Exhibit 99.1
Fred's Reports Year-End 2006 Results
MEMPHIS, Tenn.--(BUSINESS WIRE)--March 22, 2007--Fred's, Inc.
(NASDAQ:FRED) today reported financial results for the 14-week fourth
quarter and 53-week 2006 fiscal year, which ended February 3, 2007,
versus 13-week and 52-week periods for fiscal 2005.
Net income for the fourth quarter of 2006 totaled $9.2 million or
$0.23 per diluted share, after recognizing charges in the quarter
totaling $3.0 million or $0.05 per diluted share related to the
elimination of Boys and Girls apparel departments and the planned
closing of 23 stores and pharmacies. The Company's earnings for the
fourth quarter of 2006 also 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). Net income in the prior-year period was $9.6
million or $0.24 per diluted share. The Company recorded no stock
compensation expense in the comparable period last year.
For the year ended February 3, 2007, net income increased 2% to
$26.7 million or $0.67 per diluted share, from net income of $26.1
million or $0.66 per diluted share for 2005. The Company's earnings
for 2006 included the $0.05 per diluted share restructuring charges
and stock compensation expense totaling $0.03 per diluted share; the
Company recorded no stock compensation expense in fiscal 2005.
Total sales for the fourth quarter of 2006 increased 17% to $535.6
million from $456.5 million in the same period last year. For 2006,
total sales increased 11% to $1.767 billion compared with $1.589
billion in the year-earlier period. The foregoing sales results
reflect an additional week of sales in the fourth quarter and full
year ended February 3, 2007. Adjusting for this extra week, total
sales for both the quarter and year ended February 3, 2007, would have
increased 8%. On a comparable store basis, sales increased 2.0% for
the quarter versus a 2.5% increase in the year-earlier period.
Comparable store sales for 2006 increased 2.4% versus 1.2% in 2005.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "I am pleased with the way we executed our plan in the
fourth quarter, meeting goals for sales, expenses and operating
income. On a comparable basis, excluding the effect of restructuring
costs and stock option expense, fourth quarter operating income
improved approximately 20% over the same period last year, as earnings
per diluted share, excluding the impact of restructuring, reached the
high end of our forecast.
"At the same time, we also made continued headway with the
operational and marketing initiatives we have underway to improve
future performance," Hayes continued. "The roll-out of our store
refresher program and new merchandising strategies will improve the
look and feel of our stores. This will be backed by a new branding
campaign, including expanded television and radio advertising
expenditures, which, together with the refresher program, will help
maintain the operating momentum we saw in 2006."
Fred's gross profit for the fourth quarter increased 12% to $140.5
million from $125.7 million in the prior-year period. Gross profit was
reduced by $2.1 million of below-cost inventory adjustments related to
the Company's decision to eliminate Boys and Girls apparel and
estimated costs of liquidating inventory in planned store closings.
The amount of below-cost inventory adjustments was based on
management's assumptions and actual results may vary from these
estimates. Gross margin for the quarter was 26.2% (net of 0.4% in
restructuring expenses) versus 27.5% last year. In addition to the
factors listed above, gross margin in the fourth quarter was lower as
a result of higher markdowns in the general merchandise departments
due to the competitive environment and the lower margin on Medicare
sales in the Company's pharmacy department. Gross profit for 2006
increased 10% to $494.9 million from $448.2 million last year. Gross
margin for 2006 was 28.0% versus 28.2% last year.
Selling, general and administrative expenses for the fourth
quarter of 2006 declined to 23.5% of sales versus 24.3% of sales in
the year-earlier period. Expenses for the fourth quarter were
increased by $0.9 million (0.2%) of estimated costs for impaired
leasehold improvements and fixtures in planned store closings. The
favorable leverage of selling, general and administrative expenses for
the quarter was primarily attributable to better management of store
labor and control of inventory levels throughout the quarter. For
2006, selling, general and administrative expenses was 25.7% of sales,
the same as in 2005.
