A sale of Fred's Inc. (FRED) 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.