MEMPHIS, Tenn. (August 29, 2007) – Fred's, Inc. (NASDAQ: FRED) today reported financial results for the second quarter and six months ended August 4, 2007.

Net income for the second quarter of 2007 totaled $3.1 million or $0.08 per diluted share versus net income in the prior-year period of $4.3 million or $0.11 per diluted share. For the six months ended August 4, 2007, net income totaled $10.5 million or $0.26 per diluted share, compared with net income of $11.6 million or $0.29 per diluted share for the first half of 2006.

Total sales for the second quarter of 2007 increased 4% to $424.6 million from $406.9 million in the same period last year. For the first half of 2007, total sales increased 5% to $866.9 million compared with $823.8 million in the year-earlier period. On a comparable store basis, sales increased 0.8% for the quarter versus a 3.1% increase in the year-earlier period. Comparable store sales for the year to date in 2007 increased 1.3% versus 2.5% in the year-earlier period.

Separately, the Company announced that its Board of Directors has authorized a share repurchase plan allowing for the repurchase of up to four million shares of Fred's common stock, from time to time in open-market or negotiated transactions. The repurchase authorization represents approximately 10% of the Company's 40.1 million shares currently outstanding.

Commenting on the results, Michael J. Hayes, Chief Executive Officer, said, "Throughout the quarter, our sales failed to meet expectations while, at the same time, operating expenses bore the extra weight of costs associated with implementing our internal initiatives aimed at driving future sales to higher levels. Also, we incurred increased income tax expense in the second quarter to adjust our effective rate to 44%, reflecting the requirements of FIN 48 through the first half of 2007. This adjustment caused a one-cent reduction in earnings per diluted share from what we had anticipated in our last press release.

"Despite the headwinds we encountered this past quarter, we were pleased to witness improved operating performance in our pharmacy department, where the shift to generic drugs, while hurting sales, actually helped our margins," Hayes continued. "And despite the missed sales, our Merchandising group was able to manage inventory levels to stay in line with our plan. During August, we have gained momentum with our merchandise refresher program, as sales of new product categories are now exceeding those of the product categories we are exiting. We believe these factors will continue to pay dividends for Fred's in the last half of the year."

Fred's gross profit for the second quarter increased 6% to $121.5 million from $115.0 million in the prior-year period. Gross margin for the quarter rose to 28.6% versus 28.3% last year. The margin improvement was attributable primarily to the continuing shift from branded to generic drugs in Fred's pharmacy department sales. Gross profit for the first half of 2007 increased 6% to $248.5 million from $234.9 million last year. Gross margin for the year-to-date period in 2007 was 28.7% versus 28.5% last year.

Selling, general and administrative expenses for the second quarter of 2007 increased to 27.2% of sales versus 26.8% of sales in the year-earlier period. The increase in the quarter resulted from costs related to our store refresher program, lease termination costs of closed stores, and higher employee medical expenses. For the first half of 2007, selling, general and administrative expenses were 26.7% of sales compared with 26.4% of sales in the prior-year period.

Operating income for the second quarter of 2007 totaled $5.7 million, down from $6.2 million in the year-earlier period. Operating income was 1.4% of sales in the second quarter of 2007 compared with 1.5% of sales last year. Operating income for the first six months of 2007 totaled $16.9 million, down from $17.3 million in the prior-year period. Operating income for the first half of 2007 was 2.0% of sales versus 2.1% of sales last year.

Income tax expense increased to 44.0% of pretax earnings in the second quarter compared with 27.8% in the second quarter last year. The increase resulted from a higher income tax rate this year as well as the post-implementation effect of the Financial Accounting Standards Board's Financial Interpretation Number 48 (FIN 48), Accounting for Uncertainty in Income Taxes. The adjustment in the current quarter brought the year-to-date income tax rate to 37.2%.

Fred's, Inc. operates 701 discount general merchandise stores mainly in the southeastern United States, including 24 franchised Fred's stores. For more information about the Company, visit Fred's website at www.fredsinc.com.

A public, listen-only simulcast and replay of Fred's second quarter conference call may be accessed at the Company's web site or at www.earnings.com. The simulcast will begin at approximately 10:00 a.m. Eastern Time today; a replay of the call will be available beginning at approximately 1:00 p.m. Eastern Time and will run until September 29, 2007.

Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to, general economic trends, changes in consumer demand or purchase patterns, delays or interruptions in the flow of merchandise between the Company's distribution centers and its stores or between the Company's suppliers and same, a disruption in the Company's data processing services, costs and delays in acquiring or developing new store sites, and other contingencies discussed in the Company's Securities and Exchange Commission filings. Fred's undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.