Fred's July Sales Increase 7%.

MEMPHIS, Tenn. -- Fred's, Inc. (NASDAQ/NM: FRED) today reported record sales for the fiscal month, quarter and six-month period ended July 30, 2005.

Retail sales by Company stores rose 7% in the four-week July reporting period. Fred's total sales for the month also increased 7% to $108.5 million from $101.7 million in July last year. Comparable store sales for the month declined 1.8%.

Retail sales by Company stores increased 10% for the second quarter. Total sales for the quarter also increased 10% to $373.7 million versus $340.6 million in the same period last year. Comparable store sales for the quarter rose 0.8% versus the same period last year, when Fred's registered a 4.2% increase in comparable store sales.

Retail sales for the first half of fiscal 2005 rose 11%. Fred's total sales for the year-to-date period also increased 11% to $759.0 million compared with $682.1 million in the first six months last year. On a comparable store basis, year-to-date sales increased 2.1% versus the same period last year, when Fred's posted a 3.2% gain in comparable store sales.

Commenting on the announcement, Michael J. Hayes, Chief Executive Officer, said, "We knew this would be a challenging quarter from a sales standpoint, considering the changes we have implemented in our merchandising staff and the transition underway in sales drivers from double coupon sales to the refrigeration program. However, neither of these factors appears to account for the significant slowdown in sales that we witnessed the last two weeks of July, during which time we saw negative comparable store sales in the high single digits. Most of this occurred in soft lines and stationery, indicating a slow start to our back-to-school program that kicked off in the final week of the month. Unfortunately, we cannot determine whether this situation involves a timing shift, where sales would be recouped in August, or if it underscores a change in consumer sentiment in light of current economic conditions. We do know, however, that the sales miss in July will cause second quarter earnings per share to fall approximately two cents short of the midrange of our plan for the quarter, but these expected earnings will still be approximately 12% ahead of those in the second quarter last year. By the time we report our full financial results for the second quarter on August 25, we will be in a better position to assess whether the July sales miss was a timing issue and what impact it might have on the third quarter."

During the fiscal month of July, Fred's opened four stores and three pharmacies.

Fred's, Inc. operates 623 discount general merchandise stores mainly in the southeastern United States, including 25 franchised Fred's stores. For more information about the Company, visit Fred's website at www.fredsinc.com.

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.