Why Shares of Fred's Dropped Today

By Timothy Green Markets Fool.com

What happened

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Shares of retail and pharmacy chain Fred's (NASDAQ: FRED) slumped on Friday following the release of a weak February sales report that featured a steep decline in comparable-store sales. At 3:20 p.m. EST, the stock was down about 10.5%.

So what

Fred's reported February sales of $165.4 million, down 3.5% year over year. Comparable-store sales slumped by 4%, a significant deterioration from the 0.8% increase the company reported during the prior-year period.

Image source: Fred's.

Fred's CEO Michael Bloom pointed to a delay in tax refunds reaching customers as the main driver behind the sales decline. Tax refunds were down 13% year over year as of Feb. 24, according to the U.S. Department of Treasury.

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The pharmacy business was a bright spot for Fred's, with the company saying that comparable sales were strong. This was more than offset, however, by weakness in the rest of the business.

Now what

Sales improved in the last week of February, driven by additional tax refunds received by customers. Fred's expects sales to continue to improve during the remainder of the first quarter as the delay in tax refunds is worked through.

Bloom remains confident in the company's long-term strategy: "We continue to execute on our strategic initiatives aimed at providing healthcare services and value merchandise in the markets we serve. We remain confident in our long-term transformational strategy to capitalize on the opportunity to grow sales and enhance value for our shareholders."

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Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.