Fred's sales at stores open at least a year edged up 0.7 percent in July, helped by better customer traffic and stronger sales of some general merchandise.
But the discount retailer lowered its second-quarter guidance, in part because of costs at its pharmacy department.
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Fred's July same-store sales growth was slower than the 2.5 percent rise that the Memphis, Tennessee-based company reported a year ago.
Sales at stores open at least a year is a key gauge of a retailer's health because it excludes results from locations recently opened or closed.
Fred's Inc. said Thursday that general merchandise sales increases were seen in categories including health aids, housewares, flooring, stationery, toys, auto and hardware and several consumable departments.
The pharmacy department also reported higher sales in July but its margins continued to be pressured by vendor cost increases on brand and generic drugs.
Fred's said that due to the cost increases the pharmacy department is facing as well as other costs, it now foresees a second-quarter loss between 15 cents and 20 cents per share. The guidance excludes reserves for the disposition of inventory and stores that don't fit its convenience center model. Its prior outlook was for an adjusted operating profit of 4 cents to 9 cents per share.
Analysts polled by FactSet predict a profit of 6 cents per share.
The company will report its second-quarter financial results on Aug. 28.
Total revenue climbed 4 percent in in July to $148 million.
In its fiscal second quarter, sales at stores open at least a year dipped 0.1 percent compared with a 2.2 percent increase in the prior-year period. Total revenue rose 2 percent to $490.6 million.
For the year to date, sales at stores open at least a year fell 1 percent. The figure climbed 0.5 percent a year ago. Total revenue for the year to date rose 1 percent to $988.9 million.
Fred's runs 704 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern U.S.