BJ’s Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, recently posted lower-than-expected second-quarter 2010 results. The quarterly earnings of 67 cents a share missed the Zacks Consensus Estimate of 73 cents, and also fell short of its outlook of 74 cents. However, the earnings rose 4.7% from 64 cents delivered in the prior-year quarter.
The bottom-line growth was driven by the high single-digit growth in the top line, increase in traffic and cost containment efforts. However, BJ’s was quick to indicate that the aggressive price rollback promotion by Wal-Mart Stores Inc. (WMT) hurt the bottom line by 3 cents a share.
Total revenue, which includes net sales, membership fees and other revenue, jumped 8.5% to $2,785.4 million from the prior-year quarter but fell short of the Zacks Consensus Revenue Estimate of $2,794 million. Net sales for the quarter rose 8.6% to $2,722.1 million, membership fee income climbed 6.3% to $48.1 million and other revenue jumped 9.5% to $15.2 million.
Comparable club sales for the second quarter of 2010 grew 4.4%, including a positive impact of 1.5% from gasoline sales. Excluding gasoline sales, merchandise comparable club sales for the quarter climbed by 2.9%. Management hinted that stiff competition and cannibalization adversely affected comparable club sales by 1.8%. In the year-ago quarter, comparable club sales tumbled 7.7% as fuel sales dropped 10.6% due to lower gas prices.
Comparable sales of perishables jumped by 8%, food rose by 5%, and general merchandise sales remained flat during the quarter compared with the year-ago quarter. Traffic continues to remain strong, rising 4%, but average tickets dropped by 1%.
Operating income during the quarter advanced by 2% to $60.4 million, whereas operating margin contracted 10 basis points to 2.2%.
BJ’s indicated that the second quarter has been challenging for the company, as it faced intense competition from supermarket stores trying to grab market share by going aggressive in their pricing. This compelled BJ’s to make pricing adjustments at the cost of margin.
The Natick, Massachusetts based company, BJ’s, forecast a sluggish economic recovery and a weak consumer spending environment in the second half of 2010 that could intensify the competition, as supermarket stores and other warehouse club operators could offer compelling prices to lure consumers. Consequently, the company has taken a conservative stance and lowered its fiscal 2010 guidance.
BJ’s now expects fiscal 2010 earnings between $2.40 and $2.50 per share, down from $2.58 and $2.68 previously anticipated. Management now forecasts a net sales increase of 8% to 10%, as against a growth of 9.2% to 11.2% predicted earlier. Merchandise comparable club sales excluding gasoline sales are expected to rise between 2.5% and 4.5%, down from an increase 2.7% to 4.7% anticipated earlier.
The company ended the quarter with cash and cash equivalents of $85.1 million, total long-term debt of nearly $850,000 and shareholders’ equity of $1,110.3 million. For fiscal 2010, management now expects capital expenditures between $205 million and $225 million, down from the previous anticipation of $215 million to $235 million.
BJ’s expects to generate net cash flow from operating activities between $275 million and $295 million. The company did not repurchase any shares during the quarter, but sticks to its plan to repurchase shares worth $100 million in 2010.
BJ’s, which faces stiff competition from Costco Wholesale Corporation (COST), currently operates 189 clubs in 15 states.
BJ'S WHOLESALE (BJ): Free Stock Analysis Report
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