Three of the most notable newly added stores are in Memphis, Tennessee and Foley, Alabama. Fred’s is headquartered in Memphis, so by adding two more stores they will increase their market share in the area and continue to grow their numbers. Both stores have pharmacies as well. Memphis is the largest city in Tennessee and the third largest in the southeast with a population of over 650,000. This gives Fred’s plenty of potential customers.
Foley, Alabama is not a well known city and has a population of around 15,000 people, but this is exactly where Fred’s wants to be. Fred’s is a small to mid-size town store and Foley is a small to mid-size town. Fred’s will instantly become the go-to place for this city. The new store is 16,000 square feet with a pharmacy and drive through. Continuing to expand into these small towns will increase their brand awareness and allow them to expand to the surrounding areas. Expansion will be key for Fred’s continued success.
Competition
A main competitor to Fred’s is Dollar General Corp. (NYSE:DG). Dollar General has stores scattered in the same area as Fred’s, but their growth is more focused in the West. They currently operate over 10,000 stores, making them a force in the industry. Dollar General seems to always have the next big thing going on. They were the first dollar store to add refrigerated sections and expand into full blown “marketplaces.” Dollar General also has its own brand of products called Clover Valley and carries the brand name products that Fred’s does.
As mentioned before, Dollar General is focused on expanding west. They have a huge presence in the east and want to make that the same case across the nation. This could double their overall size and will greatly benefit the economy by adding thousands of jobs. This is also a positive for Fred’s, because they are focusing on expanding in the areas that Dollar General is ignoring for now.
Dollar General has its downsides though. Unlike Fred’s, they do not have pharmacies or loyalty programs and are not adding clinical services. Dollar General is top dog in this space, but Fred’s is well positioned to increase its share in the southeast.
A competitor who has a lot in common with Fred’s is CVS Caremark Corporation (NYSE:CVS). As mentioned before, CVS has a strong loyalty program, pharmacies, and sells the same lines of products as Fred’s. CVS and Fred’s are like mirror images of each other.
CVS has their own generic line of products at a discount to the brand names. However, you will not find them for just $1 and will not find generic over-the-counters for just $4 like you will at Fred’s. CVS has all the pieces to continue growing, but this is a healthy competition. Though CVS is much larger, they are not large enough to where if a CVS opened up across the street from a Fred’s that they would immediately put Fred’s out of business. A competition like this is much like McDonald’s and Wendy’s. They can be right next door to each other, but each will still serve millions of customers each year.
The Dividend
A positive for Fred’s stock is their 1.80% dividend, which they have paid since 1993. Since 2008, Fred’s has increased their quarterly dividend by $0.01. In 2012, they paid $0.06 quarterly, so it is safe to assume it will increase to $0.07 quarterly in 2013. With an annual dividend of $0.28, Fred’s yield would rise to 2.1%. This is not the largest dividend you will find, but it does show they are determined to return value to shareholders.
January, 4th Quarter, and Fiscal 2012 Numbers
Fred’s reported January sales of $173.6 million, up 31% from December and 2% year-over-year. Comparable store sales increased 28.6%. This is positive news as of late, so if Fred’s can keep this up they are in for a huge year.
Fourth quarter 2012 sales rose to $533.5 million. This is up 7% from $497.7 million in 2011. In this quarter, comparable store sales increased 4.8%.
Fred’s had a record year in 2012. Total sales rose to $1.956 billion, a 4% increase from 2011. However, comparable store sales increased just 1.1% on an adjusted basis. Setting their own record for sales was impressive, but the 4% year over year increase and 1.1% increase in comparable store sales were not impressive at all. 2013 and 2014 looks to be much brighter for Fred’s
