For Fred’s turnaround, beer and tobacco are in and the corporate jet is out

Fred’s is beefing up on beer, wine, and tobacco to turn around its business.

Fred’s Inc. executives are working to turn around the ailing 70-year-old pharmacy retail chain, taking steps like selling the corporate jet, fixing the pesky problems with their tobacco sales, and rolling out beer and wine.

Fred’s FRED, -18.66%   shares closed down nearly 19% Wednesday after it reported a third-quarter loss of $1.38 per share, deeper than the 13-cent loss FactSet expected. Sales of $493.6 million were down from $516.6 million last year and below the FactSet estimate of $501.0 million.

Executives say the loss was a result of “a more aggressive inventory reduction,” among other things. One of those things was the sale of the corporate jet, which accounted for $2.6 million, or 4 cents per share after tax for asset impairment.

Read: Is Amazon getting into the pharmacy business? This is what you need to know

But there are some things working in the company’s favor, like tobacco.

“We are pleased to report that the issues that were previously burdening this area of our business have been resolved and we expect tobacco to be a strong piece of our business going forward,” said Chief Executive Michael Bloom on the earnings call, according to a FactSet transcript.

This comes at a time when companies like CVS Health Corp. CVS, +0.52%   have issued a tobacco ban in the interest of health and wellness, which has become more important to many consumers.

“We improved supply chain, replenishment technology, pricing strategy, assortment, and circulars leading to very positive trends in tobacco this quarter,” Bloom said.

Don’t miss: U.S. health care is changing in a big way. The CVS-Aetna deal shows how

Bloom also said the company “successfully” rolled out beer sales at 150 stores, a “high traffic category.” And wine is now in 50 stores. The rollout is expected to be completed in the first quarter of 2018, where permitted.

Still, Fred’s has canceled its quarterly dividend to facilitate debt reductions, share repurchases and other items.

“Moreover, in shifting the company’s focus towards driving increased traffic, improving its gross margin, reducing SG&A [sales, general & administrative expenses], and generating free cash flow per share, the board is considering various strategic transactions and alternatives for certain non-core assets, including real estate and the specialty pharmacy business,” the company said in a separate statement.

Andrew Wolf, an analyst at Loop Capital Markets, asked on the call about the specialty business, saying he thought that it was “doing well” and “could be important to Fred’s positioning.”

Also: Aetna CEO Bertolini could exit after CVS deal with $500 million

The company is evaluating whether it should invest more in the specialty business or seek alternatives, according to Timothy Liebmann, chief operating officer of pharmacy.

“I think that if we do nothing, you run the risk of being irrelevant in the space,” he said.

Fred’s shares are down nearly 78% for the year so far, while the S&P 500 index SPX, -0.01% is up 17.6% for the period. 

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