UPDATE: July 12, 2019: Fred's plans to close another 129 stores, which will leave it with a fleet of just 80 stores. The drugstore retailer said Friday in a release it aimed to simplify its store portfolio, refocus its product mix and repay debt.
UPDATE: June 24, 2019: Fred's plans to close another 49 underperforming stores, the company said on Friday in a press release. The closures come on top of 104 closures announced in May and nearly 160 announced in April. A group of more than 100 stores are set to wrap up their liquidation sales and close this week, according to restructuring firm SB360 Capital Partners, which is working with Fred's on the store liquidations. Going-out-of-business sales for the recently announced closures started last week, SB360 said.
- Sales at drugstore retailer Fred's fell 5.2% year over year to $319 million in the first quarter, and comparable sales fell 8.5%, according to a press release.
- Even as the company cut costs, its operating loss widened by nearly 33% to $26.8 million, and net loss widened 54% to $33.9 million.
- Fred's CEO Joe Anto told analysts Wednesday that the sales declines were primarily due to out-of-stocks, which were "exacerbated by our constrained liquidity situation," according to a Seeking Alpha transcript. He added, though, that the company had reduced its cash burn and reduced the balance on its asset-backed loan by about $30 million between the end of Q1 (May 4) and June 17.
Fred's has been closing stores en masse as it tries to stabilize its business and finances. In mid-May, the retailer said it would close 106 stores, on top of 159 closures announced about a month earlier.
Those closures have helped Fred's reduce its cost structure, but its inability to keep goods on its shelves, and the traffic declines that come with it, pose a major potential problem. And the decline in sales came amid a period of going-out-of-business stores, which can temporarily boost sales. (Fred's investors welcomed the news of the first wave of liquidation sales, giving the stock a bump at the time.)
"Getting the right inventory back on to our shelves and making investments in the right marketing vehicle should directly contribute to our recovery of the sales trend, and improving this trend is our main priority," Anto said Wednesday. But doing that, he added, is made more difficult by the company's tight liquidity.
To that point, Fred's working capital decreased nearly $40 million year over year to $27.8 million in Q1, the company said. Meanwhile cash used in operations increased $1.4 million, and Anto said that total debt stood at $95.1 million, up 30% from a year ago.
The company is currently in forbearance with a group of lenders and is working on refinancing its lending facility, though Anto warned "there could be no assurance that we will be able to achieve the milestones set forth in our forbearance agreement or close on our refinancing at all."
As it tries to contain costs and losses, Fred's has been reducing staff as well. The company notified Tennessee last week that it 155 employees at Fred's service center in Memphis would be affected by a permanent closure. A spokesperson for the retailer did not immediately reply to a request for more details on the layoffs.
Fred's has been continually reducing its corporate staff to cut costs. As of December, its headcount stood at just under 260 staffers, down from 440 at the end of 2017, Anto said last winter.
Anto on Wednesday outlined the tough circumstances facing the retailer, but ended on a determined note. "Before I end the call, I'd like to make one thing clear. The team at Fred's is committed to the turnaround effort of the company, and we appreciate the continued support and patience from our customers and vendors as we navigate this challenging time for the company," he said.