Fred's reported financial results for the first quarter ended April 30, 2016. Net income totaled $1.3 million or $0.03 per share compared with essentially flat net income and earnings per diluted share for the first quarter of last year.
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Net income of $0.03 per share included expenses related to prior periods of $0.4 million or $0.01 earnings per diluted share.
Fred's gross profit increased 3.1% to $141.3 million from $137.1 million in the prior-year period.
Gross margin decreased or deleveraged 120 basis points to 25.7% from 26.9% in the same quarter last year. While the company achieved wider margins in our general merchandise departments, the deleveraging in the quarter reflected the growth of the company ’s profitable, but lower-margin specialty pharmacy sales.
Selling, general and administrative expenses for the quarter, including depreciation and amortization, decreased or leveraged 160 basis points to 25.3% of sales from 26.9% of sales in the prior-year quarter.
Despite sales at the low end of projections, selling, general and administrative expenses, including depreciation and amortization, but excluding expenses related to prior periods, decreased or leveraged 170 basis points to 25.2% of sales.
The leveraging in expenses for the first quarter was driven by initiatives that controlled labor within the pharmacy department, lowered occupancy costs and improved supply chain efficiencies. In addition, specialty pharmacy growth continues to leverage year-over-year expenses.
For the first quarter of 2016, operating income, which is equivalent to earnings before interest and taxes, or EBIT, a non-GAAP financial measure, improved to $2.4 million or 0.4% of sales compared with $75 thousand or less than 0.1% in the prior-year period. Adjusted EBIT improved to $2.9 million or 0.5% of sales.
For the first quarter of 2016, adjusted EBITDA, a non-GAAP financial measure that further excludes depreciation and amortization, LIFO expense and stock-based compensation, and nonrecurring items, if any, from EBIT, improved 35.4% to $15.7 million or 2.9% of sales compared with adjusted EBITDA of $11.6 million or 2.3% of sales in the year-earlier quarter.
During the first quarter, Fred's opened a net one full-service store. ■