Fred’s profits clipped as softlines sales slip
By Staff -- Home Textiles Today, 3/27/2008 2:28:00 PM
Memphis, Tenn. – Home and apparel were singled out specifically as categories that experienced an increase in promotional activity at neighborhood retailer Fred’s Inc., the company said during its fourth-quarter and yearend earnings call today.
This downward trend was blamed on “the macro trends going on in the environment,” said Bruce Efird, president. He did not offer exact measures of the activity, “but we are seeing frequency of ads,” he said. “Our advertising and marketing agency has given us matrixes on increased radio and TV we’re seeing from some of our competitors as well.”
To combat the problem, 716-store Fred’s has retained a new agency that will start a “new and revamped” marketing campaign during the second quarter. “We’re also looking at the timing of our ads to do a better job of marrying up the timing of our circulars and our print ads around the holidays to be more effective,” he continued.
Fred’s reported sharply cut earnings for 2007, down 59.9% to $10.7 million from $26.7 million in 2006.
The company took a $9.9 million (after-tax) restructuring charge in the fourth quarter -- related to its newly announced three-year turnaround plan – which contributed to the earnings decline. This year’s 4Q net loss of $4.4 million was in contrast to the previous year’s 4Q earnings of $9.2 million.
While sales edged up 1% to $1.78 billion for the year, and comps made a 0.3% advance, Fred’s gross profit as percentage of sales fell 50 basis points from the prior year, to 27.5%, while SG&A expenses climbed 90 basis points to 26.6%.
Sales in the fourth quarter were off 8% compared to last year’s 14-week quarter, and down 2% on a 13-week-to-13-week basis. Comps fell 2.5% in the quarter.
Michael Hayes, ceo, noted, “The rapid changes in discretionary income for our customer base made us face some very tough decisions” as the retailer pressed on with its planned inventory reductions, shut some stores and took related measures – but also increased in-stock levels on fast-turning products.
