Table of Contents
MEMPHIS, Tenn. — Pharmacy is a pillar of the action plan at Fred’s Inc. in the wake of sales declines in July and the fiscal 2016 second quarter.
Fred’s said July sales fell 7% to $154 million from $165.6 million a year earlier. Same-store sales for the month were down 4.6% versus a 0.7% uptick in the prior-year period.
Second-quarter sales totaled $527.7 million, decreased 3.4% from $546.1 million a year ago. Comparable-store sales in the quarter sales dipped 2%, compared with a 0.9% gain in the 2015 quarter.
On the pharmacy side in July, Fred’s said direct and indirect remuneration (DIR) fees impacted results, as did an industrywide slowdown in demand for hepatitis C medications that affected the company’s specialty pharmacy business.
A calendar shift also had a negative comp-store sales impact of 2.3% for the month. Fred’s noted that its pharmacies were closed on July 4, which this year was on a Monday — the busiest day of the week for the pharmacy department — versus a Saturday last year, typically the slowest day of the week for its pharmacy.
Fred’s said front-end business in July was impacted by the timing of government assistance funds and below-expectations sales trends in food, beverages, paper and household chemicals as the retailer focused its promotional efforts on higher-margin categories.
“Based primarily on the significant gross profit impact of our sales miss for the second quarter, combined with unexpected direct and indirect remuneration, or DIR fees, assessed during the quarter, we now anticipate reporting a loss for the second quarter in the range of $0.18 to $0.24 per share,” chief executive officer Jerry Shore said in a statement. “We have initiatives under way that will be implemented during the third and fourth quarters of this year to address recent trends in general merchandise and pharmacy. These include new front-store businesses, enhancements to our product mix and an enhanced pharmacy marketing campaign.”
Shore reported that Fred’s is reviewing its pharmacy reimbursement strategy to manage the impact of DIR fees going forward.
“Also, we are making a significant investment in our specialty pharmacy sales force,” he added, “new efforts that are now lifting script counts in the specialty pharmacy department, as shown by the slowing rate of decline in July compared with the previous months of the quarter.”
Overall, Fred’s had 651 discount general merchandise stores — including 18 franchised units — and three specialty pharmacy-only locations in 15 Southeast states. The retailer has 372 full-service pharmacy departments in its stores, including four franchised locations.
