August Sales Up at BJ's - 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 August 27, 2011.

After registering a jump of 9.2% in July 2011, BJ's experienced comparable club sales growth of 11.5% in August. Rising gasoline prices aided comparable club sales by 3.6% during the four-week period. The reported month's comparable club sales growth fared better than the 2.4% increase registered in the prior-year period.  

For the thirty-week period ended August 27, 2011, comparable club sales climbed 7.6%, backed by a 3.9% contribution from gasoline sales.

Comparable club sales increased in all the four weeks. The fourth week in particular saw robust growth with sales being pushed up by Hurricane Irene. Excluding gasoline sales, the company's merchandise comparable club sales for August climbed 7.9% compared with an increase of 1.9% in the same month last year. The Hurricane had a favorable impact of about 2.5% to 3% on merchandise comparable club sales. During the thirty-week period, merchandise comparable club sales rose 3.7%.

Sales for August jumped 14.9% to $901.6 million from $784.8 million in the same month prior year. During the thirty-week period, net sales rose 11.1% to $6,655.6 million from $5,990.2 million.

Excluding gasoline sales, the average transaction amount rose approximately 3%, whereas traffic grew 5%.

Heavy job losses and the recent economic downturn have changed the way consumers used to shop. BJ's hinted that food sales increased 10% for August, contributing significantly to the growth in comparable club sales. Sales of general merchandise grew 4%.

By categories – beauty care, breakfast needs, candy, canned fish & meat, chemicals, coffee, cookies, dairy, deli, eggs, electronics, frozen, health and wellness, juices, meat, milk, paper, pet food, prepared foods, produce, salty snacks, small appliances and water reported robust sales. However, baby food, diapers, pre-recorded video and televisions delivered sluggish sales.

BJ's, which faces stiff competition from Costco Wholesale Corporation (COST), currently operates 190 warehouse clubs in 15 states.

BJ's Wholesale will sustain its investments in Club payroll and Club remodels to augment the sales of perishable items, which have been the driving factors for sales and market share gains. However, we believe that sluggish economic recovery and a weak consumer spending environment could intensify competition, as supermarket stores and other warehouse club operators could offer compelling prices to lure consumers. BJ's 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' recommendation on the stock. Moreover, BJ's Wholesale holds a Zacks #2 Rank, which translates into a short-term ‘Buy' rating.