BJ’s Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, recently posted soft sales for the four-week period ended August 28, 2010.
 
BJ’s August & Year-to-date Sales Performance
 
After registering a growth of 2.8% in July 2010, BJ’s experienced soft comparable club sales growth of 2.4% in August. For the thirty-week period comps climbed 5.5%. Rising gasoline prices positively impacted the comparable club sales by 0.5% during the reported month, and by 2.2% for the thirty-week period.
 
The company witnessed growth in comparable club sales in the first-three weeks, which dropped in the fourth week. Excluding gasoline sales, BJ’s merchandise comparable club sales for August climbed 1.9%. For the thirty-week period comps increased 3.3%.
 
Net sales for the month of August jumped 4.9% to $794.6 million from $757.7 million delivered in the same month last year. For the thirty-week period, sales soared 9.8% to $6,065.7 million from $5,523.3 million posted in the same period last year.
 
Traffic diminished marginally. After increasing 4% in July, traffic (excluding gasoline sales) rose by nearly 3% in August 2010 compared with the corresponding month last year. The average transaction amount dropped by about 1%, a 100-basis point improvement over the decline of 2% witnessed in July.
 
Heavy job losses and the recent economic downturn have changed the way consumers used to shop. BJ’s experienced a 4% rise in food sales, which contributed to the growth of comparable club sales. General merchandise sales dropped marginally by 1%.
 
By categories ––bakery, cigarettes, computer equipment, dairy, frozen, houseware, meat, milk, produce, small appliances and snacks reported robust sales. On the contrary, air conditioners, health and beauty aids, household chemicals and pre-recorded video delivered sluggish sales.
 
BJ’s to Underperform
 
Sluggish economic recovery and the strong competition to lure budget constrained customers are weighing on BJ’s Wholesale Club. The company 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.
 
The company hinted that the recent quarter was challenging, having 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 company forecast a sluggish economic recovery and a weak consumer spending environment in the second half of 2010 that could intensify the competition. As a result, 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 of 2.7% to 4.7% anticipated earlier.
 
All these reinforce our conservative view on the stock’s performance in the near future. Consequently, we prefer an Underperform rating on BJ’s Wholesale Club. Moreover, our Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation, correlates with our long-term view.
 
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
 
COSTCO WHOLE CP (COST): Free Stock Analysis Report
 
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