-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FRZVTRzDhLBXATQ4Ld5pD6utiYzlquzVWJ8IoMb/jj/HJRtpPrSDt66WGr/qE804 ZFHqBiG8bYB+dzAXq74TAQ== 0001157523-05-007740.txt : 20050825 0001157523-05-007740.hdr.sgml : 20050825 20050825090955 ACCESSION NUMBER: 0001157523-05-007740 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050825 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050825 DATE AS OF CHANGE: 20050825 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREDS INC CENTRAL INDEX KEY: 0000724571 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 620634010 STATE OF INCORPORATION: TN FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14565 FILM NUMBER: 051047314 BUSINESS ADDRESS: STREET 1: 4300 NEW GETWELL RD CITY: MEMPHIS STATE: TN ZIP: 38118 BUSINESS PHONE: 9013658880 MAIL ADDRESS: STREET 1: 4300 NEW GETWELL ROAD CITY: MEMPHIS STATE: TN ZIP: 38118 FORMER COMPANY: FORMER CONFORMED NAME: BADDOUR INC DATE OF NAME CHANGE: 19910620 8-K 1 a4959221.txt FRED'S INC. 8-K 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): August 25, 2005 FREDS, 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) Identification No.) 4300 New Getwell Road, Memphis, Tennessee 38118 ----------------------------------------------- (Address of principal executive offices) (901) 365-8880 -------------- Registrant's telephone number, including area code Not Applicable -------------- (Former Name or former address, if changed since last report) 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 August 25, 2005, Fred's, Inc. issued a press release announcing its financial results for the second fiscal quarter and six-month period ended July 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 "filed" for 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 AND EXHIBITS. (c) Exhibits. 99.1 Press Release issued by Fred's, Inc., dated August 25, 2005. SIGNATURES 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 hereunto duly authorized. FRED'S, INC. (Registrant) Date: August 25, 2005 By: /s/ Jerry A. Shore ----------------------------------- Jerry A. Shore Executive Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Description of Exhibit(s) - ------- ------------------------- 99.1 Copy of press release issued by Fred's, Inc. on August 25, 2005. EX-99.1 2 a4959221ex99_1.txt EXHIBIT 99.1 - PRESS RELEASE Exhibit 99.1 Fred's Reports Second Quarter Net Income Up 19% MEMPHIS, Tenn.--(BUSINESS WIRE)--Aug. 25, 2005--Fred's Inc. (NASDAQ/NM:FRED) today reported financial results for the second fiscal quarter and six-month period ended July 30, 2005. Net income for the second quarter of 2005 totaled $3.5 million or $0.09 per diluted share versus $2.9 million or $0.07 per diluted share (as restated) in the year-earlier period, representing an increase of 19% in net income and 29% in net income per diluted share. For the first half of 2005, net income was $10.2 million or $0.26 per diluted share compared with $10.1 million or $0.26 per diluted share (as restated) in the same period last year. Retail sales by Company stores for the second quarter of 2005 increased 10% and total sales for the quarter also rose 10% to $373.3 million versus $340.9 million in the same period last year. On a comparable store basis, sales increased 0.8% for the quarter. For the first half of 2005, retail sales by Company stores increased 11% and total sales for the period also rose 11% to $756.1 million compared with $682.3 million in the year-earlier period. Comparable store sales for the first six months of 2005 increased 2.1% over the same period last year. Commenting on the results, Michael J. Hayes, Chief Executive Officer, said, "We are pleased that Fred's posted solidly higher earnings for the second quarter versus the same period last year. The improvement reflects the progress made on the initiatives being implemented throughout the Company. Our refrigerated foods program rollout is on schedule and will be completed by November 1. Improvements in store-level inventory have helped us reduce labor costs 30 basis points as