UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 26, 2005
FRED'S, INC.
(Exact Name of Registrant as Specified in Charter)
Commission File Number 00-19288
Tennessee 62-0634010
(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification No.)
4300 New Getwell Road, Memphis, TN 38118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(901) 365-8880
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On May 26, 2005, Fred's, Inc. issued a press release announcing its financial
results for the first fiscal quarter ended April 30, 2005. A copy of the press
release is furnished as Exhibit 99.1 to this report and is incorporated herein
by reference. The information in this report, including the exhibit attached
hereto, is furnished pursuant to Item 2.02 and shall not be deemed to be "filed"
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that section.
Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
Exhibit
Number Description
------- ---------------------------------------------------------------
99.1 Press release issued by Fred's, Inc., dated May 26, 2005.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRED'S, INC.
(Registrant)
By: /s/ Jerry A. Shore
------------------------------
Jerry A. Shore,
Executive Vice President and
Chief Financial Officer
Date: May 26, 2005
3
INDEX TO EXHIBITS
Exhibit
Number Description
--------------- --------------------------------------------------------------
99.1 Press release issued by Fred's, Inc., dated May 26, 2005
4
Exhibit 99.1
FRED'S 4300 New Getwell Road, Memphis, Tennessee 38118
Contact: Jerry A. Shore
Executive Vice President and
Chief Financial Officer
(901) 362-3733, Ext. 2217
FRED'S REPORTS FIRST QUARTER RESULTS
MEMPHIS, Tenn. (May 26, 2005) - Fred's, Inc. (NASDAQ/NM: FRED) today reported
financial results for the first quarter ended April 30, 2005.
Net income for the first quarter of fiscal 2005 totaled $6.7 million or
$0.17 per diluted share compared with $7.2 million or $0.18 per diluted share in
the year-earlier quarter. As reported earlier, retail sales by Company stores
for the first quarter increased 13% and total sales rose 12% to $382.7 million
compared with $341.5 million in the same period last year. On a comparable store
basis, sales increased 3.0% for the quarter, up from a 2.7% increase in the same
period last year.
Commenting on the results, Michael J. Hayes, Chief Executive Officer, said,
"The market remained tough throughout the first quarter, with customer count and
spending suffering the last two weeks of each month. Overall sales were below
plan, with a large part of this occurring at the end of April. Sales mix, which
had been trending to the lower margin areas, stabilized in April for the first
time in 10 months. We expected cost savings from operational and technology
initiatives to help offset the effect of slower sales, but these initiatives did
not begin to produce a meaningful impact until April. Thus, the combination of
lower-than-expected sales and expense deleveraging caused us to miss our plan by
one cent per share for the quarter.
"Although the sales environment remains challenging, we continue to make
progress on other strategic initiatives that we think will lead to improved
sales and operating performance over the balance of the year, especially in the
second half," Hayes continued. "Our inventory position is good, and with the
recent success of our inventory allocation model, we are able to better position
our inventory throughout our stores. New store and pharmacy openings are on
plan, with 21 and 7, respectively, opened in the first quarter. Lastly, the
implementation of our refrigerated foods program is on schedule for completion
by the end of 2005. To date, 64 stores are on the cooler program and are now
able to accept government aid electronic benefits transfer cards. Test stores
with that program in place have experienced a significant improvement in
comparable store sales compared with our overall Company average. All of these
initiatives, as they progress, should contribute to improved results through the
balance of 2005."
-MORE-
FRED Reports First Quarter Results
Page 2
May 26, 2005
Concluding, Hayes added: "As we look forward, we now believe that total
sales for 2005 will increase in the range of 12% to 13% and that comparable
store sales will increase in the range of 3% to 4%. The 70-basis-point
deleveraging of operating expenses in the first quarter should begin to reverse
over the balance of the year, resulting in overall positive expense leverage for
2005 as a whole. We believe the net effect of these changes will be to shift the
one-cent shortfall in earnings from the first quarter to the second, but our
plan for the year overall remains intact.
Fred's gross profit for the first quarter of 2005 was $109.0 million
compared with $96.8 million in the same period last year, representing an
increase of 13% for the period. Gross margin for the quarter was 28.5% of sales
compared with 28.3% of sales in the year-earlier period.
Selling, general and administrative expenses for the first quarter of 2005
increased to 25.8% of sales versus 25.1% of sales in the first quarter last
year. This increase was primarily attributable to an increase in store labor and
advertising costs as a percent of sales, as well as increases in fuel prices and
utilities expenses.
