Fred's, Inc. (NASDAQ:FRED) Q3 2017 Earnings Conference Call Transcript

Dec 06, 2017 • 08:00 am ET

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Fred's, Inc. (NASDAQ:FRED) Q3 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the Fred's Inc. Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Jason Jenne. Please go ahead.

Executive
Jason Jenne

Good morning, everyone. Thank you for joining today's call to review Fred's financial and operating results for the third quarter ended October 28, 2017.

(Forward-Looking Cautionary Statements)

Lastly, I would like to point out that management's remarks during this conference call are based on information and understandings believed to be accurate as of today's date, December 6, 2017. Because of the time-sensitive nature of this information, it is the Company's policy to limit the archived replay of this conference call webcast to a period of 30 days.

With me this morning and also sharing prepared remarks is Mike Bloom, CEO. In addition, Tim Liebmann, COO of Pharmacy; and John Foley, EVP of Stores will be available during the Q&A. This call is the property of Fred's. Any distribution, transmission, broadcast, or rebroadcast of this call for commercial purposes in any form without the express written consent of the Company is prohibited.

With those remarks, I'll turn the call over to Mike Bloom.

Executive
Michael Bloom

Thank you, Jason, and good morning, everyone. I'd like to start this morning by discussing the execution of our turnaround and assure you that our team remains committed to delivering long-term sustainable growth and value creation. We are focused on driving traffic, reducing SG&A, generating free cash flow and lowering debt.

Before I speak to that, I want to address our EPS results for the quarter. Our third quarter EPS deterioration, excluding non-operating charges, was caused primarily by the following; timing issue related to shipments of higher margin seasonal merchandise; reductions in overall inventory; historically, our inventory levels have been too high, but this is now being managed more efficiently. While this has impacted our gross margins, our cash flow plan remains on track as we streamline our business for the benefit of the Company's long-term success. In fact, cash flow from operations, before one-time non-operating items, actually improved versus the same period last year and investments made in price to remain on strategy to ensure we stay competitive in the market. We recognize that our EPS results are below expectations. However, the management team, working closely with the Board of Directors, is taking the actions necessary to ensure Fred's achieves profitability and growth over the long-term.

We continue to make progress to turn the Company around and we remain committed to achieving our goals. Our intense efforts are squarely focused on the following key priorities; driving traffic into our stores, reducing SG&A, generating free cash flow and lowering our debt. We are aggressively executing our turnaround strategy and we are seeing traction in both Front Store and Pharmacy. We are not yet at the point of presenting positive quarterly comp