BJ's Sales Climb in July - Analyst Blog

BJ’s Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, recently posted sales results for the four-week period and the second quarter ended July 31, 2010.

After registering a growth of 3.8% in June 2010, BJ’s experienced soft comparable club sales growth of 2.8% in July. For second-quarter 2010, comparable club sales climbed 4.4%. Rising gasoline prices positively impacted comparable club sales by 0.9% during the reported month, and by 1.5% in the quarter.

 
Excluding gasoline sales, BJ’s merchandise comparable club sales for July climbed 1.9%. For the second quarter merchandise comparable club sales grew 2.9%. The company witnessed growth in merchandise comparable club sales in the first-three weeks, which fell slightly in the fourth week.

The sales for July jumped 6.6% to $770.3 million from $722.5 million delivered in the same month last year. For the quarter, sales rose 8.6% to $2,722.1 million from $2,507 million posted in the same period last year.

 

 Traffic diminished marginally. After increasing 5% in June, traffic (excluding gasoline sales) rose by nearly 4% in July 2010 compared with the corresponding month last year. The average transaction amount dropped by about 2%. For the quarter under review, traffic climbed by 4%, whereas the average transaction amount dipped by 1%.

 

 Heavy job losses and the recent economic downturn have changed the way consumers used to shop. However, with signs of revival in the economy shoppers have started loosening their purse strings. BJ’s experienced a 4% rise in sales of food, which contributed to the growth of comparable club sales. However, sales of general merchandise fell by 2%. For the quarter, food sales jumped 5% but general merchandise sales remained flat.

 

By categories – cigarettes, dairy, housewares, juices, milk, prepared foods, produce, tires and water reported robust sales. On the contrary, air conditioners, apparel, seasonal and televisions delivered sluggish sales.

 

 A viable business strategy is helping BJ’s drive traffic as it offers a wider assortment of brands at compelling prices compared with supermarket competitors. However, BJ’s clubs being highly concentrated in the northeastern U.S. may see cannibalization of sales with the opening of new stores in existing markets.

 

 As such we have a Neutral rating on the stock and a Zacks #3 Rank, which translate into a short-term ‘Hold’ rating. BJ’s, which faces stiff competition from Costco Wholesale Corporation (COST), currently operates 189 clubs in 15 states.
 
BJ’s is expected to report its second-quarter 2010 results on August 18, 2010. The current Zacks Consensus Earnings Estimate for the quarter is 74 cents a share.