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New chairman to take the reins at Fred’s

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Specialty pharmacy helps drive strong fiscal 2015 sales gain

MEMPHIS, Tenn. — The same day that Fred’s Inc. reported fiscal 2015 results, the pharmacy and discount store retailer named a new chairman.

Fred’s said Wednesday that Michael Hayes, 74, is slated to step down as chairman of the board of directors on April 15, to be succeeded by director Thomas Tashjian, 61. Hayes will become chairman emeritus and remain on the board.

Hayes was elected as director of the company in January 1987 and served as chief executive officer from October 1989 to January 2009.

Freds Pharmacy sign_featured

Well over half of Fred’s stores now include pharmacy departments.

Fred’s noted that the company experienced significant growth during Hayes’ tenure as CEO.

The discount general merchandise retailer expanded from 144 corporate-owned stores in eight states to 659 in 15 states at the end of 2015. Also, the chain’s pharmacy count grew from 45 to 373 as of Jan. 30, 2016, and the company expanded into specialty pharmacy services. Total sales surged from $271 million in 1989 to $2.15 billion for fiscal 2015. Hayes remains the largest individual investor in the company.

“The past 18 to 24 months have been the most challenging of my career, as the company and its board of directors recognized the need to refocus the company, rebuild its management structure, rework our bank agreements and execute our largest acquisition to date: Reeves-Sain Drugs and EntrustRx,” Hayes said in a statement. “This acquisition substantially strengthened our position in the specialty pharmacy business, the fastest-growing segment in pharmacy.

“Because of the tireless work of [CEO] Jerry Shore and the board of directors, we now have in place a successful, experienced and energetic management team, focused on driving deeper into health care, and also stronger general merchandising departments,” Hayes added. “What is now needed is an energetic chairman that has both the vision and skill set to keep this momentum going, and I believe Tom Tashjian is the right person to do this, and now is the right time.”

Tashjian, a private investor, has served as a director at Fred’s since 2001. From 1996 and 2001, he was a managing director and consumer group leader at Banc of America Montgomery Securities in San Francisco, where he provided the firm’s views on the retailing industry. Prior to that, he held similar positions at First Manhattan Company, Seidler Companies, and Prudential Securities. His earlier retail operating experience was in discount retailing at the Ayrway Stores, which was acquired by Target, and in the restaurant business at Noble Roman’s.

“As a director for the past 15 years, I have developed a deep appreciation for Mike’s ability to incent, innovate and inspire, and for the tenacity with which he has pursued his vision for a stronger company,” Tashjian stated. “The company’s transformation during his tenure — in terms of its retail operations, diversification into health care, financial strength, depth of talent and ability to capitalize on new opportunities — has been incredible.”

For fiscal 2015, sales at Fred’s totaled $2.15 billion, up 9% year over year. Same-store sales edged up 1.5% for the year, compared with a 0.6% decrease in 2014.

On the earnings side, Fred’s reported a net loss of $7.4 million, or 20 cents per share, in fiscal 2015 compared with a net loss of $28.9 million, or 80 cents per share, in 2014. Adjusted income for fiscal 2015 was $3.4 million, or 9 cents per share, versus an adjusted loss of $7.3 million, or 20 cents per share, the prior year.

A strong fourth quarter in 2015 helped drive results, as sales in the period climbed 10% to $554.6 million. Comparable-store sales for the quarter rose 1.7%, compared with flat comp-store sales in the year-ago period.

“We were very pleased with the total sales increase, which was driven by the growth in specialty pharmacy, the success of our holiday seasonal programs, and the expanded product assortments throughout our stores,” Shore stated.

During fiscal 2015, Fred’s opened a net of two full-service locations and opened a net of one Xpress pharmacy location. The retailer also moved three Xpress locations into current full-service locations. Fred’s also acquired two specialty pharmacy-only locations.

Overall, Fred’s operates 659 discount GM stores (including 18 franchised locations) and three specialty pharmacy-only locations in 15 states in the Southest. The chain has 372 full-service, in-store pharmacies, including inside five franchised locations.

“As we look forward to 2016, we project that adjusted EBITDA will grow in the range of 35% to 45%, on top of the 46% growth that occurred in 2015,” Shore commented. “This will be accomplished through continued strong sales growth, ongoing and increased traction from the many improvements made last year. There will also be new investments and initiatives in the business to further modernize the foundation of the company — all combining to drive financial performance in 2016 and beyond.”

He added, “Throughout the company, we are excited about the momentum we carry into 2016, and our team is committed to improving outcomes for our customers, together with a totally reimagined shopping experience.”


ECRM-07-06-22


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