Fred's Guides 2011 EPS $0.84-$0.90 (FRED)

Fred's FRED today reported financial results for the fourth quarter and fiscal year ended January 29, 2011. For the fourth quarter of 2010, Fred's net income increased 49% to $8.6 million or $0.22 per diluted share compared with net income of $5.8 million or $0.15 per diluted share in the year-earlier period. For the year ended January 29, 2011, Fred's net income increased 25% to $29.6 million or $0.75 per diluted share compared with net income of $23.6 million or $0.59 per diluted share in the year-earlier period. Fred's total sales for the fourth quarter of fiscal 2010 increased 3% to $485.6 million from $473.1 million for the same period last year. Comparable store sales for the quarter increased 2.3% compared with a decline of 0.9% for the fourth quarter last year. Fred's total sales for 2010 increased 3% to $1.842 billion from $1.788 billion for the same period last year. Comparable store sales for 2010 increased 2.2% on top of an increase of 0.4% in 2009. Commenting on the results, Bruce A. Efird, Chief Executive Officer, said, "We are pleased to report a strong finish to fiscal 2010, with earnings per share up 47% for the fourth quarter. These results, which helped push earnings per share up 27% for the year, reflect the hard work and dedication of our team and their successful execution of our updated strategies – all within the context of a challenging retail climate. Through their efforts, we made significant progress during 2010 in upgrading our stores, improving our merchandise selection, and strengthening our customer service levels, which in turn helped drive increased sales and higher customer traffic. "While we expect that tough retail conditions will continue across our markets in 2011 due to ongoing concerns about higher petroleum prices and their effects on the economy," Efird continued, "the progress we made last year provides a solid foundation to expand market share and continue our push for higher operating margins. Our team is well-positioned to capitalize on these accomplishments. Their efforts, coupled with our new 2011 programs, will ensure a more exciting and pleasant shopping trip for our growing customer base, while continuing to drive strong financial returns." Fred's gross profit for the fourth quarter of 2010 increased 6% to $134.4 million from $126.6 million in the prior-year period. Gross margin for the quarter increased 90 basis points to 27.7% compared with 26.8% in the same quarter last year. The improvement in gross margin for the quarter resulted primarily from controlling markdowns and shrinkage, as well as improved pharmacy department margin performance. Gross profit for 2010 increased 6% to $527.0 million from $499.2 million in 2009. Gross margin for 2010 was 28.6%, up 70 basis points from 27.9% in the prior-year period. Selling, general and administrative expenses for the quarter, including depreciation and amortization, were 24.9% of sales, unchanged from the year-earlier period. During the quarter, leverage in store occupancy costs, professional fees, and distribution expenses were offset by higher store and pharmacy labor, incentive compensation, and fuel expenses. For 2010, selling, general and administrative expenses were 26.1% of sales compared with 25.8% in 2009. Operating income for the fourth quarter of 2010 increased 52% to $13.7 million or 2.8% of sales compared with $9.0 million or 1.9% in the prior-year period. For 2010, operating income increased 21% to $46.7 million or 2.5% of sales compared with $38.5 million or 2.1% of sales in 2009. During 2010, Fred's opened 15 store and 21 pharmacy locations and closed 7 store and 15 pharmacy locations. The Company also refreshed 196 stores with its new Core 5 elements. In the first quarter of 2011, the Company expects total sales to increase 2% to 4%. Comparable store sales are expected to increase 1% to 3% versus an increase of 2.2% in the first quarter last year. Earnings per diluted share are forecasted to increase 14% to 24% to a range of $0.24 to $0.26 for the first quarter compared with earnings per share of $0.21 in the same period last year. Based on this outlook, the Company expects total earnings per diluted share for 2011 to be in the range of $0.84 to $0.90, representing an increase of 12% to 20% over last year.