Fred's Stock Jumps Over 13% in a Day, 2 Things You Must Note

Investors are keeping a close watch on Fred’s Inc. FRED as the discount retailer is gearing up to report fourth-quarter fiscal 2017 results. However, there are two things investors must note before they take a stock of the results. Firstly, Fred’s has rescheduled its earnings announcement date, and the second thing to note is why the company took this step.

Well, Fred’s revealed that its fourth-quarter earnings are now slated to be reported on May 4, which will be followed by management’s conference call. Management clarified that this postponement is solely connected to Fred’s plans to divest its specialty pharmacy business, which will soon form part of the company’s discontinued operations.

Notably, these revelations spurred investors’ sentiment, as shares of the company gained a solid 13.3% during yesterday’s trading session. This gave a major respite to the stock that was otherwise in the red zone for a while. Incidentally, Fred’s has lost close to 79% in a year, as against the industry’s rise of nearly 20%. This is largely attributable to Fred’s dismal comps and earnings record, as well as the impact of the canceled merger between Rite Aid RAD and Walgreens WBA. The canceled deal thwarted Fred’s store expansion plans and kept it far behind industry leaders like Walgreens and CVS Health Corporation CVS.

 

 

Getting back to the latest announcements — we note that during the quarter under review, Fred’s directors sanctioned a plan to undertake rigorous marketing of the company’s specialty pharmacy business. This in turn requires Fred’s to put up the specialty pharmacy operations under discontinued operations for all time periods in its Annual Report on Form 10-K. As management anticipates filing the 10-K on May 4 itself, it is likely to take time to complete the accounting procedures associated with presenting its specialty pharmacy business operations in the discontinued operations section. This in turn caused the company to delay its reporting date from Apr 18 to May 4.

We note that in third-quarter fiscal 2017, Fred’s generated more than half of its total sales from its pharmacy business, which comprises the retail pharmacy as well as the specialty pharmacy. However, total pharmacy sales dipped 2.1% year over year, most of which was accountable to softness in retail pharmacy stemming from store closures.

In fact, management has long been focused on improving the performance of its specialty pharmacy business through investing in sales team, therapy diversification and technology. The company has also been leveraging its business relations with payer partners in order to augment network access. These efforts were expected to help Fred’s specialty business gain access to 5 million new patients across different markets. Nevertheless, company’s decision to sell the specialty pharmacy unit looks like a well-perceived move that was also welcomed by Fred’s investors.

On that note, let’s wait and see what’s in store for Fred’s this earnings season. The company, along with its subsidiaries operated 597 discount general merchandise stores and three specialties pharmacy-only across 15 states in the southeastern areas of United States.

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