Fred’s Lowers Third-Quarter Outlook
Memphis, Tenn. Fred’s Inc., said its same-store sales rose 1.1% in September, but the retailer lowered its third-quarter profit outlook as consumer spending remains soft.
The company said for the five weeks ended Oct. 4, total sales rose to $161.3 million from $161.1 million in the prior-year period. Total sales year-to-date rose 4% to $1.20 billion from $1.16 billion. Same-store sales rose 3.1% through the first eight months of fiscal 2008, compared with a year ago.
Winn-Dixie remodeling program on track
JACKSONVILLE, FLA. —It’s all about the experience these days, as retailers such as Kroger and Wal-Mart have major initiatives under way to enhance the shopping environment and excite customers. They are hardly alone in that mission though, as some of the nation’s smaller operators also recognize experience—and all the consumer touch points that go into it matter now more than ever before.
That is certainly the case at regional food retailer Winn-Dixie, where the operator of 521 stores has an ambitious program under way to remodel half of those units by June 2010. “It’s all about being fresh and local. From our decor to our merchandising and marketing initiatives, we are tailoring every detail of our remodeled stores to meet the needs of neighborhoods we serve,” said Peter Lynch, Winn-Dixie’s chairman, president and ceo. “As the remodel program moves forward, we will have a significantly stronger store base from which to compete and leverage the strength of our brand.”
The remodeling program was announced roughly 18 months ago, and the company recently completed its 100th remodeling project at a store in the Miami suburb of Hialeah. The Hialeah store showcases the company’s fresh and local strategic initiatives. An updated storefront combined with expanded produce and floral departments leads the way to wider aisles, warmer lighting and a more inviting center-store. The store’s deli and bakery were upgraded to include a wood-burning rotisserie and bread warmer, a wing bar, an olive bar and a specialty dessert case. The store also features new energy-efficient refrigerators and frozen food cases, as well as new wood flooring and a contemporary color palette.
“This is not only a milestone for our company, but it also symbolizes the hard work and dedication of our associates and the loyalty of our customers,” Lynch said.
Winn-Dixie currently operates in Florida, Alabama, Louisiana, Georgia and Mississippi, but is a fraction of the size it was a decade ago when competition from Wal-Mart and Publix forced the company to shed units and ultimately file for bankruptcy in February 2005. It emerged from bankruptcy in November 2006 with 522 stores and a strategy of upgrading existing operations rather than building new stores.
99 Cents Only announces withdrawal from Texas market
CITY OF COMMERCE, Calif. —99 Cents Only Stores last month announced that it will exit the Texas market, due to unprofitable operations in the state, among other concerns. The retailer noted that while the Texas stores were generating positive same-store sales for years, they were still only generating slightly more than half of the average sales of the company’s non-Texas stores. 99 Cents Only operated 48 stores in Texas and has 230 stores in its core marekts of California, Arizona and Nevada, which contribute approximately 90% of the company’s sales.
Based on its recently-completed strategic review, the company stated that even if it continued to invest in its Texas operations and was successful in achieving substantial sales increases—and closed its most unprofitable stores and right-sized its distribution center—the result would still likely be only a minimal profit, providing an unacceptable return on investment to justify the substantial cost and effort.
“After more than five years of hard work by many talented associates, we have made the painful decision to cease operation of our Texas stores,” stated ceo Eric Schiffer. “Although progress was continually made over the years, we were still losing money in Texas and we determined that it was not likely we would achieve profitability in the near future or attain an acceptable level of return on investment in the long term.”
NDN’s exit from Texas is long overdue, as the company stretched its resources thin in order to enter a market where it had no brand identity and never quite got the momentum it needed to succeed. The company estimated its operating loss from the Texas stores was about $15 million per year, so its expected pre-tax charges of $27 million to $31 million for the planned exit is good trade off.
Detailing the closing of its Texas stores in a conference call following the announcement, 99 Cents Only said it expects to generate $40 million in cash from the entire exit. This implies $67 million to $71 million in gross proceeds to be generated from the sale of the Texas DC, ten owned Texas stores, inventory and other working capital reductions/savings.
The company also said that as a result of both its planned Texas exit and its new pricing initiative, margins expansion plans for this year through the full year 2012 are on track. With its focus on its core markets and new 99.99 cent marketing gimmick, NDN is poised for future growth.
In an analysis of the event, Deutsche Bank Equity Research noted “We believe that longer-term-after management has improved its supply chain and internal controls-growth into new markets can resume. In short, NDN is still a long-term growth concept we believe, but for now, management is appropriately focused on ‘growing smarter’.”