MEMPHIS, Tenn. (AP) — Discount store operator Fred's says its net income rose 19 percent in the second quarter, helped by an income tax settlement as revenue improved. But the company's earnings fell short of Wall Street's expectations and it cut the low end of its full-year earnings forecast.
Fred's also cautioned that economic conditions will continue to pressure its performance and competition will likely heat up in the third and fourth quarters.
Its stock fell $1.43, or 9.4 percent, to $13.76 in morning trading on Thursday. Over the past year, the stock has traded between $10.27 and $15.98.
For the period ended July 28, the company earned $6.1 million, or 17 cents per share. That compares with $5.1 million, or 13 cents per share, a year earlier.
Analysts predicted earnings of 18 cents per share, according to a FactSet survey.
The current quarter included a state income tax settlement that added about 11 cents per share. This was partially offset by one-time adjustments tied to 14 store closings and additional promotional markdowns.
Revenue increased 4 percent to $470.8 million from $452.7 million, topping Wall Street's $470.3 million.
Revenue at stores open at least a year dipped 1 percent. This metric is a key indicator of a retailer's health because it excludes results from stores recently opened or closed.
Fred's Inc. now anticipates 2012 earnings between 97 cents and $1.04 per share. Its prior guidance was for earnings in a range of 98 cents to $1.04 per share.
Analysts expect full-year earnings of $1.02 per share.
For the third quarter, the company foresees earnings between 22 cents and 26 cents per share. It expects revenue to rise 2 percent to 4 percent. This implies $453.2 million to $462 million, based on 2011's third-quarter revenue of $444.4 million. Revenue at stores open at least a year is projected to be down 1 percent to 3 percent.
Wall Street forecasts earnings of 26 cents per share on revenue of $458.8 million.
Fred's currently runs 698 discount general merchandise stores, including 21 franchised Fred's stores, in the southeastern U.S.