BJ's Delivers Healthy Sales - Analyst Blog

BJ's Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, recently posted healthy sales results for the four-week period ended November 27, 2010.

After registering a growth of 3.7% in October 2010, BJ's experienced comparable club sales growth of 5% in November. For the forty-three week period, comps climbed 4.8%. Rising gasoline prices positively impacted the comparable club sales by 1.2% and 1.9% during the four and forty-three week periods, respectively.

The company witnessed increased comparable club sales in all the four weeks, with maximum growth in the second week. Excluding gasoline sales, BJ's merchandise comparable club sales for November climbed 3.8% and for the forty-three week period rose 2.9%.

Net sales for November jumped 8% to $900.1 million from $833.6 million in the same month last year. In the forty-three week period, sales climbed 8.6% to $8,740.1 million from $8,049.7 million posted in the same period last year.

Traffic (excluding gasoline sales) rose by about 3% in November 2010, and the average transaction amount climbed approximately by 1%.

Heavy job losses and the recent economic downturn have changed the way consumers used to shop. BJ's hinted that food sales grew 4% for November, which contributed to the growth of comparable club sales. Sales of general merchandise rose by 3% for the month.

By categories –– candy, cheese, dairy, deli, domestics, electronics, frozen, household chemicals, housewares, meat, milk, prepared foods, produce, small appliances, trash bags and video games reported robust sales. On the contrary, baby food, computer equipment, diapers and pre-recorded video delivered sluggish sales.

BJ's, which faces stiff competition from Costco Wholesale Corporation (COST), currently operates 193 warehouse clubs in 15 states.

Going forward BJ's will sustain its investments in Club payroll, Club remodels and technology to augment the sales of perishable items, which have helped in increasing sales, improving traffic count and gaining market share. Further, a negligible debt-load and healthy cash reserves augur well for future operating performance.

However, a sluggish economic recovery and a weak consumer spending environment could intensify pricing competition. Moreover, BJ's clubs being highly concentrated in northeastern U.S. may see cannibalization of sales with the opening of new stores in existing markets.

Currently, we have a Neutral rating on the stock. Moreover, BJ's holds a Zacks #3 Rank, which translates into a short-term ‘Hold' rating, and correlates with our long-term recommendation.

 
BJ'S WHOLESALE (BJ): Free Stock Analysis Report
 
COSTCO WHOLE CP (COST): Free Stock Analysis Report
 
Zacks Investment Research