Fred's (FRED) Sluggish Store Sales Keep Investors at Bay

Fred’s Inc FRED has been going off the rails as the company continues to witness sluggish comparable store sales (comps). Shares of this discount retailer, specializing in general and pharmacy products, has plunged close to 76% in a year against the industry’s gain of 18.6%.

What’s Troubling the Stock?

Fred’s has been carrying out store closures for a while, which has been negatively impacting comps. In fact, declining store traffic led to the closure of 39 stores during first-quarter 2017. Additionally, sale of low productive discontinued inventory and continued increase in generic dispensing rate have been bruising Fred’s comps for a while. Persistent challenges in the front store business and competitive consumable categories have also affected overall sales figures.

Thanks to such downsides, comps dipped 1.2%, 0.3% and 0.8% during the first, second and third quarters, respectively. Also, the top- and bottom-line results declined year on year and lagged estimates in third-quarter fiscal 2017. Incidentally, this Zacks Rank #5 (Strong Sell) company has been reporting bottom-line losses for six straight quarters. In addition to dismal comps, increased promotional activity to drive store traffic has been denting business.

 

Moreover, the company’s business expansion plans were eclipsed by the cancelled Walgreens Boots Alliance WBA and Rite Aid Corporation RAD merger in June 2017. If the deal were to materialize, it would have positioned Fred’s as the third-largest drugstore chain in the nation after Walgreens and CVS Health Corporation CVS. However, obstacles such as antitrust concerns cancelled the deal and kept Fred’s far behind industry leaders.

To the disappointment of investors, management cancelled quarterly cash dividend, alongside third-quarter results. The company expects that the cancelled dividend plan will aid share repurchases. Also, the company will be able to invest in strategic developments to induce efficiency in operations. However, with strategies falling apart and a tumbling pharmacy business, hopes of revival seem low for this drug-store retailer.  

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Fred's, Inc. (FRED) : Free Stock Analysis Report
 
Rite Aid Corporation (RAD) : Free Stock Analysis Report
 
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Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
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