(RTTNews) - Discount stores and pharmacies operator Fred's, Inc. (FRED: News ) reported Tuesday a drop in third-quarter profit that came in line with the Street view, despite a modest growth in revenues. The earnings decline primarily reflected a significant increase in promotional programs and associated expenses. The company provided earnings outlook for the fourth quarter, while cutting guidance for the full year.

For the third quarter, net income decreased to $5.04 million or $0.13 per share from $6.09 million or $0.15 per share in the same period last year. On average, 10 analysts polled by Thomson Reuters expected the company to report earnings of $0.13 per share in the third quarter. Analysts' estimate typically excludes special items.

Net sales for the quarter grew 1% to $422.44 million from $418.04 million. Ten analysts were expecting revenue of $424.21 million in the third quarter. Comparable store sales increased 1.0%, compared to a 1.4% growth in the comparable quarter of the past year.

Gross profit dipped 1% to $122.87 million from $124.18 million, and gross margin slid year-over-year to 29.1% from 29.7%, attributable to higher markdowns of promotional sales and competitive pricing on pharmacy department sales, that offset the positive impact of higher initial mark-up on general merchandise and better shrink control.

Bruce Efird, Chief Executive of Fred's, said, "During the quarter, we ramped up our promotions and advertising programs to drive traffic, and while those efforts produced a substantial increase in sales of the featured items, sales and traffic did not increase sufficiently to offset the higher markdowns and expenses. Our customers are taking a very cautious approach to this holiday season, as reflected by a 600% increase in layaway sales during the quarter compared with the same period last year."
During the quarter, the company opened one new store and closed nine. The firm's Pharmacy program witnessed strong growth in both sales and script counts. Fred's opened eight new pharmacies during the third quarter.

For the nine-month period, net income rose to $17.82 million or $0.45 per share from $14.37 million or $0.36 per share in fiscal 2008. Sales dipped 1% year-over-year to $1.32 billion from $1.33 billion. Same store sales edged up 0.8%, compared to a 2.9% increase last year.

Looking forward, for the fourth quarter, the company currently forecast earnings to range between $0.17 and $0.24 per share. Fred's sees total sales to increase 1% to 3% and comparable store sales to be more or less flat for the quarter. Analysts expect the company to earn $0.24 per share, on revenues of $484.45 million.

To receive FREE breaking news email alerts for Fred`s Inc and others in your portfolio

 1   2   Next Page