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Fred’s enlists A.T. Kearney to spur Rx business

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MEMPHIS, Tenn. — Fred’s Inc. has retained global management consulting firm A.T. Kearney to help the retailer grow its pharmacy business.

Freds Pharmacy sign_featuredIn reporting June sales on Thursday, the discount store chain noted that its expanded specialty pharmacy operation were a key driver of revenue growth for the month.

The company in April closed a $66 million deal to acquire Reeves-Sain Drug Store’s EntrustRx specialty pharmacy operation, which has facilities in Spring Hill, Tenn., and Columbus, Miss., and the single Reeves-Sain retail pharmacy in Murfreesboro, Tenn. EntrustRx is licensed in all 50 states and dispenses specialty drugs to treat complex diseases and conditions, with its main lines of therapy including hepatitis C, oncology, growth hormones, multiple sclerosis and rheumatology.

“Our team remains focused on initiatives to drive stronger sales and operating performance. Gross margin pressure in our retail pharmacy department has accelerated this year and is changing the landscape of the industry,” Fred’s chief executive officer Jerry Shore said in a statement. “We have engaged A. T. Kearney, a leading management and drug sector consulting firm, to help our team map out a more aggressive strategy and take steps to address these industrywide issues. Alternatively, our EntrustRx specialty pharmacy business continues to achieve its financial goals.”

Fred’s total sales in June climbed 12% year over year to $212.9 million. The retailer noted that excluding $7.4 million from last year’s June sales for 56 subsequently closed locations, sales were up 16% for the month. Same-store sales for June edged up 1.6%, versus a 0.6% decrease a year earlier.

For the first five months of its 2015 fiscal year, Fred’s sales gained 6% to $889.1 million. The company said the year-over-year revenue growth for that period is 10% if sales of $35.2 million from closed stores in 2014 are excluded. Comparable-store sales for the year to date rose 0.8%, compared with a decline of 1.3% a year ago.

“The strong sales growth we experienced during June continued to reflect the recent expansion of our specialty pharmacy business, which accounted for approximately 11% of total sales. June also benefited from a favorable calendar shift at the beginning of the month, improved performance from our advertising changes and new products in our stores,” Shore stated. “On a comparable-store basis, June sales were on the lower end of our expectations, reflecting softer retail pharmacy department script volume and increasing reimbursement rate pressures associated with preferred Medicare Part D networks, which affects both sales and margins. On the other hand, general merchandise sales showed improvement in June and, on a comparable store basis, were flat for the month.”

Overall, Fred’s operates 662 discount general merchandise stores and three specialty pharmacy-only locations in the Southeast. During June, the company closed one Xpress pharmacy location.

Last year, Fred’s hatched plans to have pharmacies in a greater share of its store base as a way to boost sales. Currently, about half of the retailer’s stores have pharmacies.

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