Exhibit 99.1
Fred's Reports Second Quarter 2007 Results
Company Approves Stock Repurchase Plan for Four Million Shares
MEMPHIS, Tenn.--(BUSINESS WIRE)--Aug. 29, 2007--Fred's, Inc.
(NASDAQ: FRED) today reported financial results for the second quarter
and six months ended August 4, 2007.
Net income for the second quarter of 2007 totaled $3.1 million or
$0.08 per diluted share versus net income in the prior-year period of
$4.3 million or $0.11 per diluted share. For the six months ended
August 4, 2007, net income totaled $10.5 million or $0.26 per diluted
share, compared with net income of $11.6 million or $0.29 per diluted
share for the first half of 2006.
Total sales for the second quarter of 2007 increased 4% to $424.6
million from $406.9 million in the same period last year. For the
first half of 2007, total sales increased 5% to $866.9 million
compared with $823.8 million in the year-earlier period. On a
comparable store basis, sales increased 0.8% for the quarter versus a
3.1% increase in the year-earlier period. Comparable store sales for
the year to date in 2007 increased 1.3% versus 2.5% in the
year-earlier period.
Separately, the Company announced that its Board of Directors has
authorized a share repurchase plan allowing for the repurchase of up
to four million shares of Fred's common stock, from time to time in
open-market or negotiated transactions. The repurchase authorization
represents approximately 10% of the Company's 40.1 million shares
currently outstanding.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "Throughout the quarter, our sales failed to meet
expectations while, at the same time, operating expenses bore the
extra weight of costs associated with implementing our internal
initiatives aimed at driving future sales to higher levels. Also, we
incurred increased income tax expense in the second quarter to adjust
our effective rate to 44%, reflecting the requirements of FIN 48
through the first half of 2007. This adjustment caused a one-cent
reduction in earnings per diluted share from what we had anticipated
in our last press release.
"Despite the headwinds we encountered this past quarter, we were
pleased to witness improved operating performance in our pharmacy
department, where the shift to generic drugs, while hurting sales,
actually helped our margins," Hayes continued. "And despite the missed
sales, our Merchandising group was able to manage inventory levels to
stay in line with our plan. During August, we have gained momentum
with our merchandise refresher program, as sales of new product
categories are now exceeding those of the product categories we are
exiting. We believe these factors will continue to pay dividends for
Fred's in the last half of the year."
Fred's gross profit for the second quarter increased 6% to $121.5
million from $115.0 million in the prior-year period. Gross margin for
the quarter rose to 28.6% versus 28.3% last year. The margin
improvement was attributable primarily to the continuing shift from
branded to generic drugs in Fred's pharmacy department sales. Gross
profit for the first half of 2007 increased 6% to $248.5 million from
$234.9 million last year. Gross margin for the year-to-date period in
2007 was 28.7% versus 28.5% last year.
Selling, general and administrative expenses for the second
quarter of 2007 increased to 27.2% of sales versus 26.8% of sales in
the year-earlier period. The increase in the quarter resulted from
costs related to our store refresher program, lease termination costs
of closed stores, and higher employee medical expenses. For the first
half of 2007, selling, general and administrative expenses were 26.7%
of sales compared with 26.4% of sales in the prior-year period.
Operating income for the second quarter of 2007 totaled $5.7
million, down from $6.2 million in the year-earlier period. Operating
income was 1.4% of sales in the second quarter of 2007 compared with
1.5% of sales last year. Operating income for the first six months of
2007 totaled $16.9 million, down from $17.3 million in the prior-year
period. Operating income for the first half of 2007 was 2.0% of sales
versus 2.1% of sales last year.
Income tax expense increased to 44.0% of pretax earnings in the
second quarter compared with 27.8% in the second quarter last year.
The increase resulted from a higher income tax rate this year as well
as the post-implementation effect of the Financial Accounting
Standards Board's Financial Interpretation Number 48 (FIN 48),
Accounting for Uncertainty in Income Taxes. The adjustment in the
current quarter brought the year-to-date income tax rate to 37.2%.
