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Fred's Q3 2007 Earnings Call Transcript

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2007-11-29 11:31:38.0

Tags: Fred's Inc.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions)

We will go first to David Cumberland of Robert W. Baird.

David Cumberland - Robert W. Baird

Good morning. Thank you. On the shift in costs, did that negatively impact gross margin?

Jerry Shore

Yes, David, it did. That's where the effect came in within gross margins.

David Cumberland - Robert W. Baird

What were the actions taken to bring inventory in line?

Jerry Shore

Jim?

Jim Fennema

The overall actions included reacting to the current trends in the sales areas, which would mean that either we cancelled orders that were unordered or decided that we owned inventory that we could create sales out of and had no need to make further purchases.

David Cumberland - Robert W. Baird

And then, looking at your, excluding that factor, your EPS relative to plan, sales were at the low end of plan or the comps at the low end of the plan. But you came in slightly below on EPS. Where were you below expectations? Was it on this gross margin line?

Jerry Shore

No, David. It was in the SG&A line, with the lower sales not being able to react to the lower sales with the labor and costs that we had planned and incurred during the quarter.

David Cumberland - Robert W. Baird

And then, my other issue or question area would be on the guidance for Q4. Does your pervious EPS guidance for Q4 still apply now adjusted upward by $0.02?

Jerry Shore

David, the reason why we didn't put the guidance in and inform numbers is really the volatility of the market right now. And I think, that the way we feel internally is the range, is a little bit lighter at this point than what we had out there. But other than that business goes on as usual inside the company.

David Cumberland - Robert W. Baird

Thank you.

Operator

Thank you. We'll go next to Meredith Adler, Lehman Brothers.

Meredith Adler - Lehman Brothers

Thanks very much. I'd like to just start by focusing a little bit on your refresher program. I assume that's completed now and, obviously, the economy is not good, but are there any particular surprises? Are you disappointed in the refresher program or do you feel that it's essentially done what it was supposed to do?

Mike Hayes

Hi. This is Mike Hayes. To be honest, we are slightly disappointed in November. As far as the refresher was concerned -- why I press and say, to be honest, think about that -- we were slightly disappointed. However, I use the word slightly because I think our customer is working much closer to the buy-now, wear-now scenario. And I think that December will end up being where the strength of the sales ends up occurring and definitely closer towards the end of the period.

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