A sale of Fred's Inc. (FRED - Get Report) appears less likely in the near term as the operator of discount general merchandise stores continues to shutter unprofitable stores while simultaneously exploring acquisition opportunities to expand its pharmacy business.

"We did receive indications of interest, but the board did not believe that those were at levels that we should go forward with," chief executive Jerry Shore said, noting that third-party interest regarding a potential transaction stemmed from financial players.

The CEO, who took the reins on Oct. 30 after serving as executive vice president and CFO for more than 14 years, said volatility that the company has seen over the first three quarters of 2014 has affected its strategic review process, which it announced in January following a disappointing holiday season.

Blake Hallinan and Cavan Yang of Bank of America Merrill Lynch and David Shiffman of Peter J. Solomon Co. are serving as financial advisers on the process.

On Tuesday, Fred's announced results for its third quarter ended Nov. 1, posting $476.2 million in sales, up from $460.5 million the same period a year earlier. Its loss, however, widened to $10.4 million, from $7.3 million, while Ebitda was negative $6.3 million, compared with positive $21.3 million year-over-year. The Memphis company attributed the weaker bottom-line results to the clearing of inventory and related above-cost markdowns on overstocked products.

"This company has been fighting for relevancy for a number of years," SunTrust Robinson Humphrey Inc. analyst David Magee said, noting that greater-than-anticipated challenges throughout the year likely derailed a possible sale of the company.

"It's been wedged between two large channels," the analyst continued. On one side, Fred's is up against dollar stores and Wal-Mart Stores Inc. (WMT - Get Report) , while on the other end it faces stiff competition from Walgreen Co. (WAG) , CVS Health Corp. (CVS - Get Report) and Rite Aid Corp. (RAD - Get Report) , Magee said.

As an outright sale of the company seemingly is on the back burner, Fred's is focusing its attention on enlarging its profitable pharmacy and specialty pharmacy business while it shuts the doors of an additional 47 or so stores in its fourth quarter.

The company announced plans in August to close about 60 locations that don't have pharmacies and that continue to underperform by the end of the fourth quarter. It successfully exited five of those stores in its third quarter.

"That business [pharmacy] has been good and profitable for Fred's," Shore said. "It is an area that we're looking to grow. Potential acquisitions in specialty pharmacy will leverage the sales that we currently have."

He added, "With the strength of our balance sheet and the ability to generate strong cash flow, we will continue to look at opportunities that arise."

The company had about $7.6 million in cash and cash equivalents as of Nov. 1, alongside $268.5 million in total liabilities.

Fred's is also exploring a recapitalization of the company, Shore said on a Tuesday evening call with investors.

If Fred's successfully steers away from discretionary staples and revamps its stores to focus on convenience and health, the company will be positioned as a more attractive candidate to private equity firms and investors, followers of the company indicated.

"What they're proposing makes a lot of sense," Magee said. "The longer-term growth prospects for the pharmacy space are favorable ... There's a great opportunity for greater consolidation"

"It's a year or two away from being a pure-play drug store," BB&T Capital Markets analyst Andrew Wolf added, explaining that Fred's strategic value is its opportunity to operate pharmacies in rural areas where it faces limited competition.

Fred's shares, traded on Nasdaq, fell 9.5% Tuesday to $15.30 following the release of third-quarter earnings. Shares were down an additional 6 cents Wednesday afternoon to $15.24.