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Profit Falls at Fred's

Guidance is in line.
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fourth-quarter earnings dipped 8% from a year ago due to weak results in its pharmacy segment and an overall unfavorable product mix.

The discount retail chain earned $9.6 million, or 24 cents a share, in the quarter, compared with $10.4 million, or 27 cents a share, a year ago. Total sales in the January quarter rose 11% to $456.5 million, while same-store sales rose 2.5% from last year.

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On average, analysts surveyed by Thomson First Call were predicting earnings of 27 cents a share on sales of $453.6 million in the latest quarter.

"Our gross margin came under pressure due to continued mix shift and lower soft-line sales," Fred's said. "It also was affected by a larger-than-budgeted increase in our LIFO index, which exceeded last year's increase. Similar to the experience our customers have confronted, Fred's operating expenses were adversely affected in January by higher fixed and semi-fixed costs, reflecting high rate and usage increases of utilities, tax increases throughout our region, and insurance reserve requirements."

For the first quarter ending in April, Fred's expects to earn 16 cents to 18 cents a share, including an expense of 5 cents or 6 cents a share for implementation of Medicare Part D provisions. Analysts were forecasting 16 cents a share. For the year, Fred's expects to earn 71 cents to 77 cents a share, including a charge of 3 cents a share for stock options. Analysts were forecasting 79 cents a share.