a percentage of sales. At the same time, we've gained increased expense leverage in our distribution centers, with controllable cost down 20 basis points during the quarter. These factors should continue to have a positive influence on our operations throughout the balance of the year. "Despite the progress we have made with these important initiatives, external factors continue to take a toll on our business," Hayes continued. "There is little question that our customers are feeling the pressure of soaring fuel and utility prices and competition is very aggressive. In a surprising settlement, on August 1 the State of Tennessee initiated significant cuts to its Medicaid program, TennCare - eliminating approximately 230,000 recipients and reducing the allowed prescriptions for all other enrollees from an unlimited number to just five per month. This has had a dramatic impact on the pharmacy sales of our almost 100 stores in the state. We had understood that this change would be phased in and we planned accordingly for a gradual drop of ineligible recipients from the TennCare roll over a 12-month period. The impact of this sales loss to earnings is expected to be approximately two cents in both the third and fourth quarters. Our customers' needs have not vanished, however, so we are hopeful that some of this business will come back to us as alternatives to TennCare emerge." Because of the impact of TennCare cuts on pharmacy sales in Tennessee, the economic factors affecting the Company's general merchandise sales from back-to-school, and the increasing utility and fuel costs, Fred's has revised its earnings outlook to ranges of $0.19 to $0.22 per diluted share for the third quarter and $0.74 to $0.79 per diluted share for the full 2005 fiscal year. Fred's gross profit for the second quarter increased 11% to $104.7 million from $94.0 million in the prior-year period. Gross margin for the quarter was 28.1% versus 27.6% last year, reflecting higher pharmacy gross margins, related to the increasing use of generic drugs, and a reduction in double-coupon expense on general merchandise. Gross profit for the first six months of 2005 increased 12% to $213.8 million from $190.8 million in the first half of 2004. Gross margin for the 2005 year-to-date period was 28.3% versus 28.0% in the same period last year. Selling, general and administrative expenses for the second quarter of 2005 increased to 26.6% of sales versus 26.2% of sales in the year-earlier period. On a year-to-date basis in 2005, selling, general and administrative expenses increased to 26.2% of sales compared with 25.6% of sales in the first half of 2004. Increases in store and pharmacy expenses as a percent of sales more than offset productivity gains in the Company's distribution centers and in store staffing. During the quarter, distribution center productivity improved by 20 basis points relative to sales despite an increase in fuel costs on outbound shipments. Store labor improved 30 basis points relative to sales during the second quarter. Operating income for the second quarter of 2005 increased 17% to $5.5 million from $4.7 million in the year-earlier period. Operating income increased to 1.5% of sales in the second quarter of 2005 compared with 1.4% of sales in the second quarter of 2004. Operating income for the first half of 2005 declined 1% to $15.7 million from $15.8 million in the prior-year period. Operating income for the first half of 2005 was 2.1% of sales compared with 2.4% of sales in the first six months of last year. Fred's Inc. operates 624 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 on the Internet at www.fredsinc.com. A public, listen-only simulcast and replay of Fred's second 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 1:00 p.m. Eastern Time and will run until September 25, 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, costs and delays in acquiring or developing new store sites, and other contingencies discussed in the Company's Securities and Exchange Commission filings. 