BJ's Wholesale Tops Estimates - Analyst Blog

BJ's Wholesale Club, Inc. (BJ), a leading warehouse club operator in the United States, recently posted better-than-expected second-quarter 2011 results on the heels of a rise in traffic, increase in sales of perishable foods and gasoline, and effective cost management.

The quarterly earnings of 85 cents a share from continuing operations beat the Zacks Consensus Estimate of 76 cents, and surpassed its own guidance range of 74 cents to 78 cents. The quarterly earnings also rose 25% from 68 cents earned in the prior-year quarter.

On a reported basis, including loss from discontinued operations, earnings came in at 84 cents a share, up 25.4% from 67 cents delivered in the year-ago quarter.

Let's Dig Deep

Total revenue, which includes net sales, membership fees and other revenue, jumped 10.9% to $3,048.4 million from the prior-year quarter and came well ahead of the Zacks Consensus Estimate of $3,005 million. Net sales for the quarter rose 11% to $2,984.7 million, membership fee income climbed 9.1% to $51.8 million and other revenue inched up 0.4% to $11.9 million.

Comparable club sales for the quarter grew 7.8%, including a positive impact of 4% from gasoline sales. Excluding gasoline sales, merchandise comparable club sales for the quarter climbed 3.8%. Management hinted that stiff competition and cannibalization adversely affected comparable club sales by 1.6%.

Comparable club sales of food increased 5%, reflecting an 8% rise in perishable foods. General merchandise sales rose marginally by 1% during the quarter. Excluding gasoline sales, traffic remained flat and average transaction amount grew 3%.

By categories – beauty care, computer equipment, coffee, cookies, dairy, deli, lawn & garden, meat, prepared foods, produce, salty snacks and summer seasonal– reported robust sales. On the other side, books, televisions, toys and video games delivered sluggish sales.

Other Financial Details

BJ's ended the quarter with cash and cash equivalents of $286 million, a negligible debt-load of $220,000 and shareholders equity of $1,237.8 million. During the first-six months ended July 30, 2011, the company generated cash flow of $243.7 million from operating activities and incurred expenditures of $63.1 million for property additions.

BJ's Wholesale, which currently operates 190 clubs in 15 states, declared on June 29, 2011 that it is being acquired by private equity firms Leonard Green & Partners and CVC Capital Partners in a $2.8 billion deal, which is expected to closed in the fourth quarter.

Currently, we have a long-term Neutral rating on the stock. Moreover, BJ's Wholesale, which faces stiff competition from Costco Wholesale Corporation (COST) and Sam's Clubs, a division of Wal-Mart Stores Inc. (WMT), holds a Zacks #3 Rank that translates into a short-term Hold rating.