Food Helps BJ's Log Double-digit Comps in Q3

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Food Helps BJ's Log Double-digit Comps in Q3

BJ's Wholesale Club, Inc. yesterday posted net income of $28.2 million, or 48 cents per diluted share, for the third quarter of 2008 ended Nov. 1, vs. net income of $22.7 million, or 35 cents, for the year-ago period.

Comparable-club sales increased 11.9 percent for the quarter -- "the highest in 15 quarters," said president and c.o.o. Laura Sen during a conference call yesterday -- with a 5.5 percent contribution from gas sales, while comps for the first nine months of 2008 went up 12.3 percent, with a 5.8 percent contribution from gas sales.

For the first nine months of 2008, net income was $81.9 million, or $1.38 per share, compared with net income of $72.6 million, or $1.11, last year.

Net sales for the third quarter of 2008 were about $2.4 billion, a rise of 13.4 percent over the year-ago period. Net sales for the first nine months of 2008 grew 14.7 percent over last year.

BJ's c.f.o. Frank Forward said during the conference call that among the departments with strong third-quarter sales were breakfast needs, candy, coffee, computers, fresh meat, dairy, frozen, foils, paper products, pet food, prepared meals, produce, salty snacks, small appliances, and video games, while departments with weaker third-quarter sales included cigarettes, electronics, furniture, jewelry, pre-recorded video, storage, seasonal, television, and water.

Forward additionally noted the gains the company made in gasoline sales. "As gasoline prices steadily plummeted throughout Q3, it allowed us to offer a tremendous value on gasoline to our members relative to our competition, while at the same time achieving unprecedented gasoline margins.... Because of the tremendous value it also resulted in significant increases in gallons sold. I should mention that since we started selling gasoline in 1998 we have never seen such market conditions."

Meanwhile merchandise margins excluding gasoline grew about 20 basis points over last year, driven by stronger-than-planned sales of high-margin perishables, creating "a favorable mix impact which more than offset below-planned sales of general merchandise," said Forward.

Sen further noted that "[c]omp sales of perishables increased by 14 percent, following comp sales increases of 10 percent and 12 percent for the first and second quarters respectively. The strongest growth departments within perishables included bakery, dairy, frozen, meat, prepared foods, and produce. In contrast with many food retailers, our sales of organic and natural foods continued to grow, increasing by approximately 46 percent vs. last year's third quarter. It is clear that we are capturing a bigger share of our members' grocery budget, and we believe that we are benefiting from a decline in casual restaurant dining."

But BJ's isn't just about growing perishables sales. According to c.e.o. Herb Zarkin: "[I]t's certainly not the end game there at all. We have a big opportunity in the frozen part of our business as well; we're starting to put that same kind of effort into our frozen business, so we would think over a period of next year or so we should see some substantial growth in that category."

Results for the quarter included post-tax expense of $0.5 million, or one cent per diluted share, connected to the closing of the company's Greenville, S.C., club, which were reported as discontinued operations.

Results for the quarter reflected a number of unplanned income and expense items that resulted in a net benefit of about 10 cents per diluted share. For instance, gas income for the third quarter exceeded expectations by about 17 cents per share, due mainly to unprecedented market conditions leading to unusually strong gasoline sales and profits.

As far as capital expenditures are concerned, BJ's said it expects to open three clubs during the fourth quarter, in Richmond, Va.; Millsboro, Del.; and Riviera, Mass; and next year plans to open six to eight new clubs and six to eight gas stations.

BJ's operates 177 clubs in 15 states.