Exhibit 99.1
Fred's Reports Third Quarter 2007 Results
MEMPHIS, Tenn.--(BUSINESS WIRE)--Nov. 29, 2007--Fred's, Inc. (NASDAQ: FRED)
today reported financial results for the third quarter and nine months ended
November 3, 2007.
Net income for the third quarter of 2007 totaled $4.6 million or
$0.12 per diluted share versus net income in the prior-year period of
$6.0 million or $0.15 per diluted share. For the nine months ended
November 3, 2007, net income totaled $15.1 million or $0.38 per
diluted share, compared with net income of $17.6 million or $0.44 per
diluted share for the first nine months of 2006.
Total sales for the third quarter of 2007 increased 3% to $419.9
million from $407.9 million in the same period last year. For the
first nine months of 2007, total sales increased 5% to $1.287 billion
compared with $1.232 billion in the year-earlier period. On a
comparable store basis, sales increased 1.1% for the quarter versus a
3.0% increase in the year-earlier period. Comparable store sales for
the year to date in 2007 increased 1.2% versus 2.1% in the
year-earlier period.
Commenting on the results, Michael J. Hayes, Chief Executive
Officer, said, "As a result of actions to bring inventory in line with
sales during the quarter, the Company recognized less capitalized
costs in inventory, which shifted $1.5 million of costs into the third
quarter that we had budgeted for the fourth quarter. This shift
recognized in the third quarter reduced earnings to $0.12 per diluted
share from the Company's previously expected earnings of $0.14 per
diluted share. However, this timing shift will benefit previously
forecasted fourth quarter earnings by $0.02 per diluted share and,
consequently, will not affect our full-year plan.
"As announced earlier this month, we now have completed our
refresher program, which involved a substantial revamping of our store
look and merchandise across our chain," Hayes continued. "Obviously, a
project of that scale caused some disruption to our store operations;
however, we think this initiative will strengthen Fred's competitive
position over the long term by making our stores easier to shop and
more appealing to customers. Still, early indications from our holiday
sales while strong in the new expansion departments, thus far show
that consumers remain conservative in spending."
Separately, Hayes noted that Fred's has received multiple
inquiries from qualified parties. The Board of Directors has retained
Merrill Lynch & Co. to review a range of strategic and financial
alternatives; and, on the advice of counsel, the Company has
temporarily suspended its stock repurchase program.
Fred's gross profit for the third quarter increased 5% to $124.9
million from $119.5 million in the prior-year period. Gross margin for
the quarter increased to 29.7% versus 29.3% last year, with the
improvement reflecting primarily the impact of increasing generic drug
penetration in the Company's pharmacy department. Gross profit for the
first nine months of 2007 increased 5% to $373.4 million from $354.4
million last year. Gross margin for the year-to-date period in 2007
was 29.0% versus 28.8% last year.
Selling, general and administrative expenses for the third quarter
of 2007 increased to 28.0% of sales versus 27.0% of sales in the
year-earlier period. The increase in the quarter resulted from higher
expenses related to the merchandising refresher program, advertising,
and store energy costs. For the first nine months of 2007, selling,
general and administrative expenses were 27.1% of sales compared with
26.6% of sales in the prior-year period.
Operating income for the third quarter of 2007 totaled $7.2
million, down from $9.3 million in the year-earlier period. Operating
income was 1.7% of sales in the third quarter of 2007 compared with
2.3% of sales last year. Operating income for the first nine months of
2007 totaled $24.0 million, down from $26.6 million in the prior-year
period. Operating income for the first nine months of 2007 was 1.9% of
sales versus 2.2% of sales last year.
Income tax expense declined to 32.6% of pre-tax earnings in the
third quarter compared with 34.0% in the third quarter last year. The
change resulted from 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 35.9 as
compared to 32.6% for the first three quarters of 2006.
Fred's, Inc. operates 708 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 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; a replay of the call will be available beginning
at approximately 1:00 p.m. Eastern Time and will run until December
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
Nov. 3, Oct. 28, Percent
2007 2006 Change
---------- ---------- -------
Net sales $ 419,913 $ 407,872 3.0%
Operating income $ 7,190 $ 9,302 -22.7%
Net income $ 4,607 $ 5,953 -22.6%
Net income per share:
Basic $ 0.12 $ 0.15 -20.0%
Diluted $ 0.12 $ 0.15 -20.0%
Average shares outstanding:
Basic 39,844 39,794
Diluted 39,924 39,905
39 Weeks 39 Weeks
Ended Ended
Nov. 3, Oct. 28, Percent
2007 2006 Change
---------- ---------- -------
Net sales $1,286,815 $1,231,675 4.5%
Operating income $ 24,049 $ 26,555 -9.4%
Net income $ 15,103 $ 17,574 -14.1%
Net income per share:
Basic $ 0.38 $ 0.44 -13.6%
Diluted $ 0.38 $ 0.44 -13.6%
Average shares outstanding:
Basic 39,826 39,753
Diluted 39,900 39,857
FRED'S, INC.
