The company with the name that always reminds me of a Steve Martin joke about banks, discount retailer Fred's (NASDAQ:FRED), will report third-quarter results tomorrow.

What analysts say:

  • Buy, sell, or waffle? Analysts seem to have a wait-and-see attitude. Eight rate it a hold, two say it's a strong buy, and one says "get out now" with a strong sell.
  • Revenues. Analysts foresee a near 10% increase in revenues over the year before, with sales rising to $413.6 million.
  • Earnings. Earnings are expected to take a hit, coming in at $0.14 per share, down from $0.16 a year ago and trending down from the $0.21 the analysts had forecast at the start of the quarter.

What management says:
Investors can usually monitor retailers' performance on a monthly basis as they release same-store sales data. Fred's is no different, and it had been releasing generally upbeat information until October, when things went awry.

The company had been coming in ahead of last year's performance, which management did note was a period that contained the effects of the devastating hurricanes which hit the south. Sales were rising 8% to 10% each month over the year-ago performance, with comps rising 5% to 6% year over year. Management was confident it would equal or better the per-share earnings it had posted in the third quarter of 2005. However, October's numbers were well below expectations, and now management says it won't make its goals.

Fred's CEO (who's not named Fred) says, "Given our sales results for October, even with a rebounding pharmacy department, we are focused on the potential lingering effects of the displacement of customers along the Gulf Coast and the discontinuation of relief funds since last year. To offset this potential impact in November and December, we will have the benefit of a shift in our advertising days into November and added media exposure in November and December focused on stimulating traffic."

What management does:
Despite the effects on sales that Fred's has experienced over the past year, it has been able to maintain its control margins, even in the wake of the hurricanes last year.

Margins % 07/05 10/05 01/06 04/06 07/06
Gross 28.3 28.2 28.2 28.3 28.3
Op. 2.6 2.5 2.5 2.5 2.6
Net 1.8 1.7 1.6 1.6 1.7
All data courtesy of CapitalIQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
There are many times when external factors do impact a company's performance. Sometimes, though, management stretches its imagination to link its own poor performance to those events. In Fred's case, the company operates 687 stores in 15 states in the southeast, many of them centered in and around Louisiana, which received the brunt of the hurricanes' devastation last year as well as the lion's share of emergency relief. Management's explanation seems at least plausible.

With Fred's selling at a discount to its 52-week highs and its P/E at some of its lowest levels for the year, I don't see that the discount retailer has moved into a pricier neighborhood. It would seem that much of the negative effects of its performance have already been baked into its price, and the earnings announcement tomorrow shouldn't impact, barring any last-minute surprises. You can bank on it.

Competitors:

  • Wal-Mart (NYSE:WMT)
  • Dollar Tree (NASDAQ:DLTR)
  • Dollar General (NYSE:DG)
  • Family Dollar (NYSE:FDO)
  • Big Lots (NYSE:BIG)

Related Foolishness:

Wal-Mart and Dollar Tree are recommendations of Motley Fool Inside Value. Family Dollar is a recommendation ofMotley Fool Stock Advisor.

Fool contributor Rich Duprey owns shares of Wal-Mart but does not own shares of any of the other stocks appearing in this article. The Fool has a disclosure policy.