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) 13 Weeks 13 Weeks Ended Ended July 30, July 31, Percent 2005 2004 Change -------- -------- ------- (as restated) Net sales $373,319 $340,850 9.5% Operating income $ 5,500 $ 4,698 17.1% Net income $ 3,483 $ 2,922 19.2% Net income per share: Basic $ 0.09 $ 0.07 28.5% Diluted $ 0.09 $ 0.07 28.5% Average shares outstanding: Basic 39,638 39,110 Diluted 39,791 39,520 26 Weeks 26 Weeks Ended Ended July 30, July 31, Percent 2005 2004 Change -------- -------- ------- (as restated) Net sales $756,057 $682,336 10.8% Operating income $ 15,691 $ 15,816 -0.8% Net income $ 10,205 $ 10,124 0.8% Net income per share: Basic $ 0.26 $ 0.26 0.0% Diluted $ 0.26 $ 0.26 0.0% Average shares outstanding: Basic 39,593 39,085 Diluted 39,758 39,583 FRED'S INC. Unaudited Fiscal 2005 Second Quarter Results (in thousands, except per share amounts) 13 Weeks 13 Weeks Ended Ended July 30, % of July 31, % of 2005 Total 2004 Total -------- ----- -------- ----- (as restated) Net sales $373,319 100.0% $340,850 100.0% Cost of goods sold 268,588 71.9% 246,880 72.4% -------- ----- -------- ----- Gross profit 104,731 28.1% 93,970 27.6% Selling, general and administrative expenses 99,231 26.6% 89,272 26.2% -------- ----- -------- ----- Operating income 5,500 1.5% 4,698 1.4% Interest expense, net 302 0.1% 220 0.0% -------- ----- -------- ----- Income before income taxes 5,198 1.4% 4,478 1.4% Provision for income taxes 1,715 0.5% 1,556 0.5% -------- ----- -------- ----- Net income $ 3,483 0.9% $ 2,922 0.9% ======== ===== ======== ===== Net income per share: Basic $ 0.09 $ 0.07 ======== ======== Diluted $ 0.09 $ 0.07 ======== ======== Weighted average shares outstanding: Basic 39,638 39,110 ======== ======== Diluted 39,791 39,520 ======== ======== Unaudited Fiscal 2005 Six-Month Results (in thousands, except per share amounts) 26 Weeks 26 Weeks Ended Ended July 30, % of July 31, % of 2005 Total 2004 Total -------- ----- -------- ----- (as restated) Net sales $756,057 100.0% $682,336 100.0% Cost of goods sold 542,297 71.7% 491,572 72.0% -------- ----- -------- ----- Gross profit 213,760 28.3% 190,764 28.0% Selling, general and administrative expenses 198,069 26.2% 174,948 25.6% -------- ----- -------- ----- Operating income 15,691 2.1% 15,816 2.4% Interest expense, net 460 0.1% 282 0.1% -------- ----- -------- ----- Income before income taxes 15,231 2.0% 15,534 2.3% Provision for income taxes 5,026 0.7% 5,410 0.8% -------- ----- -------- ----- Net income $ 10,205 1.3% $ 10,124 1.5% ======== ===== ======== ===== Net income per share: Basic $ 0.26 $ 0.26 ======== ======== Diluted $ 0.26 $ 0.26 ======== ======== Weighted average shares outstanding: Basic 39,593 39,085 ======== ======== Diluted 39,758 39,583 ======== ======== FRED'S INC. Unaudited Balance Sheet (in thousands) July 30, July 31, 2005 2004 -------- -------- ASSETS: (as restated) Cash and cash equivalents $ 18,226 $ 5,264 Inventories 302,651 270,767 Receivables 19,434 16,533 Other non-trade receivables 15,538 3,829 Prepaid expenses and other current assets 8,082 4,691 -------- -------- Total current assets 363,931 301,084 Property and equipment, net 143,630 138,339 Other noncurrent assets 6,760 4,430 -------- -------- Total assets $514,321 $443,853 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable $ 88,944 $ 63,089 Current portion of indebtedness 18 36 Current portion of capital lease obligation 622 675 Accrued expenses and other 27,674 24,106 Deferred tax liability 17,995 11,420 Income taxes payable 3,934 2,984 -------- -------- Total current liabilities 139,187 102,310 Long-term portion of indebtedness 38,336 35,365 Deferred income taxes 8,579 5,287 Long-term portion of capital lease obligations 734 1,340 Other noncurrent liabilities 2,944 3,341 -------- -------- Total liabilities 189,780 147,643 Shareholders' equity 324,541 296,210 -------- -------- Total liabilities and shareholders' equity $514,321 $443,853 ======== ======== CONTACT: Fred's Inc. Jerry A. Shore, 901-362-3733, Ext. 2217 -----END PRIVACY-ENHANCED MESSAGE-----