Fred’s second-quarter results reflected the company’s strategic decision to build its business model for the future as a convenience/pharmacy-centric store, driven by data-based inventory management, according to CEO Bruce Efird.
The company reported a net loss of $16.4 million for the quarter. Fred's total sales for the second quarter of fiscal 2014 increased 2% to $491.2 million. On a comparable-store basis, second-quarter sales decreased 0.1%.
The dynamic challenges the company faced surfaced in fourth quarter 2013 throughout its general merchandise and pharmacy departments. Customer trips came under pressure from what Efird referred to as “Internet intrusion,” while generic drug price inflation ramped up faster than the company’s payer increases were occurring. Although its second quarter results were disappointing, Efird pointed to several key wins.
“We saw improvement in general merchandise sales and customer traffic from our new marketing program, which indicates positive traction for the future,” he said. “In pharmacy, we completed the prime vendor agreement that has substantial benefits to all aspects of our pharmacy operations and our specialty division, with components needed to support our accelerated investment in pharmacy acquisitions.”
In January, the company took a look at its processes and concluded that retail would not continue with business as usual and changes would have to take place.
“From this thinking came key changes that will drive the transformation of the stores to a convenience/pharmacy-centric store, which began the in the second quarter,” Efird explained.
Those changes included an acceleration of pharmacy acquisitions that will help Fred's achieve a target of reaching a 65% to 70% penetration rate of stores with a pharmacy. Fred's derived 40.4% of its sales from pharmaceuticals in the second quarter, compared with 36.4% for the same period a year ago.
Changes also included a new marketing plan, directed at driving customer traffic through multiple avenues, including expanded ad circulars and in-store programs.
The company has been using data-driven inventory and category-management tools and metrics, as well as processing changes to distribution and store procedures to get inventory directly from the truck to the store floor in the same day. It also plans on closing 60 stores that do not fit the thresholds of the convenience/pharmacy-centric store model, allowing a reallocation of capital.
Fred’s also expanded its leadership. It named Jerry Colley as EVP store operations; Ken Donahue as SVP and chief information officer; Craig Barnes as SVP global sourcing and hardlines merchandising responsibility; and Kelly Ma as VP international and domestic sourcing.