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Jill Nelson of Johnson Rice asks about the competitive environment. $FRED said the pricing deflation is impacting its business. The company saw a big change in the competitive environment in July and in August and expects this to continue. $FRED is determined to compete effectively in the market through pricing and other strategies.
$FRED is considering various strategic transactions and alternatives for certain non-core assets, including real estate and the specialty pharmacy business. This decision is not in response to any third party proposal and no decision has been made to engage in any of these particular transactions.
$FRED has amended its 2012 stock repurchase program. The amended program will allow for the repurchase of up to 3.8MM shares of the outstanding Class A voting common stock. This repurchase program is valid for up to two years. $FRED intends to finance the repurchases with cash and with funds drawn from the Credit Agreement dated April 9, 2015.
$FRED's BoD has cancelled its quarterly cash dividend in order to retain free cash flow for debt reductions, share repurchases and other corporate purposes. The declaration of future cash dividends will be subject to the discretion of the Board based on a number of factors, including financial performance and capital requirements.
$FRED’s loss widened in 3Q16 to $51.8MM, or $1.38 per share, from a loss of $38.4MM, or $1.05 per share, in 3Q16. Net sales fell 4.5% to $493.6MM, mainly driven by the closure of 39 underperforming stores earlier in 2017. Comparable store sales for the quarter declined 0.8% vs. a decrease of 3.8% in the third quarter last year.
Heading into holiday season this year, $FRED expects to take a little bit of a different approach, by trying to make it more of a total stores seasonal experience. The company is investing in the toy category again for Christmas as it have been great growth driver for the past two years.
$FRED rolled out high traffic category of beer and wine to 29 stores in 2Q17 bringing number of stores to 40. $FRED is continuing this rollout in additional key markets with target of 168 stores by October and the rest of chain to be complete in early 2018. Early results show significant incremental sales lift combined with rise in basket size.
$FRED's retail pharmacy business continues to improve, delivering flat comp script year-to-date adjusted for 90 days and increases in its generic dispensing rate and overall gross profit dollar per script. In addition, the company's overall pharmacy gross margin improved over 200 basis points in 2Q17.
$FRED's gross profit for 2Q17 fell to $126MM from $128.1MM last year, primarily explained by a decrease in sales resulting from the closure of 39 underperforming stores. Gross profit margin increased 60 basis points to 24.8% from 24.2%, reflecting the benefit of key turnaround initiatives intended to drive profitability and cash flow.
$FRED's comparable store sales for 2Q17 declined 0.3% compared to down 2% in the previous year quarter. The latest quarter comparable store sales included a negative 0.8% impact as a result of the sale of low productive discontinued inventory versus 2Q16.
$FRED reported a wider loss in 2Q17 due to valuation allowance against deferred tax asset, expenses related to the proposed acquisition of Rite Aid stores, and asset impairments expenses from store closure. Net loss widened to $29.52MM or $0.78 per share from $6.93MM or $0.18 per share last year. Net sales dropped to $507.84MM from $529.5MM.
$FRED is collaboratively working with $WBA, $RAD and Federal Trade Commission to obtain the FTC's approval of the divestiture of certain Rite Aid assets to Fred's Pharmacy in connection with Walgreen's pending acquisition of Rite Aid. The company is committed to purchasing additional assets, including up to 1,200 Rite Aid stores.
$FRED, which agreed to acquire 865 $RAD stores and certain assets in an $950MM deal in Dec. 2016, closed underperforming stores and write off discontinued merchandise in 1Q17. The company said that it is on track with 2017 plan and expects to be profitable on an operational basis by the end of FY17.
Comparable store sales for $FRED declined 1.2% in 1Q17 versus an increase of 1.0% last year. Comparable store sales in the first quarter included a negative 1.4% impact as a result of the sale of low productive discontinued inventory versus the first quarter of 2016.
$FRED reported total sales for the month of May 2017 of $160.1MM, down 3.1% from $165.2MM last year. The decrease is related to the closure of 39 underperforming stores in 1Q17. Comparable store sales for the month increased 0.8%, which included a negative 1% impact as a result of sale of low productive discontinued inventory.
$FRED reported total sales for the month of April 2017 of $159.1MM, down 3% from $163.9MM last year. Comparable store sales for the month increased 1.2% and reflected double digit growth for Easter seasonal categories. For 1Q17, sales declined 3% to $532.9MM and comparable store sales decreased 1.2%.