Those whose greenbacks feature George and Abe rather than Andrew and Ulysses may very well shop at Fred's. Generally serving customers with modest or fixed incomes, Fred's operates about 700 discount stores in some 15 states, primarily in small- to medium-sized towns in the Southeast. The stores carry more than 12,000 brand-name, off-brand, and private-label products, including pharmaceuticals, household goods, clothing and linens, food and tobacco items, health and beauty aids, and paper and cleaning supplies. Nearly half of its stores have full-service pharmacies. The company also provides goods and services to about 20 franchised Fred's stores. Fred's was founded in 1947.
Net sales at Fred's stores increased by 2% in fiscal 2012 (ends January) vs. the prior year, while net income grew by 13% over the same period. Same-store sales increased 0.5% vs. about 2% in the previous annual comparison. (Sales growth over the past four years has been relatively flat, while net income has increased steadily.) Sales of food and pet supplies increased, while electronic and home furnishings logged declines in 2012.
Fred's seeks to combine the appeal of a dollar store, drugstore, and mass merchant, all under one relatively-small roof. (Its full-size stores average about 15,000 square feet.) To differentiate itself from other small-box discount retailers, including its fast-growing dollar store competition, Fred's looks to five merchandise categories: home, celebration, pet, pharmacy, and paper and chemical. Key among them is pharmacy, a proven driver of customer trips and loyalty for Fred's. Indeed, pharmacy sales account for more than a third of the chain's total sales. Pharmacy department sales (up 4.2%) outperformed overall sales growth last year. To grow its pharmacy business, Fred's has been acquiring independent pharmacies and prescription files in markets where it already does business. (It also followed Wal-Mart's lead by lowering prices on generic drugs to $4 a prescription.) Going forward, Fred's plans to open between 22 and 28 new stores (all with pharmacy departments) in fiscal 2013. Store growth will be focused on its existing small-to-medium-sized markets (More than 80% of Fred's stores are located in markets with populations of 15,000 or fewer people.) The company continues to expand its line of private-label products, which are generally more profitable for retailers than name brands. Its FRED's Brand products account for about 9% of sales, up from just 3% five years ago.
Heartland Advisors owns about 11% of the company's stock and is its largest shareholder.