Reuters Edge

Fred's expands merchandise as tax checks draw shoppers

BANGALORE (Reuters) - Discount-store and pharmacy operator Fred's Inc FRED.O expects its July same-store sales to rise 2 percent to 4 percent as expanded merchandise at its top stores and federal tax rebate checks drive customer traffic, its chief financial officer said.

Shares of Fred's, which competes with larger rivals like Wal-Mart Stores Inc WMT.N and Family Dollar Stores Inc FDO.N, have risen about 30 percent this year as the company has closed stores to cut expenses, and cash-strapped consumers visit its outlets in search of bargains.

“I think most of the discount retailers would have seen better results, and the heart of that is attributable to the economic stimulus checks,” CFO Jerry Shore told Reuters by phone.

Tax rebate checks from a $152 billion economic stimulus package President George W. Bush signed earlier this year, in the wake of a housing market slump and credit crunch, began going out to millions of Americans in May.

Memphis, Tennessee-based Fred’s, whose market value shrank by 20 percent in 2007, had said in February it would close 75 underperforming stores and 22 pharmacies in 2008 and also slow capital spending and the rate of new store openings to boost profitability.

The company has completed the restructuring and does not expect further cutbacks, CFO Shore said.

Fred’s, which operates 664 discount general merchandise stores that include 24 franchised stores in the south-eastern United States, now plans to expand by 18 to 20 stores and 10 to 20 pharmacies in 2008.

“We are not going into any newer markets. We are going to stay within the markets that have been successful for us,” Shore said.

The company had opened its first store, called a Bargain Center, more than six decades ago in Coldwater, Mississippi, and its brand enjoys huge popularity in the state and surrounding regions like Tennessee, Arkansas, Alabama, Louisiana and Georgia.

Shore said weak brand recognition in areas like Texas, North Florida, North Carolina, and higher expenses from larger stores hurt its performance in those regions.

Fred’s is now working to revamp its children’s apparel line and expand its own brand of products to draw more customers.

The company sells a variety of items including household cleaning supplies, health and beauty aids, disposable diapers, pet foods, paper products and beverages under the Fred’s brand.

Editing by Pratish Narayanan