When it comes to many of the names in the discount variety sector, one of the first things I look for is a company’s ability to demonstrate improved same-store sales growth on a month-over-month basis. With that said, I wanted to take a brief look at the recent sales growth at Fred’s Inc. (FRED) and note several reasons behind my bullish stance on the company’s stock.

Company Overview

Headquartered in Memphis, Tennessee, Fred's, Inc., together with its subsidiaries, sells general merchandise through its retail discount stores and full service pharmacies in the Southeastern United States. The company, through its stores, offers household cleaning supplies, health and beauty aids, disposable diapers, pet foods, paper products, various food and beverage products, pharmaceuticals, tobacco products, and apparel and linens to low, middle, and fixed income families in small- to medium- sized towns.

Performance & Trend Behavior

As of Wednesday's close, shares of FRED, which have fallen just about 23% on a year-to-date basis, possess a market cap of $517 million, a forward P/E ratio of 20.32, and a dividend yield of 1.71% ($0.24). Based on their closing price of $14.02/share, shares of FRED are trading 2.82% below their 20-day simple moving average, 7.04% below their 50-day simple moving average, and 15.99% below their 200-day simple moving average.

Based on their recent trends these numbers indicate both a short and a long term downtrend for the stock, which generally translates into a selling mode for most near-term traders and many long-term investors. However, I strongly believe we could both see its trend behavior and share price reverse course in the wake of its latest same-store sales figures.

A Brief Look at Fred’s September Same-Store Sales Growth

On Thursday, October 9, Fred’s Inc. released its same-restaurant sales growth for September. Included in that release were Fred’s total sales for the month (+3.3% to $183.6 million), Fred’s comparable same-store sales on a monthly basis (+0.2%), Fred’s total sales on a year-to-date basis (+1.5% to$1.32 billion), and Fred’s comparable same-store sales on a year-to-date basis (-0.5%).

The company’s CEO, Bruce A, Efird noted, “"Our September comparable store sales continued the positive trend we have experienced in recent months in spite of the strong sales performance posted in the same month last year. Our initiatives to emphasize our convenience-center model continue to gain traction throughout the business”. If the company can continue to capitalize on its existing convenience-center model, then there’s a very good chance we could its October same-store sales match or even surpass September’s same-store performance.

Conclusion

If Fred’s can continue to successfully enhance its same-store sales over the next few months, then I strongly believe that not only will its recent trend behavior improve over the next several months, but its full year earnings for both 2015 (in which analysts are calling for the company to post a loss of  -$0.02/share on revenue of $1.95 billion) and 2016 (in which analysts are calling for the company to earn $0.69/share on revenue of $1.94 billion) should have no problem surpassing analysts’ expectations.