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Big changes under way at Fred’s as profits fall

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MEMPHIS — During its recent earnings call, Fred’s Inc. announced it was “actively pursuing a sale” of its specialty pharmacy business, as it reported financial results for the 2017 fourth quarter and fiscal year ended February 3.

A few days after the call, the company reported that it had reached a definitive agreement to sell certain assets of its specialty pharmacy unit — EntrustRx — to CVS Health for $40 million “plus an amount equal to the value of inventory of EntrustRx.” The three specialty mail order facilities are located in Mississippi and Tennessee.

“One of Fred’s top priorities for 2018 has been to monetize noncore assets, and we are pleased to have reached an agreement for the sale of EntrustRx,” Fred’s interim chief executive officer Joseph Anto said. “The cash proceeds will allow us to pay down a significant portion of our debt and also be used for general corporate purposes.”

Fred’s three specialty pharmacy-only locations are part of a portfolio of assets that also includes 600 general merchandise and pharmacy stores. The deal is expected to be completed by the end of May.

Elsewhere, the company’s financial results showed that net sales were up 2.1% to $477.3 million in the fourth quarter, though the retailer’s gross profit decreased 8% to $115.1 million.

Commenting on the financial report prior to closing the deal with CVS, Anto stated, “I’m excited to say we are now executing a turnaround plan to accomplish two main goals: eliminating our debt and generating significant positive EBITDA [earnings before interest, taxes, depreciation and amortization] and free cash flow, on a run rate basis, by the fourth quarter of fiscal year 2018. Our plan is focused on five key areas: strategic transactions, optimizing our cost structure and capital allocation, talent acquisition, revenue and margin initiatives, and assortment ­optimization.

“We’ve made significant progress on the expense side of our business, having identified $30 million to $40 million in operating cost reductions for fiscal year 2018, and our work in this area is far from over. We are bringing new talent into every part of the organization, including store operations, supply chain, private brands, finance and real estate. Additionally, we have multiple initiatives focused on driving revenue and gross margin in the front store, and we continue to actively manage and reduce our SKU count in order to optimize our assortment,” he added.

These moves come on the heels of the news that CEO Mike Bloom had resigned from his post, effective April 24. He also resigned from his seat on the company’s board. The company indicated that Bloom stepped down to pursue other opportunities, and said that his resignation was not the result of any disagreement with the company or its ­operations.


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