Although he expects the retail outlook to continue to worsen, Toby Smith states, "One bright spot is discount retailers, which continue to draw large numbers of the shoppers who are managing tight budgets this season."
In ChangeWave Investing, the growth stock expert looks at Fred's (NASDAQ: FRED), a Memphis-based which sells general merchandise through retail discount stores and pharmacies.
"Black Friday earned its moniker because it's the day when retailers are supposed to move into the profit column for the year, and it's typically one of the busiest shopping days.
"The results are obsessively watched by retailers as a bellwether of consumer demand for the critical Christmas season.
"Though this year's shopper turnout was initially deemed fairly promising, it's quickly becoming apparent that shoppers weren't really throwing their money around, but were, instead, primarily on the hunt for the biggest bargains.
"Clearly, it was the monster discounts that lured shoppers into stores, and momentum had already ebbed by Saturday. This raises concerns that shoppers merely exploited the best deals and then deserted the stores.
"Confirmation came from America's Research Group, which said that upward of 70% of consumers purchased only deeply-discounted merchandise on Black Friday.
"Based on a recent consumer spending survey from our ChangeWave Alliance, things will only get worse as we head toward the end of 2008 and into January 2009.
"Of course, the one bright spot remains the discount retailers, which continue to draw large numbers of the shoppers who are managing tight budgets this season.
"Speaking of managing budgets, Fred's continues to benefit from the success of its strategic plan, which is built on sales and operational initiatives to drive traffic, control expenses and close underperforming stores this year.
"For its fiscal Q3, Fred's reported an increase in profit despite a decrease in total sales. Net income rose 33% to $6.1 million. Fred's total sales for the quarter were $418 million, compared to $419.9 million for the same period last year.
"Income results include the costs associated with closing 74 stores and 22 pharmacies, while during Q3 Fred's opened one new store and two new pharmacies. All told, the company has opened 17 stores and five pharmacies in 2008.
"The company said that it's moving into Q4 'well prepared both financially and operationally,' and still expects a full-year profit between 72 cents and 76 cents per share.
"The consensus of analysts sees a profit of 68 cents for the fiscal year, which ends in January. Fred's should continue to perform relatively well during this recession, so we're taking FRED off 'Hold' and giving it a 'Buy' rating."
