Fred's Reports October Sales

Fred's Inc. (NASDAQ: FRED) today reported sales for the four-week fiscal month of October, third quarter and nine-month year-to-date period ended November 1, 2014.

Fred's total sales for the month increased 1.3% to $145.3 million from $143.4 million in October 2013. Comparable store sales for the month declined 1.4% versus an increase of 0.8% in the same period last year.

Total sales for the third quarter of 2014 were $476.1 million, up 3.4% from $460.5 million in the same period last year. Comparable store sales for the quarter increased 0.3% on top of an increase of 1.4% in the third quarter of 2013.

Fred's total sales for the nine months of 2014 increased 1.5% to $1.465 billion from $1.444 billion for the same period last year. On a comparable store basis, year-to-date sales decreased 0.5% compared with an increase of 1.1% for the year-earlier period.

Commenting on the announcement, Jerry A. Shore, Chief Executive Officer, said, "Sales for October were below expectations. While general merchandise sales and traffic were adversely affected by the warmer weather, the primary driver for the sales miss was related to changes made in our layaway program this year and the lack of incremental sales from layaway customer visits during this October as traffic declined late in the month. Last year, our program was promoted at only $1 down and no layaway fee, which generated a significant increase in layaway sales, but a majority of the merchandise ultimately was never picked up by the customer, causing sales and inventory issues during the fourth quarter. With program changes this year, we anticipate a rebound in layaway activity during November and December that should benefit fourth quarter sales this year. Offsetting these adverse developments to some extent was the ongoing strong performance of our pharmacy department, which continued to post higher comparable scripts and sales."

Shore noted that sales, inventory clean up, and clearance margin pressures experienced in earlier months have been the primary causes of the Company's recent losses. These pressures have clearly continued during the third quarter. Consequently, Fred's now expects a net loss for the quarter of $0.12 to $0.16, excluding any special charges related to store closings. The Company's new prime pharmacy vendor contract, now fully in effect, is expected to have a significant positive impact on gross margin in the fourth quarter and beyond.

"We enter the fourth quarter with new programs and initiatives to capitalize on the convenience and pharmacy advantages we offer our customers," Shore continued. "We know that the upcoming holiday season will be very competitive and internet shopping will continue to make gains, but the fourth quarter programs we have in place will meet the convenience dimension of our customers' shopping needs and drive more trips to our stores. Looking ahead to 2015, we are confident that the continued growth in pharmacy and the "need it now" front store layout will provide a strategic foundation for future growth and profitability."

During the month, Fred's opened three Xpress locations and moved one Xpress into an existing full-service store, for a net increase of two locations.

Fred's operates 703 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States. For more information about the Company, visit Fred's website at www.fredsinc.com.

Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. A reader can identify forward-looking statements because they are not limited to historical facts or they use such words as "outlook," guidance," "may," "should," "could," "believe," "anticipate," "plan," "expect," "estimate," "forecast," "goal," "intend," "committed," "continue," or "will likely result" and similar expressions that concern the Company's strategy, plans, intentions or beliefs about future occurrences or results. These risks and uncertainties include, but are not limited to, those associated with the Company's announced strategic plan, the ultimate terms of the reworked pharmacy distribution agreement, lease buyouts and the underlying assumptions and projections upon which they are based, as well as risks that intended results may not be achieved or may not occur as quickly as expected; general economic trends; changes in consumer demand or purchase patterns; delays or interruptions in the flow of merchandise between the Company's distribution centers and its stores or between the Company's suppliers and same; a disruption in the Company's data processing services; costs and delays in acquiring or developing new store sites; and the factors listed under "Risk Factors" in the Company's most recent Annual Report on Form 10-K and any subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made. Fred's undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.