CEO says retailer 'remains focused on health care transformation'
Fred’s said Thursday that for the five weeks ended July 1, sales totaled $197.5 million, down 5.3% from $208.5 million a year earlier. The company attributed the decline the closing of 39 underperforming stores in the first quarter and pressure in its front-end business.
June same-store sales dipped 1.6%, compared with a 1.3% decrease in the prior-year period. Fred’s said June comparable-store sales reflected a negative impact of 0.9% from the sale of low productive discontinued inventory.
“While overall comparable store sales in June were lower than we had anticipated, the results in our retail and specialty pharmacy businesses continue to be favorable, with combined pharmacy comparable sales increasing 3.5%,” Fred’s chief executive officer Michael Bloom said in a statement. “In retail pharmacy, we continue to see a positive shift to generic, while we consistently experience strong sales and script growth in the specialty pharmacy business.”
In the front end, consumables categories have faced headwinds, and cooler-than-normal temperatures impacted summer seasonal sales, according to Bloom.
“However, we are encouraged by our early results in the recent introduction of beer and wine in select stores,” he noted. “We also continue to see the benefits of the initiatives we began to roll out last year, including upgrading talent, investing in technology and remodeled stores, and diversifying our specialty pharmacy portfolio, to name a few.”
Because of the lower-than-expected June sales and other headwinds, Fred’s no longer expects sequential improvement from the first to the second quarter, Bloom added. “However, we still expect to achieve operational profitability in the fourth quarter of 2017. We remain committed to enhancing long-term shareholder value and will continue to execute on our strategy, including growing scripts and optimizing our supply chain and store fleet, to drive revenue growth, enhance gross margins, reduce operating expense and increase free cash flow.”
Bloom reiterated that Fred’s “remains focused on executing the company’s health care transformation,” in which the retailer has been expanding its pharmacy business. But Fred’s experienced a setback on that plan last week with the cancellation of its agreement to buy up to 1,200 Rite Aid drug stores in connection with the Walgreens-Rite Aid merger. After a prolonged antitrust review by the Federal Trade Commission, Walgreens Boots Alliance and Rite Aid Corp. terminated the deal, which in turn nullified Fred’s agreement to purchase at least 865 Rite Aid stores for $950 million, which announced in December. Fred’s will receive $25 million as reimbursement for expenses related to the cancelled transaction.
“While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it,” Bloom commented after the Rite Aid store deal was terminated. “Our leadership team continues to deliver on its promise to optimize our business model and execute our health care strategy,” he added.
Overall, Fred’s operates 601 pharmacy and general merchandise stores, including 14 franchised locations and three specialty pharmacy-only locations. More than half of its stores have pharmacies.