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Fred's cancels dividend, mulls strategic options for non-core assets

General merchandise retailer Fred's Inc. said Dec. 6 that the company's board canceled its quarterly cash dividend to preserve cash for debt repayments and announced it is exploring strategic options for certain of its non-core assets.

The free cash flow saved from the dividend cancellation will be used to reduce debt, repurchase the company's shares and for other general corporate purposes. The declaration of future dividends will largely depend on Fred's financial health, among other factors, according to the release.

Fred's board also amended a 2012 stock buyback program and now plans to repurchase up to 3.8 million shares of its outstanding Class A common stock. The plan will run for up to two years and may be modified, extended or terminated by the company's board at any time. Fred's expects to fund the program with cash on hand and money drawn from one of its credit agreements.

The company added that the board of directors is exploring strategic transactions and alternatives for certain of its non-core assets. The move, which includes Fred's real estate holdings and the specialty pharmacy business, would help boost its gross margin, cut costs and generate free cash flow per share.

The company's board has not yet decided on any third-party offer in relation to the strategic alternatives, Fred's said.