Operating income for the first quarter of 2005 declined 8% to $10.2 million
from $11.1 million in the year-earlier period. Operating income for the quarter
was 2.7% of sales versus 3.2% of sales in the first quarter of 2004.
Fred's Inc. operates 607 discount general merchandise stores, including 25
franchised Fred's stores in the southeastern United States. For more information
about the Company, visit Fred's Website at www.fredsinc.com.
A public, listen-only simulcast and replay of Fred's first quarter
conference call may be accessed at the Company's web site or at
www.earnings.com. The simulcast will begin at approximately 10:00 a.m. Eastern
Time today and a replay of the call will be available beginning at approximately
noon Eastern Time and will run until June 26, 2005.
Comments in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties which could
cause actual results to differ materially from those projected in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, general economic trends, changes in consumer demand or purchase
patterns, delays or interruptions in the flow of merchandise between the
Company's distribution centers and its stores or between the Company's suppliers
and same, a disruption in the Company's data processing services, and costs and
delays in acquiring or developing new store sites. Fred's undertakes no
obligation to release revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unforeseen events, except as required to be reported under the rules and
regulations of the Securities and Exchange Commission. FRED'S, INC. Unaudited
Financial Highlights (in thousands, except per share amounts)
-MORE-
FRED Reports First Quarter Results
Page 3
May 26, 2005
FRED'S, INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
April 30, May 1, Percent
2005 2004 Change
------------- ------------- ------------
(as restated)
Net sales $ 382,738 $ 341,486 12.1%
Operating income $ 10,191 $ 11,118 -8.3%
Net income $ 6,722 $ 7,202 -6.7%
Net income per share:
Basic $ 0.17 $ 0.18 -5.6%
Diluted $ 0.17 $ 0.18 -5.6%
Average shares outstanding:
Basic 39,549 39,060
Diluted 39,714 39,706
FRED'S, INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
April 30, % of May 1, % of
2005 Total 2004 Total
----------- --------- ------------ ---------
(as restated)
Net sales $ 382,738 100.0% $ 341,486 100.0%
Cost of goods sold 273,709 71.5% 244,692 71.7%
----------- --------- ----------- ---------
Gross profit 109,029 28.5% 96,794 28.3%
Selling, general and administrative expenses 98,838 25.8% 85,676 25.1%
----------- --------- ----------- ---------
Operating income 10,191 2.7% 11,118 3.2%
Interest (income)/expense, net 158 0.0% 62 0.0%
----------- --------- ----------- ---------
Income before income taxes 10,033 2.7% 11,056 3.2%
Provision for income taxes 3,311 .9% 3,854 1.1%
----------- --------- ----------- ---------
Net income $ 6,722 1.8% $ 7,202 2.1%
=========== ========= =========== =========
Net income per share:
Basic $ 0.17 $ 0.18
=========== ===========
Diluted $ 0.17 $ 0.18
=========== ===========
Weighted average shares outstanding:
Basic 39,549 39,060
=========== ===========
Diluted 39,714 39,706
=========== ===========
-MORE-
FRED Reports First Quarter Results
Page 4
May 26, 2005
FRED'S, INC.
Unaudited Balance Sheet
(in thousands)
April 30, May 1,
2005 2004
------------- -------------
(as restated)
ASSETS:
Cash and cash equivalents $ 16,488 $ 4,573
Inventories 297,039 263,689
Receivables 20,609 18,402
Other non-trade receivables 11,872 2,684
Prepaid expenses and other current assets 6,568 5,284
------------- -------------
Total current assets 352,576 294,632
Property and equipment, net 140,519 134,077
Other noncurrent assets 6,551 4,078
------------- -------------
Total assets $ 499,646 $ 432,787
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 88,190 $ 75,962
Current portion of indebtedness 18 18
Current portion of capital lease obligation 655 689
Accrued expenses and other 29,680 18,034
Deferred tax liability 17,829 11,056
Income taxes payable 2,277 2,836
------------- -------------
Total current liabilities 138,649 108,595
Long-term portion of indebtedness 27,928 21,660
Deferred income taxes 8,279 4,458
Long-term portion of capital lease obligations 879 1,543
Other noncurrent liabilities 2,486 3,241
------------- -------------
Total liabilities 178,221 139,497
Shareholders' equity 321,425 293,290
------------- -------------
Total liabilities and shareholders' equity $ 499,646 $ 432,787
============= =============
-END-