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Declining Comps Likely to Hurt Fred’s (FRED) in Q3 Earnings


Fred’s Inc FRED is slated to report third-quarter fiscal 2017 results on Dec 6, before the opening bell.

We note that Fred’s delivered losses in the past five quarters. Further, the company has been struggling with murky comparable-store sales (comps).

While the company has a mixed record of bottom-line surprises in the trailing four quarters, let’s look into how things are shaping up for the upcoming announcement.

What to Expect?

The Zacks Consensus Estimate for the third quarter of fiscal 2017 is pegged at a loss of 15 cents, which has widened by a penny over the past 30 days. However, estimated loss for the quarter under review is lower than the prior year adjusted loss of 27 cents.

Also, analysts polled by Zacks expect revenues of $500.5 million, down 3.1% from the year-ago period.

Fred's, Inc. Price, Consensus and EPS Surprise

Factors Impacting the Quarter

Fred’s has been delivering dismal comps since past many quarters, owing to declining traffic trends, sale of low productive discontinued inventory and rise in generic dispensing rate. Additionally, the company’s store expansion plans were gravely impacted by the cancelled Walgreens Boots Alliance WBA and Rite Aid Corporation RAD merger in June 2017. Had the deal materialized, Fred’s would have emerged as the third-largest drugstore chain in the nation after Walgreens and CVS Health Corporation CVS.

We note that comparable store sales dipped 1.2% and 0.3% during the first and second quarters of fiscal 2017. The company’s weak comps trend is likely to continue in the third quarter as well.

Nevertheless, Fred’s has been advancing with initiatives to reduce selling, general and administrative expenses and boost free cash flow. Further, the company has been trying to organize pharmacy business to drive scripts into the stores and improve service to its patients. Although such efforts seem promising, they are yet to bear significant impacts upon the company’s performance.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Fred’s is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Fred’s carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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