Fred’s to lay off 80, sell 185 pharmacies in its stores
Memphis-based discount retailer Fred’s Inc. will lay off 80 headquarters workers and back out of the pharmacy business in almost a third of its stores.
Fred’s agreed to sell patient prescription files and related inventory in 185 stores to Walgreens Boots Alliance Inc. for $165 million.
The retailer, one of 14 public companies based in Memphis, is restructuring under a new leadership team that stepped in after a previous plan to expand the pharmacy business fell through.
Fred’s reported the sale and layoffs Friday to government agencies and disclosed the actions on Monday in news announcements.
Fred’s said the layoffs are permanent and scheduled to occur Oct. 28. The stores where the pharmacy changes hands will remain open.
Fred’s stock price surged $1.33 Monday to close at $2.97 per share, a gain of about 82 percent over Friday’s close.
The company employs about 200 workers at its offices on New Getwell Road.
Fred’s has struggled to maintain profits in the face of heavy competition
from discounters including Walmart and Dollar General. The Memphis company currently employs about 4,100 workers and operates 584 retail stores, 348 pharmacies, and 12 franchised stores in 15 states, primarily in the Southeast.
Proceeds from the sale will be used to pay off debt, Fred’s interim chief executive Joseph Anto said.
Anto joined Fred’s in February as chief financial officer and became interim CEO in April when Michael Bloom resigned.
Bloom’s attempt to ramp up Fred’s pharmacy business failed when an effort to buy 865 Rite Aid stores for $950 million fell through.
The deal was contingent on Walgreens buying Rite Aid and spinning off a portion of the Rite Aid stores to Fred’s to satisfy federal anti-trust officials. However, as the regulatory approval for the Walgreens-Rite Aid merger dragged on, Fred’s deal came apart.
Bloom’s efforts attracted the attention of activist investor Heath Freeman, founder of New York-based Alden Global Capital LLC.
Alden acquired almost 25 percent of Fred’s shares and Freeman took over as Fred’s chairman of the board of directors, replacing investor Thomas Tashjian, a director since 2001. Freeman brought in Anto.
Freeman is vice chairman of Denverbased MediaNews Group, publisher of the Denver Post, where Anto had been senior vice president for strategy.
Under Bloom, the retailer negotiated a $150 million revolving loan commitment with Bank of America and Regions Bank in 2015 and recently expanded the loan amount to $225 million to $275 million.
On Feb. 3, the retailer had borrowed $153.4 million, says Fred’s most recent filing with the U.S. Security and Exchange Commission.
Fred’s reported $167.1 million in longterm debt in its latest annual report, up from $128.3 million in 2017 and $52.5 million in 2016.
The sale of pharmacy assets was reported to the SEC. Layoffs were cited in a WARN notice filed with the Tennessee Department of Labor and Workforce Department.
In the quarter that ended May 5, Fred’s reported a loss of $22 million on revenue of $437.1 million. Losses now total more than $272 million since the end of 2014.