Selling, general and administrative expenses for the quarter, including depreciation and amortization, deleveraged 70 basis points to 26.1% of sales from 25.4% of sales in the prior-year quarter. This deleveraging primarily reflected higher pharmacy expenses associated with new acquisitions as well as increased depreciation and amortization, group medical expenses, and legal and professional fees.
Operating income for the first quarter of 2012 increased 13% to $17.1 million or 3.4% of sales compared with $15.1 million or 3.1% of sales in the prior-year period.
Income tax expense during the first quarter increased 17% to $6.5 million or 1.3% of sales compared with $5.5 million or 1.1% of sales in the prior-year period. The effective tax rate for the first quarter of 2012 was 38.4% compared with 36.8% in the year earlier quarter. The increased tax rate resulted from the expiration of federal Work Opportunity Tax Credits (WOTC).
During the first quarter, Fred's opened three new stores and four additional express pharmacy stores as part of its operating plan to open 22 to 28 stores during 2012.In the second quarter of 2012, the Company expects total sales to increase in the range of 4% to 6%. Comparable store sales are expected to be approximately flat versus a decrease of 0.4% in the second quarter last year. In the second quarter, Fred's anticipates that the largest conversion of brand to generic drugs to date will occur, which will negatively affect comparable store sales. Second quarter 2012 earnings per diluted share are forecasted to increase between 15% and 30% to a range of $0.15 to $0.17 compared with earnings per diluted share of $0.13 in the same period last year. Based on first quarter actual results and this outlook, the Company now expects total earnings per diluted share for 2012 to be in the range of $0.98 to $1.04.
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