Comparable-store sales declined 9.7% from year earlier

MEMPHIS — Fred’s Inc. said a significant decline in sales in the front store contributed to a 17.2% slide in net sales to $307.1 million in its fourth quarter. Comparable-store sales declined 9.7% from the year earlier.

“In our view, the primary contributors of the reduction in sales were significant decline in overall traffic precipitated by persistent out-of-stock issues in key food, consumable and seasonal categories. This was due to a combination of factors primarily related to supply chain and liquidity issues,” Fred’s chief executive officer Joseph Anto said in an earnings call on Monday.

For the full year ended February 2, Fred’s said its loss narrowed to $1.27 billion from $1.39 billion. Comparable-store sales declined 1.7% in fiscal 2018.

On the pharmacy side, margins declined in part due to prescription rebates in 2017 that did not recur in 2018, as well as an increase in DIR (direct and indirect remuneration) fees paid to pharmacy benefit managers in 2018, Anto said.

Fred’s last month announced it intended to close 159 underperforming stores by the end of May and “evaluate strategic alternatives.” The closing stores represent nearly 29% of Fred’s 557 stores and are located in 13 states, with Mississippi, Alabama, Georgia and Tennessee losing the most stores.

Fred’s last year sold 185 drug stores, pharmacy patient prescription files and pharmacy inventory to Walgreens Boots Alliance.

Anto on Monday said Fred’s is negotiating a forbearance agreement with its lenders that, when finalized, should give the discount retailer the time it needs to complete the store closures, evaluate additional store closures and develop a go-forward business plan for the company.

“Additionally, we are continuing to pursue the sale of our remaining pharmacy locations as well as opportunities to monetize pieces of our real estate portfolio,” Anto said. “As we announced in April, we’ve engaged PJ Solomon to help us evaluate strategic alternatives for the company, which could include but are not limited to, additional store closures, asset sales or refinancing of our ABL [asset-based loan].

“The near-term goal for the company is to create a road map that allows us to stabilize our front-store business, pay down our current ABL facility, remain a good partner to our key vendors and ultimately create value for our shareholders.”