Unaudited Fiscal 2007 Third Quarter Results
(In thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
Nov. 3, % of Oct. 28, % of
2007 Total 2006 Total
---------- ------ ---------- ------
Net sales $ 419,913 100.0% $ 407,872 100.0%
Cost of goods sold 294,993 70.3% 288,374 70.7%
---------- ------ ---------- ------
Gross profit 124,920 29.7% 119,498 29.3%
Selling, general and
administrative expenses 117,730 28.0% 110,196 27.0%
---------- ------ ---------- ------
Operating income 7,190 1.7% 9,302 2.3%
Interest expense, net 353 0.1% 287 0.1%
---------- ------ ---------- ------
Income before income taxes 6,837 1.6% 9,015 2.2%
Provision for income taxes 2,230 0.5% 3,062 0.7%
---------- ------ ---------- ------
Net income $ 4,607 1.1% $ 5,953 1.5%
========== ====== ========== ======
Net income per share:
Basic $ 0.12 $ 0.15
========== ==========
Diluted $ 0.12 $ 0.15
========== ==========
Weighted average shares
outstanding:
Basic 39,844 39,794
========== ==========
Diluted 39,924 39,905
========== ==========
Unaudited Fiscal 2007 Nine-month Results
(in thousands, except per share amounts)
39 Weeks 39 Weeks
Ended Ended
Nov. 3, % of Oct. 28, % of
2007 Total 2006 Total
---------- ------ ---------- ------
Net sales $1,286,815 100.0% $1,231,675 100.0%
Cost of goods sold 913,411 71.0% 877,289 71.2%
---------- ------ ---------- ------
Gross profit 373,404 29.0% 354,386 28.8%
Selling, general and
administrative expenses 349,355 27.1% 327,831 26.6%
---------- ------ ---------- ------
Operating income 24,049 1.9% 26,555 2.2%
Interest expense, net 494 0.0% 502 0.1%
---------- ------ ---------- ------
Income before income taxes 23,555 1.9% 26,053 2.1%
Provision for income taxes 8,452 0.7% 8,479 0.7%
---------- ------ ---------- ------
Net income $ 15,103 1.2% $ 17,574 1.4%
========== ====== ========== ======
Net income per share:
Basic $ 0.38 $ 0.44
========== ==========
Diluted $ 0.38 $ 0.44
========== ==========
Weighted average shares
outstanding:
Basic 39,826 39,753
========== ==========
Diluted 39,900 39,857
========== ==========
FRED'S, INC.
Unaudited Balance Sheet
(In thousands)
November 3, October 28,
2007 2006
----------- -----------
ASSETS:
Cash and cash equivalents $ 12,047 $ 2,470
Inventories 387,931 388,092
Receivables 28,137 24,523
Other non-trade receivables 21,215 15,090
Prepaid expenses and other current assets 13,345 13,370
----------- -----------
Total current assets 462,675 443,545
Property and equipment, net 150,328 139,928
Other noncurrent assets 8,563 10,155
----------- -----------
Total assets $621,566 $593,628
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $111,140 $118,893
Current portion of indebtedness 159 243
Current portion of capital lease obligation 192 393
Accrued expenses and other 40,618 43,344
Deferred tax liability 15,408 19,442
----------- -----------
Total current liabilities 167,517 182,315
Long-term portion of indebtedness 54,363 35,080
Deferred income taxes 11,867 10,842
Long-term portion of capital lease obligations -- 192
Other noncurrent liabilities 11,265 7,366
----------- -----------
Total liabilities 245,012 235,795
Shareholders' equity 376,554 357,833
----------- -----------
Total liabilities and shareholders'
equity $621,566 $593,628
=========== ===========
CONTACT: Fred's, Inc.
Jerry A. Shore, 901-362-3733, Ext. 2217
Executive Vice President and Chief Financial Officer