Fred's, Inc. operates 701 discount general merchandise stores
mainly in the southeastern United States, including 24 franchised
Fred's stores. For more information about the Company, visit Fred's
website 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; a replay of the call will be available
beginning at approximately 1:00 p.m. Eastern Time and will run until
September 29, 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)
13 Weeks 13 Weeks
Ended Ended
Aug. 4, July 29, Percent
2007 2006 Change
-------- -------- -------
Net sales $424,640 $406,925 4.4%
Operating income $ 5,702 $ 6,205 -8.1%
Net income $ 3,058 $ 4,323 -29.3%
Net income per share:
Basic $ 0.08 $ 0.11 -27.3%
Diluted $ 0.08 $ 0.11 -27.3%
Average shares outstanding:
Basic 39,864 39,753
Diluted 39,982 39,849
26 Weeks 26 Weeks
Ended Ended
Aug. 4, July 29, Percent
2007 2006 Change
-------- -------- -------
Net sales $866,902 $823,803 5.2%
Operating income $ 16,859 $ 17,253 -2.3%
Net income $ 10,496 $ 11,621 -9.7%
Net income per share:
Basic $ 0.26 $ 0.29 -10.3%
Diluted $ 0.26 $ 0.29 -10.3%
Average shares outstanding:
Basic 39,851 39,732
Diluted 39,974 39,831
FRED'S, INC.
Unaudited Fiscal 2007 Second Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
Aug. 4, % of July 29, % of
2007 Total 2006 Total
-------- ------ -------- ------
Net sales $424,640 100.0% $406,925 100.0%
Cost of goods sold 303,157 71.4% 291,881 71.7%
-------- ------ -------- ------
Gross profit 121,483 28.6% 115,044 28.3%
Selling, general and administrative
expenses 115,781 27.2% 108,839 26.8%
-------- ------ -------- ------
Operating income 5,702 1.4% 6,205 1.5%
Interest expense, net 237 0.1% 220 0.0%
-------- ------ -------- ------
Income before income taxes 5,465 1.3% 5,985 1.5%
Provision for income taxes 2,407 0.6% 1,662 0.4%
-------- ------ -------- ------
Net income $ 3,058 0.7% $ 4,323 1.1%
======== ====== ======== ======
Net income per share:
Basic $ 0.08 $ 0.11
======== ========
Diluted $ 0.08 $ 0.11
======== ========
Weighted average shares
outstanding:
Basic 39,864 39,753
======== ========
Diluted 39,982 39,849
======== ========
Unaudited Fiscal 2007 Six-month Results
(in thousands, except per share amounts)
26 Weeks 26 Weeks
Ended Ended
Aug. 4, % of July 29, % of
2007 Total 2006 Total
-------- ------ -------- ------
Net sales $866,902 100.0% $823,803 100.0%
Cost of goods sold 618,418 71.3% 588,915 71.5%
-------- ------ -------- ------
Gross profit 248,484 28.7% 234,888 28.5%
Selling, general and administrative
expenses 231,625 26.7% 217,635 26.4%
-------- ------ -------- ------
Operating income 16,859 2.0% 17,253 2.1%
Interest expense, net 141 0.1% 215 0.0%
-------- ------ -------- ------
Income before income taxes 16,718 1.9% 17,038 2.1%
Provision for income taxes 6,222 0.7% 5,417 0.7%
-------- ------ -------- ------
Net income $ 10,496 1.2% $ 11,621 1.4%
======== ====== ======== ======
Net income per share:
Basic $ 0.26 $ 0.29
======== ========
Diluted $ 0.26 $ 0.29
======== ========
Weighted average shares
outstanding:
Basic 39,851 39,732
======== ========
Diluted 39,974 39,831
======== ========
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
August 4, July 29,
2007 2006
--------- ---------
ASSETS:
Cash and cash equivalents $ 2,302 $ 2,483
Inventories 347,594 337,320
Receivables 26,349 23,777
Other non-trade receivables 18,476 13,658
Prepaid expenses and other current assets 10,604 9,067
--------- ---------
Total current assets 405,325 386,305
Property and equipment, net 139,312 138,270
Other noncurrent assets 9,060 10,432
--------- ---------
Total assets $ 553,697 $ 535,007
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 67,117 $ 79,243
Current portion of indebtedness 849 243
Current portion of capital lease obligation 276 447
Accrued expenses and other 39,552 38,406
Deferred tax liability 14,635 18,690
Income taxes payable 0 0
--------- ---------
Total current liabilities 122,429 137,029
Long-term portion of indebtedness 32,883 29,137
Deferred income taxes 11,550 10,780
Long-term portion of capital lease obligations 0 287
Other noncurrent liabilities 11,072 6,111
--------- ---------
Total liabilities 177,934 183,344
Shareholders' equity 375,763 351,663
--------- ---------
Total liabilities and shareholders' equity $ 553,697 $ 535,007
========= =========
CONTACT: Fred's, Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Executive Vice President and Chief Financial Officer