MEMPHIS, Tenn., and DUBLIN, Ohio — Fred’s Inc. and Cardinal Health Inc. have concluded a multiyear agreement by which Cardinal will be the primary supplier of branded and generic drugs to all of the discount retailer’s 360-plus in-store pharmacies and EIRIS Health Services.

The partnership is intended to provide a platform for the rapid growth of Fred’s pharmacy business.

“Fred’s is enthusiastic about the partnership we have forged with Cardinal Health and the inventive solutions Cardinal will provide to support our strategic growth,” says Bruce Efird, Fred’s chief executive officer. “This new alliance puts Fred’s in position to achieve our aggressive pharmacy growth goals in retail locations, clinical services and specialty ­pharmacy.”

In announcing its July sales performance, Fred’s management pointed out that its pharmacy margins continued to be under heavy pressure from “very significant vendor cost increases on both brand and generic drugs.”

Fred’s pharmacy did, however, generate ongoing sales and prescription count growth during the month, which featured the highest script count growth of the year.

In the company’s second fiscal quarter, those cost hikes reduced pharmacy gross margin by about 225 basis points. The alliance with Cardinal is viewed as a way to neutralize prescription drug cost trends and restore margins as well as improve the profitability of Fred’s EIRIS specialty pharmacy business.

Along with July sales, Fred’s revealed its second quarter top-line results, which improved 2% to $490.6 million, although comparable-store sales dipped 0.1%, in contrast to a 2.2% increase in the year-ago quarter. However, clearance programs to move discontinued general merchandise categories impacted GM margins at the same time pharmacy margins were taking another hit.

As a result, the company revised its bottom-line outlook for the second quarter to a net loss of 15 cents to 20 cents per share, down from prior guidance of a profit of 4 cents to 9 cents per share, excluding reserves for inventory disposal. Analysts surveyed by FactSet had been expecting a profit of 6 cents per share.

“The drivers of performance for the balance of the year will be the pharmacy department’s new vendor agreement, store shipments returning to forecast and the continuation of our new marketing programs,” Efird says. “We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014.”