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."

During the month, Fred's opened two express pharmacy locations and closed 12 stores. The store closings were in line with the Company's real estate plan for 2012.

Fred's Inc. operates 698 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern United States. For more information about the Company, visit Fred's Website at www.fredsinc.com.

Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to, general economic trends, changes in consumer demand or purchase patterns, delays or interruptions in the flow of merchandise between the Company's distribution centers and its stores or between the Company's suppliers and same, a disruption in the Company's data processing services, costs and delays in acquiring or developing new store sites, and other contingencies discussed in the Company's Securities and Exchange Commission filings. Fred's undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

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