--------- ------ --------- ------
Gross profit 119,498 29.3% 108,812 28.9%
Selling, general and administrative
expenses 110,196 27.0% 98,951 26.3%
--------- ------ --------- ------
Operating income 9,302 2.3% 9,861 2.6%
Interest expense, net 287 0.1% 260 0.1%
--------- ------ --------- ------
Income before income taxes 9,015 2.2% 9,601 2.5%
Provision for income taxes 3,062 0.7% 3,280 0.8%
--------- ------ --------- ------
Net income $ 5,953 1.5% $ 6,321 1.7%
========= ====== ========= ======
Net income per share:
Basic $ 0.15 $ 0.16
========= =========
Diluted $ 0.15 $ 0.16
========= =========
Weighted average shares outstanding:
Basic 39,794 39,661
========= =========
Diluted 39,905 39,759
========= =========
Unaudited Fiscal 2006 Nine-Month Results
(in thousands, except per share amounts)
39 Weeks 39 Weeks
Ended Ended
Oct. 28, % of Oct. 29, % of
2006 Total 2005 Total
----------- ------- ----------- ------
Net sales $1,231,675 100.0 % $1,132,811 100.0%
Cost of goods sold 877,289 71.2% 810,238 71.5%
----------- ------- ----------- ------
Gross profit 354,386 28.8% 322,573 28.5%
Selling, general and
administrative expenses 327,831 26.6% 297,021 26.2%
----------- ------- ----------- ------
Operating income 26,555 2.2% 25,552 2.3%
Interest expense, net 502 0.1% 720 0.1%
----------- ------- ----------- ------
Income before income taxes 26,053 2.1% 24,832 2.2%
Provision for income taxes 8,479 0.7% 8,306 0.7%
----------- ------- ----------- ------
Net income $ 17,574 1.4% $ 16,526 1.5%
=========== ======= =========== ======
Net income per share:
Basic $ 0.44 $ 0.42
=========== ===========
Diluted $ 0.44 $ 0.42
=========== ===========
Weighted average shares
outstanding:
Basic 39,753 39,616
=========== ===========
Diluted 39,857 39,761
=========== ===========
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
Oct. 28, Oct. 29,
2006 2005
--------- ---------
ASSETS:
Cash and cash equivalents $ 2,470 $ 19,306
Inventories 388,092 342,628
Receivables 24,523 18,876
Other non-trade receivables 15,090 15,831
Prepaid expenses and other current assets 13,370 11,660
--------- ---------
Total current assets 443,545 408,301
Property and equipment, net 139,928 141,018
Other noncurrent assets 10,155 8,126
--------- ---------
Total assets $593,628 $557,445
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $118,893 $105,698
Current portion of indebtedness 243 585
Current portion of capital lease obligation 393 588
Accrued expenses and other 43,344 36,963
Deferred tax liability 19,442 18,388
Income taxes payable 0 4,854
--------- ---------
Total current liabilities 182,315 167,076
Long-term portion of indebtedness 35,080 42,619
Deferred income taxes 10,842 10,124
Long-term portion of capital lease obligations 192 596
Other noncurrent liabilities 7,366 6,349
--------- ---------
Total liabilities 235,795 226,764
Shareholders' equity 357,833 330,681
--------- ---------
Total liabilities and shareholders' equity $593,628 $557,445
========= =========
CONTACT: Fred's, Inc.
Executive Vice President and Chief Financial Officer
Jerry A. Shore, 901-362-3733, Ext. 2217