Perishables Sales Behind BJ's Wholesale Club Q3 Gains

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Perishables Sales Behind BJ's Wholesale Club Q3 Gains

NATICK, Mass. -- With positive sales results largely due to its "continued strength in perishable foods," in the words of c.e.o. Herb Zarkin during a conference call, BJ's Wholesale Club, Inc. yesterday posted net income of $22.7 million, or 35 cents per diluted share, for the third quarter of 2007, vs. net income of $18.3 million, or 28 cents per diluted share, in the year-ago period.

Net income for the first nine months of 2007 was $72.6 million, or $1.11 per share, while for the first nine months of 2006, net income was $60.2 million, or 90 cents.

Net sales for the third quarter of 2007 were about $2.1 billion, a rise of 8 percent over the third quarter of 2006. Net sales for the first nine months of 2007 grew 7.9 percent over the first nine months of 2006.

Comparable-club sales, including the impact of gasoline sales and pharmacy closures, were 3.4 percent for the quarter and 3.1 percent for the first nine months of 2007.

Clearly, however, perishables were the key sales standout of the quarter.

"For the quarter, comparable-club sales of our high-margin perishable foods increased by approximately 8.3 percent, up from 7.8 percent in Q2 and 3.2 percent in Q1," said Zarkin during yesterday's call. "[P]erishable foods represent our greatest opportunities to capture market share from supermarkets, because of the outstanding savings we are able to provide on a wide assortment of items."

Zarkin added that BJ's "team members are doing a tremendous job of raising our standards of quality and presentation in this area, particularly in produce and prepared foods."

The company has recognized the importance of a superior fresh offering across its clubs. "This year perishables are a major area of strategic focus for us," noted Zarkin. "We are particularly proud of the new additions in our European cheeses, natural chicken, beef, and pork, as well as many items in the organic produce, including salads, carrots, tomatoes, and spinach."

He went on to cite the retailer's restaurant-quality cuts of meat and holiday prepared foods such as ravioli, veal meatballs, and filet mignon wrapped in bacon.

Additional tweaks to the shopping experience include improvements to merchandise presentation, which included "replacing coffin-style refrigeration cases with multideck cases" in the perishables section, noted Zarkin.

Overall, third-quarter food comps were up about 6 percent over last year, according to c.f.o. Frank Forward during the call, with strong categories over last year including cheese, coffee, dairy, frozen, juices, milk, meat, produce, soda, and water, as well as such nonfood categories as TVs, office supplies, and small appliances. General merchandise comps rose about 2 percent vs. the year-ago period.

The company also revealed preliminary earnings guidance for the year ending Jan. 31, 2009 of $1.85 to $1.95 per diluted share. This assumes a 4 percent to 6 percent increase in comparable sales and no impact from gasoline sales on comparable club sales.

When asked about store openings over the next year, Zarkin replied, "[F]or right now, we are looking at somewhat between 40 and 50 locations, all in marketplaces where we believe we could be successful," with stepped-up store openings planned for 2009 and 2010.

BJ's operates 175 clubs in 16 states.