Following the recommendation given by the committee of autonomous directors, BJ’s Wholesale Club Inc. (BJ) recently announced that it is looking for strategic choices, which might include a possible sale of the company.
The leading warehouse club operator, which has been constantly falling behind Costco Wholesale Corporation (COST) in terms of comparable sales growth, has hired Morgan Stanley to guide the autonomous committee during the evaluation process.
However, the company has not made any statements regarding the explicit actions regarding the sale of the company or in any other possibilities.
For the bidders, BJ’s offers a striking prospect for acquisition as it has a healthy balance sheet with modest debt and offers an opening to a sturdy food and grocery market that is gaining ground.
It is not the first time that the speculation of BJ’s on sale has hit the market. Earlier, a private equity player, Leonard Green, has offered to acquire the wholesale-club chain in November 2010. The buzz is that Leonard Green, which previously acquired a 9.5% stake in the company in July, would be once again interested in the acquisition. If the firm moves ahead with its plan, the acquisition of BJ’s will be the latest in its string of buyouts.
Separately, BJ’s also announced sales results for the four-week period ended January 29, 2011.
After registering growth of 3.8% in December 2010, BJ’s experienced a comparable club sales growth of 2.7% in January 2011. For the fifty-two week period, comps climbed 4.4%. Rising gasoline prices positively impacted the comparable club sales by 2.4% and 2.0% during the four and fifty-two week periods, respectively.
The company witnessed increased sales in the first, third and fourth week, while sales remained even in the second week. Excluding gasoline sales, BJ’s merchandise comparable club sales for January inched up 0.3% and for the fifty-two week period, it climbed 2.4%.
Net sales for January jumped 6.5% to $779.8 million from $732.5 million in the comparable period last year. In the fifty-two week period, sales surged 8.3% to $10,631.3 million from $9,820.9 million posted in the same period last year.
Traffic (excluding gasoline sales) remained flat in January 2011, and the average transaction amount inched up 1.0%. BJ’s hinted that food sales grew 2.0% for January, which contributed to the growth of comparable club sales. Sales of general merchandise inched down by 2.0% 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.
A month before, BJ’s announced calculated actions to reinforce its operations by restructuring its home office as well as field operations and close down five historically underperforming clubs.
As a warehouse club, BJ’s is uniquely positioned to drive traffic as it offers wider assortments of brands at compelling prices and offers its customers the choice of bulk or consumer-friendly package sizes.
Currently, we prefer to maintain long-term ‘Neutral’ recommendation on the stock. Moreover, BJ’s holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
BJ’S WHOLESALE (BJ): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis Report
Zacks Investment Research
