Fred's Tanks 79% in a Year: Any Chances of Revival Ahead?

Fred’s Inc FRED has been reeling under sluggish comparable store sales (comps) in an intensely competitive retail scenario. The company’s murky performance is reflected in its price trend. Evidently, this Zacks Rank #5 (Strong Sell) stock has plunged as much as 80.4% over the past year against the industry’s rally of 10.4%. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Let’s delve into some of the aspects that have led to the dismal performance of this discount retailer of pharmaceutical and general merchandise.

What’s Weighing on Investors’ Sentiments?

Rapid technological developments and lifestyle changes have radically altered consumers’ shopping habits. Companies which adapt with such market trends have been successfully afloat, while others suffer receding store traffic and resort to closures.

Incidentally, Fred’s has been carrying out store closures for a while, which has been negatively impacting the company’s comps rate. In fact, declining store traffic led to the closure of 39 stores during first-quarter 2017. Additionally, sale of low productive discontinued inventory and continued rise in generic dispensing rate have led to reduced comps. Moreover, persisting challenges in the front store business and competitive consumable categories have affected overall sales figures.

 

 

Further, Fred’s store expansion plans and aspirations to emerge as one of the largest pharmacy chain in the retail drugstore space were crushed by the cancelled Walgreens Boots Alliance WBA and Rite Aid Corporation RAD merger in June 2017. Also, the revised deal between Walgreens and Rite Aid offered no gains, thus keeping Fred’s behind industry leaders CVS Health Corporation CVS, Walgreens and Rite Aid.

Thanks to the downsides, we note that comps dipped 1.2%, 0.3% and 0.8% during the first, second and third quarters, respectively. Also, both top- and bottom-line results declined year on year and lagged estimates in third-quarter fiscal 2017. Incidentally, Fred’s has been reporting bottom-line losses for six straight quarters. In addition to dismal comps, increased promotional activity to drive store traffic has been denting Fred’s business.

To make matters worse, management cancelled quarterly cash dividend, alongside third-quarter results. Management stated that the cancelled dividend plan will help the company indulge in share repurchases and invest in strategic developments to induce efficiency in operations. However, with strategies failing to yield results and tumbling business, hopes of revival seem low for this drug-store retailer.

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Fred's, Inc. (FRED) : Free Stock Analysis Report
 
Rite Aid Corporation (RAD) : Free Stock Analysis Report
 
CVS Health Corporation (CVS) : Free Stock Analysis Report
 
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
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