Operating income for the fourth quarter of 2006 declined 1% to
$14.4 million from $14.5 million in the year-earlier period. Operating
income was 2.7% of sales in the fourth quarter of 2006 compared with
3.2% of sales last year. Operating income for 2006 increased 2% to
$40.9 million from $40.1 million in the prior year. Operating income
for 2006 was 2.3% of sales versus 2.5% of sales last year. Excluding
the effects of restructuring and stock option expenses recorded in
2006, but not in 2005, operating income for 2006 was $45.7 or 14%
higher than for 2005.
In the fourth quarter, Fred's opened 13 stores and four
pharmacies, bringing the total openings for the year to 59 stores and
16 pharmacies. The Company's total selling square footage increased
approximately 9% for the year.
Looking ahead, the Company expects total earnings per diluted
share for 2007 to be in the range of $0.75 to $0.82. These estimates
include additional anticipated costs associated with the announced
closings of stores and pharmacies of approximately $2.0 million or
$0.03 per diluted share. Also included in the Company's operating
forecast for 2007 are approximately $7.8 million in other federally
mandated expenses discussed, as discussed below. For the first quarter
of 2007, Fred's expects earnings per diluted share to be in the range
of $0.19 to $0.21. Fred's bases these earnings estimates on following
assumptions:
-- Comparable store sales for the first quarter are expected to
increase in the range of 2% to 4% and are anticipated to
increase for the full year in the range of 3% to 5%. Total
sales are expected increase in the range of 8% to 11% for the
first quarter and 6% to 9% for the year.
-- Incremental expenses related to the expected minimum wage
legislation are estimated to be $3.8 million. The sales
estimates above include an anticipated benefit in third and
fourth quarter from increased consumer spending associated
with a higher minimum wage.
-- The impact from the federally approved Average Manufacturer's
Price (AMP) program is expected to become effective on June 1,
reducing Fred's 2007 gross profit by approximately $4.0
million.
-- In 2007, the Company plans to open approximately 35 to 40 new
stores, 15 to 25 new pharmacies, and expects to close certain
stores, resulting in net growth in selling square footage in
the range of 1% to 3% for the year.
-- Planned capital expenditures in 2007 are expected to be
approximately $25.0 to $28.0 million.
-- Included in the Company's 2007 plan are increased expenses
related to Fred's television branding campaign and the
roll-out of its refresher program.
Concluding, Hayes said, "For Fred's, 2007 will be a year in which
we focus on improving our operations, bringing our stores up-to-date,
and increasing customer awareness through our branding campaign, with
the objective of driving store growth at a 7% to 10 % pace in 2008."
Fred's, Inc. operates 701 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 fourth
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; a replay of the call will be available
beginning at approximately 1:00 p.m. Eastern Time and will run until
April 22, 2007.
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)
14 Weeks 13 Weeks
Ended Ended
Feb. 3, Jan. 28, Percent
2007 2006 Change
------------ ------------ ---------
Net sales $ 535,564 $ 456,531 17.3%
Operating income $ 14,394 $ 14,529 -0.9%
Net income $ 9,172 $ 9,568 -4.1%
Net income per share:
Basic $ 0.23 $ 0.24 -4.2%
Diluted $ 0.23 $ 0.24 -4.2%
Average shares outstanding:
Basic 39,820 39,681
Diluted 39,898 39,807
53 Weeks 52 Weeks
Ended Ended
Feb. 3, Jan. 28, Percent
2007 2006 Change
------------ ------------ ---------
Net sales $ 1,767,239 $ 1,589,342 11.2%
Operating income $ 40,949 $ 40,081 2.2%
Net income $ 26,746 $ 26,094 2.5%
Net income per share:
Basic $ 0.67 $ 0.66 0.0%
Diluted $ 0.67 $ 0.66 0.0%
Average shares outstanding:
Basic 39,770 39,632
Diluted 39,858 39,772
FRED'S, INC.
