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Fred's (FRED) April Sales Grow on Higher Pharmacy Sales

Fred’s Inc. FRED has been reporting higher comparable-store sales (comps) for quite some time now driven by its sales-boosting initiatives and the recent growth in the specialty pharmacy department.

On May 6, Fred’s reported approximately 0.3% year-over-year comps growth for the month of Apr 2016. The improvement was backed by strong growth in general merchandise departments and a positive product mix across product departments. The traffic-driving initiatives by the pharmacy department also bore fruit.

However, comps growth was below the company’s expectation of an increase of 1% to 3% and unfavorable when compared to an increase of 0.7% recorded a year ago.

Total sales for April increased 1% to $163.4 million from $162.2 million in the year-ago quarter backed by contribution from EntrustRx specialty pharmacy, acquired in Apr 2015. April sales reflected a good mix across product departments and improvements in health, beauty, personal care. Further, general merchandise remained positive in April.

For the first three months of fiscal 2016, total sales increased 8% to $549.0 million from $509.0 million recorded in the same period last year. Comps gained 1% in the month of April as against the 0.8% increase registered in Apr 2015.

As of Apr 30, 2016, Fred's operated 660 discount general merchandise stores, including 18 franchised locations and three specialty pharmacy-only locations in 15 states in southeastern U.S. There are 373 full service pharmacy departments located within Fred's stores, including four franchised locations.

This Zacks Rank #5 (Strong Sell) stock is recovering as sales and profitability initiatives are paying off. However, we are concerned about the declining margins.

Stocks to Consider

Some better-ranked stocks in the broader retail wholesale sector are Herbalife Limited HLF, Kirklands Inc. KIRK and Kroger Company KR, each carrying a Zacks Rank #2 (Buy).

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FREDS INC (FRED): Free Stock Analysis Report
 
HERBALIFE LTD (HLF): Free Stock Analysis Report
 
KIRKLANDS INC (KIRK): Free Stock Analysis Report
 
KROGER CO (KR): Free Stock Analysis Report
 
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