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Fred's Reports June Sales

Fred's Inc. (NASDAQ: FRED) today reported sales for the five-week fiscal month of June, which ended June 30, 2012.

Fred's total sales for the month increased 2% to $182.6 million from $179.4 million in June 2011. Comparable store sales for the month declined 4.0% compared with a decrease of 0.7% in the same period last year.

Fred's total sales for the first five months of fiscal 2012 increased 3% to $835.1 million compared with $807.4 million for the same period last year. On a comparable store basis, year-to-date sales decreased 0.8% versus an increase of 0.6% in the same period last year.

Commenting on the announcement, Bruce A. Efird, Chief Executive Officer, said, "Although we anticipated slightly negative comparable store sales for June, primarily due to the unprecedented size of the brand-to-generic shift in pharmacy sales now underway, typical sales patterns for these kinds of transitions did not occur. Historically, market changes occur over a period of six to nine months. However, in the most recent conversions, the changes occurred over a period of 30 to 45 days. Clearly, the impact of generic pricing on the major brand conversions was more dramatic than we projected. Despite the revenue impact of these new generics, the gross profit effect matched our plan for the month. Our general merchandise sales were disappointing both early and late in the month, compounded by weather, calendar shifts and the effect of holidays. On the positive side, several of our new initiatives in housewares, bath, and hardware departments performed as expected. Adjusting for the brand-to-generic shift in the pharmacy department, we now anticipate overall comparable store sales in July to be in the range of flat to a decline of 3%. We expect earnings to be at the lower end of our projected range of $0.15 to $0.17 for the second quarter."

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