Unaudited Fiscal 2006 Fourth Quarter Results
(in thousands, except per share amounts)
14 Weeks 13 Weeks
Ended Ended
Feb. 3, % of Jan. 28, % of
2007 Total 2006 Total
---------- ------- ---------- -------
Net sales $ 535,564 100.0% $ 456,531 100.0%
Cost of goods sold 395,031 73.8% 330,867 72.5%
---------- ------- ---------- -------
Gross profit 140,533 26.2% 125,664 27.5%
Selling, general and
administrative expenses 126,139 23.5% 111,135 24.3%
---------- ------- ---------- -------
Operating income 14,394 2.7% 14,529 3.2%
Interest expense, net 234 0.1% 106 0.0%
---------- ------- ---------- -------
Income before income taxes 14,160 2.6% 14,423 3.2%
Provision for income taxes 4,988 0.9% 4,855 1.1%
---------- ------- ---------- -------
Net income $ 9,172 1.7% $ 9,568 2.1%
========== ======= ========== =======
Net income per share:
Basic $ 0.23 $ 0.24
========== ==========
Diluted $ 0.23 $ 0.24
========== ==========
Weighted average shares
outstanding:
Basic 39,820 39,681
========== ==========
Diluted 39,898 39,807
========== ==========
Unaudited Fiscal 2006 Results
(in thousands, except per share amounts)
53 Weeks 52 Weeks
Ended Ended
Feb. 3, % of Jan. 28, % of
2007 Total 2006 Total
---------- ------- ---------- -------
Net sales $1,767,239 100.0% $1,589,342 100.0%
Cost of goods sold 1,272,320 72.0% 1,141,105 71.8%
---------- ------- ---------- -------
Gross profit 494,919 28.0% 448,237 28.2%
Selling, general and
administrative expenses 453,970 25.7% 408,156 25.7%
---------- ------- ---------- -------
Operating income 40,949 2.3% 40,081 2.5%
Interest expense, net 736 0.0% 826 0.1%
---------- ------- ---------- -------
Income before income taxes 40,213 2.3% 39,255 2.4%
Provision for income taxes 13,467 0.8% 13,161 0.8%
---------- ------- ---------- -------
Net income $ 26,746 1.5% $ 26,094 1.6%
========== ======= ========== =======
Net income per share:
Basic $ 0.67 $ 0.66
========== ==========
Diluted $ 0.67 $ 0.66
========== ==========
Weighted average shares
outstanding:
Basic 39,770 39,632
========== ==========
Diluted 39,858 39,772
========== ==========
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
Feb. 3, Jan. 28,
2007 2006
--------- ---------
ASSETS:
Cash and cash equivalents $ 2,475 $ 3,145
Inventories 304,969 303,800
Receivables 29,097 20,622
Other non-trade receivables 18,953 11,181
Prepaid expenses and other current assets 12,224 10,790
--------- ---------
Total current assets 367,718 349,538
Property and equipment, net 138,421 139,899
Other noncurrent assets 9,570 8,704
--------- ---------
Total assets $ 515,709 $ 498,141
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 64,349 $ 78,491
Current portion of indebtedness 385 510
Current portion of capital lease obligation 352 543
Accrued expenses and other 42,159 31,449
Deferred tax liability 16,396 18,329
Income taxes payable 4,188 6,196
--------- ---------
Total current liabilities 127,829 135,518
Long-term portion of indebtedness 2,216 6,338
Deferred income taxes 12,425 10,494
Long-term portion of capital lease obligations 115 477
Other noncurrent liabilities 3,856 5,719
--------- ---------
Total liabilities 146,441 158,546
Shareholders' equity 369,268 339,595
--------- ---------
Total liabilities and shareholders' equity $ 515,709 $ 498,141
========= =========
CONTACT: Fred's, Inc., Memphis
Jerry A. Shore, 901-362-3733, ext. 2217
Executive Vice President and Chief Financial Officer