Fred's nears $1bil. Mark: Regional to open 60 stores in '02 - Brief Article - Statistical Data Included

DSN Retailing Today, March 25, 2002 by Mike Duff

MEMPHIS -- Southeast regional Fred's Inc. capped off a strong fiscal year revenue report with news of renewed optimism for the year to come. After posting record sales that put this general merchandise discounter within spitting distance of $1 billion, Fred's is preparing to develop a second DC on the heels of successfully renovating its first.

For the coming fiscal year, Fred's intends to open about 60 stores and increase selling space by 15% to 18%, according to company executives Michael Hayes, ceo and managing director; John Reier, president and director; and Jerry Shore, executive vp and cfo, who addressed the media and the financial community in a recent conference call.

The chain's fiscal year 2002 store opening rate represents nearly double the number of units Fred's opened in fiscal 2001 when it unveiled 32 units and boosted square footage to 4.7 million from 4.2 million.

Fred's added a regional manager and replaced one of two last year. Under the current regime, regional managers have been able to executive better and recruit more effectively, executives said. Under these regional managers, Fred's has put great emphasis on recruitment, expanding administrative and support management to prepare for expansion.

Executives also said Kmart unit closings might effect its store renovation plan and, ultimately, provide an opportunity for market share expansion. Also, they noted, Kmart has raised prices and Wal-Mart has followed suit, taking some pressure off the market generally.

In terms of merchandising, fashion categories have performed strongly and will get particular attention going forward. "We're putting a lot of emphasis on home furnishings, giftware, housewares and apparel," said Reier, "and those areas have been showing strong improvement. We've completed putting most domestics into our own private label, Southern Expressions. We feel good about those particular areas going strong throughout this year."

Fred's results were bolstered by gains it makes in controlling pharmacy and overall store costs. It will continue to focus on expanding pharmacy operations and has a program that includes ongoing discussions with independent pharmacists that are designed to consolidate their operations into Fred's.

The company has sealed two deals under that program this year and has the potential of signing off on up to 30. Fred's will include a pharmacy in all the stores it builds from the ground up and also in other cases; this is predicated on Fred's being able to acquire a pharmacist during the store planning process.

Additionally, Fred's plans to join this program, sponsored by the National Association of Chain Drug Stores, to provide seniors with discount cards offering a discount on scripts.

On an adjusted basis, disregarding an extra week of sales in 2000, Fred's sales gained 18% to $274 million versus $231.2 million in the pro-forma 13-week 2001 quarter. Comparable store sales grew 11.3%.

Fourth quarter net income gained 37% to $8.2 million from 6 million during last year's period. Earnings per share, on a diluted basis, advanced 23% to $0.32 from $0.26.

Full-year 2001 retail sales increased 19% to $910.8 million versus $767.9 million for last year's pro-forma 52-week period. Comps grew 10.5% over pro-forma fiscal 2000.

Full-year net income gained 32% to $19.6 million from $14.8 million in 2000. Earnings per share, on a diluted basis, advanced 25% to $0.81 from $0.65 in 2000. Sales for the fourth quarter and full-year fiscal 2001 were $244.6 million and $781.2 million, respectively.