Discount retailer Fred's
As the economy contracts, so does Fred's. It has come under pressure as customers' discretionary spending is squeezed by higher fuel and food costs. As a result, the discounter, which probably more closely resembles a Big Lots
Compared with the fourth-quarter profit of $9.2 million the company posted last year, Fred's reported a loss of $4.4 million. Sales slid 8%, though last year's results were helped by an extra week. But even factoring out the 14th week left revenue down 2% from last year.
Fred's has been under margin pressure as well, with gross margins sliding 260 basis points to 23.6% because of inventory liquidations from the store closings, lower markups, and a poor mix of merchandise.
A prescription for health
It could have been worse. The one bright spot for the company has been its pharmacies, which have stronger margins. Fred's sets itself apart from its competition by offering customers a place where they can buy their discounted prescriptions. By focusing on generic brands, it's able to make extra profits even though those brands carry lower selling prices.
Back in November, Fred's said it had received inquiries about being acquired. Fred's appointed Merrill Lynch
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Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. Wal-Mart is a Motley Fool Inside Value recommendation. The Fool has a disclosure policy.