Sales Up, BJ's to Cut Jobs - Analyst Blog

BJ's Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, recently posted healthy sales results for the five-week period ended January 1, 2011.

After registering a growth of 5.0% in November 2010, BJ's experienced a comparable club sales growth of 3.8% in December. For the forty-eight week period, comps climbed 4.7%. Rising gasoline prices positively impacted the comparable club sales by 2.4% and 2.0% during the five and forty-eight week periods, respectively.

The company witnessed increased sales in the first, second and fourth week, while sales decreased in the third and fifth week. Excluding gasoline sales, BJ's merchandise comparable club sales for December inched up 1.4% and for the forty-eight week period it climbed 2.7%.

Net sales for December jumped 7.3% to $1,247.6 million from $1,162.2 million in the same month last year. In the forty-eight week period, sales climbed 8.4% to $9,987.8 million from $9,211.9 million posted in the same period last year.

Traffic (excluding gasoline sales) rose by about 2.0% in December 2010, and the average transaction amount remained flat. BJ's hinted that food sales grew 2.0% for December, which contributed to the growth of comparable club sales. Sales of general merchandise increased by 1.0% for the month.

By categories -- cheese, coffee, computers, dairy, deli, fresh bakery, health and wellness, meat, milk, prepared foods, produce, seasonal, video games and wine reported robust sales. On the contrary, baby food, books, diapers, household chemicals, paper, plates and utensils, and pre-recorded video delivered sluggish sales.

Separately, BJ's announced calculated actions to reinforce its operations by restructuring its home office as well as field operations and close five historically underperforming clubs including three in the Atlanta market, one each in Sunrise, Florida, and Charlotte, North Carolina due to weak sales, resulting in 380 job cuts. In addition, it's cutting 114 corporate-level jobs, including 61 at the company's Natick headquarters and 53 field positions.

BJ's plans to invest the savings generated from the closures in the opening of new clubs, remodeling and revamping of clubs, and information technology, to enhance its future growth, competitiveness and profitability.  

The company expects total after-tax charges related to the announcement between $42.0 million to $44.0 million, along with after-tax expenses of approximately $26.0 million to $28.0 million in the fourth quarter ending on January 29, 2011.

BJ's, which faces stiff competition from Costco Wholesale Corporation (COST">COST), currently operates 194 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 the pricing competition. Moreover, BJ's clubs being highly concentrated in the northeastern U.S. may see cannibalization of sales with opening of new stores in the 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.

 
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