For the first quarter of 2009, Fred's net income increased 18% to $8.6 million or $0.21 per diluted share from $7.3 million or $0.18 per diluted share in same quarter last year. Fred's total sales for the first quarter of fiscal 2009 declined 1% to $458.4 million from $464.3 million for the same period last year, reflecting the closing of 74 underperforming stores and 23 underperforming pharmacies in 2008. Excluding stores closed last year, total sales from ongoing stores increased 5% in the first three months of 2009 versus the year-earlier period. On a comparable store basis, year-to-date sales increased 2.8% compared with 2.1% in the same period last year.

Commenting on the results, Bruce A. Efird, Chief Executive Officer, said, "We are pleased with the overall progress Fred's continues to make against the backdrop of a stressed economic environment, with improving traffic and higher comparable store sales for the quarter that tracked at the upper end of our expected range. The fact that economic conditions have worsened significantly during the past year makes our growth in sales and earnings all the more noteworthy and demonstrated the positive impact on both our income statement and balance sheet of the strategic initiatives implemented. These initiatives continue to transform the way we market and connect with our customers and highlight Fred's value shopping solutions.

"In the second quarter, we expect to see ongoing improvement in our stores, as our efforts to create a better shopping experience for our customers should continue to translate into improved financial performance. This will be a formidable task as we will be contending with the economic stimulus checks consumers received last year and record unemployment rates," Efird continued. "We also plan to launch our enhanced store prototype in approximately 16 new and remodeled stores during the second quarter."

Fred's gross profit for the first quarter of 2009 declined 3% to $129.0 million from $132.5 million in the prior-year period. Gross margin for the quarter was 28.1% compared with 28.5% in the same quarter last year. The decrease in gross margin was primarily attributable to the continuing shift in sales mix toward more basic and consumable products, which typically carry a lower initial mark-up.

Selling, general and administrative expenses, including depreciation and amortization, trended favorably in the first quarter of 2009, declining to 25.1% of sales versus 26.0% of sales in the year-earlier period. The 90-basis-point expense leverage came primarily from managing store and distribution costs throughout the quarter.

Operating income for the first quarter of 2009 increased 17% to $13.7 million from $11.7 million in the prior-year period. Operating income for the first quarter of 2009 was 3.0% of sales compared with 2.5% of sales in the year-earlier period.

During the first quarter, Fred's opened three new stores and three new pharmacies. Also, Fred's closed three pharmacies in the first quarter.

In the second quarter of 2009, the Company expects total sales to decline in the range of 1% to 3% due to the effect of Fred's 2008 store-closing program. Comparable store sales are expected to be in the range of flat to up 2% for the quarter with the continuation of improved customer response to the Company's initiatives to make a visit to Fred's a more pleasurable shopping trip. This compares with the comparable store sales increase of 4.9% in the second quarter last year, which benefited from the government's issuance of economic stimulus checks. Earnings per share are forecasted to be in the range of $0.12 to $0.15 for the second quarter compared with earnings per share of $0.03 in the same period last year. Based on this outlook, the Company continues to expect total earnings per diluted share for 2009 to be in the range of $0.73 to $0.80.

Fred's, Inc.