Exhibit 99.1
Fred's Reports First Quarter Results
MEMPHIS, Tenn.--(BUSINESS WIRE)--May 31, 2007--Fred's, Inc.
(NASDAQ: FRED) today reported financial results for the first quarter
ended May 5, 2007.
Net income for the first quarter of fiscal 2007 increased 2% to
$7.4 million or $0.19 per diluted share compared with net income of
$7.3 million or $0.18 per diluted share in the year-earlier quarter.
As reported earlier, total sales for the first quarter rose 6% to
$442.3 million compared with $416.9 million in the same period last
year. On a comparable store basis, sales increased 1.9% on top of the
2.3% gain reported in the same period last year.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "We are pleased to report that earnings for the first
quarter tracked within the range we had expected. These results were
especially gratifying considering that the quarter was an active
period for Fred's in terms of our store upgrade and merchandising
initiatives. By the end of April, this refresher program had commenced
in over 20% of our stores. These efforts are significant in scope and
eventually will involve over 500 of our stores to enhance the look and
expand key departments for our customers. While there are negative
short-term sales impacts, we have seen positive performance from the
completed upgrades and are confident as to the long-term value of the
program." Hayes noted that the entire refresher program is expected to
be completed by early October.
During the quarter, Fred's opened 10 stores, closed 10 stores,
opened six pharmacies, and closed two pharmacies. In 2007, the Company
plans to open 35 to 40 new stores, 15 to 25 new pharmacies, and
expects to close 20 to 25 stores, netting growth in selling square
footage in the range of 1% to 3% for the year.
Fred's gross profit for the first quarter of 2007 was $127.0
million compared with $119.8 million in the same period last year,
representing an increase of 6% for the period. Gross margin for the
quarter was 28.7% of sales, unchanged from the year-earlier period.
Selling, general and administrative expenses for the first quarter
of 2007 increased to 26.2% of sales versus 26.0% of sales in the first
quarter last year. This increase was attributable primarily to
lease-related costs of stores closed during the quarter and higher
stock option expense versus the same period last year. Excluding these
two items, operating expenses as a percent of sales were equal to last
year.
Operating income for the first quarter of 2006 rose 1% to $11.2
million from $11.0 million in the year-earlier period. Operating
income for the quarter was 2.5% of sales compared with 2.7% in the
first quarter of 2006.
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
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 July
1, 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, 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
May 5, April 29, Percent
2007 2006 Change
---------- ---------- --------
Net sales $ 442,262 $ 416,878 6.1%
Operating income $ 11,157 $ 11,048 1.0%
Net income $ 7,438 $ 7,298 1.9%
Net income per share:
Basic $ 0.19 $ 0.18 5.6%
Diluted $ 0.19 $ 0.18 5.6%
Average shares outstanding:
Basic 39,842 39,711
Diluted 39,960 39,840
FRED'S, INC.
Unaudited Fiscal 2007 First Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
May 5, % of April 29, % of
2007 Total 2006 Total
---------- -------- ---------- --------
Net sales $ 442,262 100.0% $ 416,878 100.0%
Cost of goods sold 315,261 71.3% 297,034 71.3%
---------- -------- ---------- --------
Gross profit 127,001 28.7% 119,844 28.7%
Selling, general and
administrative expenses 115,844 26.2% 108,796 26.0%
---------- -------- ---------- --------
Operating income 11,157 2.5% 11,048 2.7%
Interest (income) expense,
net (96) 0.0% (5) 0.0%
---------- -------- ---------- --------
Income before income taxes 11,253 2.5% 11,053 2.7%
Provision for income taxes 3,815 0.8% 3,755 0.9%
---------- -------- ---------- --------
Net income $ 7,438 1.7% $ 7,298 1.8%
========== ======== ========== ========
Net income per share:
Basic $ 0.19 $ 0.18
========== ==========
Diluted $ 0.19 $ 0.18
========== ==========
Weighted average shares
outstanding:
Basic 39,842 39,711
========== ==========
Diluted 39,960 39,840
========== ==========
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
May 5, April 29,
2007 2006
---------- ----------
ASSETS:
Cash and cash equivalents $ 2,727 $ 2,749
Inventories 348,793 317,012
Receivables 29,257 26,268
Other non-trade receivables 17,515 12,595
Prepaid expenses and other current assets 10,359 9,085
---------- ----------
Total current assets 408,651 367,709
Property and equipment, net 137,194 138,366
Other noncurrent assets 9,343 9,282
---------- ----------
Total assets $ 555,188 $ 515,357
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 85,860 $ 84,079
Current portion of indebtedness 18 243
Current portion of capital lease obligation 318 510
Accrued expenses and other 39,434 37,276
Deferred income taxes 15,369 18,608
Income taxes payable 1,764 2,659
---------- ----------
Total current liabilities 142,763 143,375
Long-term portion of indebtedness 17,479 7,749
Deferred income taxes 17,901 11,252
Long-term portion of capital lease obligations 40 370
Other noncurrent liabilities 4,515 5,507
---------- ----------
Total liabilities 182,698 168,253
Shareholders' equity 372,490 347,104
---------- ----------
Total liabilities and shareholders' equity $ 555,188 $ 515,357
========== ==========
CONTACT: Fred's, Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Executive Vice President and Chief Financial Officer