Fred's Inc. is still feeling the effects of closing 74 stores last year as the company reported a $3.2 million surge in income for the second quarter while overall sales fell 3 percent.

Memphis-based Fred's sold $434.2 million in goods from its 669 general merchandise stores in the second quarter, compared to $447.1 million it sold in the same period last year.

For the quarter ended Aug. 1, the company reported a profit of $4.2 million, or 11 cents a share, up from $1 million, or 3 cents a share, a year earlier.

Management projected sales to remain flat or slightly down in the third quarter but expected a slightly better performance at the end of the year.

"Our performance was solid, given such a challenging economic environment," Fred's CEO Bruce A. Efird said in a conference call Thursday . "We expect the retail climate to remain challenging, but we're excited about the remainder of 2009."

The Conference Board's Consumer Confidence Index rebounded slightly in August as 54 percent of the 5,000 people surveyed said they felt good about the economy. That figure is up from 47 percent in July.

"Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend," said Lynn Franco, director of the Conference Board's Consumer Research Center. "But as long as earnings continue to weigh heavily on consumers' minds, spending is likely to remain constrained."

Fred's has opened two new prototype stores this year that will serve as models for future stores . The prototypes have a new layout, wider aisles, new graphics and more apparel.

The company also believes its pharmacies will see spikes this fall as the threat of increased H1N1 (swine) flu outbreaks loom.

"We believe our rural footprint will fill a good niche in the distribution (of H1N1 flu vaccines)," Fred's chief financial officer Jerry Shore said. "We are increasing the number of immunizers at our pharmacies and will contract outside help to fill that need for those patients."

Efird also said Fred's plans to open six to 10 new stores and nine to 15 new pharmacies in 2009. Also, he said 30 stores would undergo major remodeling.

- Toby Sells: 529-2742

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Fred's Inc.

Income: Surged by $3.2 million

Sales: Dropped 3 percent

Prototype stores: Opened two this year

Ticker: FRED

Web site: fredsinc.com

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Originally published by Toby Sells sells@commercialappeal.com .

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