Gas and food boost 3Q profit at BJ's Wholesale

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PORTLAND, Ore. (AP) -- Shoppers hunting for bargains on food, gasoline and other staples helped warehouse club operator BJ's Wholesale Club Inc. report a 24 percent increase in third-quarter profit Wednesday. The company also raised its outlook for the year.

The company, one of the few retailers benefiting from the weak economy, said the strongest sales were in everyday items such as coffee, dairy and produce. Non-necessities like furniture, jewelry and televisions did not sell as well.

But the benefit from shoppers looking for good deals on their grocery bills greatly outweighed a decline in general merchandise sales. Profit for the three months ended Nov. 1 rose to $28.2 million, or 48 cents per share, from $22.7 million, or 35 cents per share, a year earlier. That includes a penny-per-share charge related to closing a store.

Revenue rose 13 percent to $2.46 billion from $2.17 billion.

Analysts polled by Thomson Reuters, on average, expected a profit of 46 cents per share on revenue of $2.45 billion. Analysts estimates typically exclude one-time items.

Sales in stores open at least one year, a key measure of a retailer's health, rose 11.9 percent, or 6.6 percent excluding gas.

BJ's is one bright spots in a weak retail environment. Grocers and wholesalers are largely doing well while even some discounters such as Target - which relies heavily on discretionary items - have struggled. Target announced this week that third-quarter earnings to fell 24 percent, while Wal-Mart Stores Inc. posted a 10 percent increase in third-quarter profits.

Natick, Mass.-based BJ's has a strong emphasis on low prices and has benefited from consumers looking to stretch their dollar who are eating at home more often. The trend is expected to carry through the next quarter, which includes several food-oriented holidays such as Thanksgiving and Christmas.

The quarterly results are a major payoff for BJ's, which began a turnaround of its company about two years ago, reinvesting in stores, training and other components of the business to set itself apart from competitors like Costco and Sam's Club.

"This strong third-quarter performance was not a one-time phenomenon," Chairman and Chief Executive Herb Zarkin told investors on a conference call Wednesday. "It was a continuation of our trend that has been building and gaining momentum over the last seven quarters."

Gasoline income exceeded BJ's expectations for the quarter by 17 cents per share, but that was partly offset by unplanned expenses related to severance costs and an adjustment to the company's reserve for state sales-tax audits, as well as expenses for higher-than-planned bonus accruals.

The changes in gas pricing prompted Stifel Nicolaus analyst David Schick to downgrade BJ's from a "buy" to a "hold" rating. Schick upgraded BJ's in August, thinking that falling gas prices would drive the margins and earns higher. He wrote Wednesday, however, that BJ shares are now fully valued and that merchandise and club operations are better than a few years ago.

For the fourth quarter, BJ's executives said they anticipate the company will earn 86 to 90 cents per share. Analysts polled by Thomson Reuters expect the company to earn 88 cents per share for the quarter.

BJ's Wholesale raised its full-year guidance to $2.20 to $2.30 per share, from a range given in August of $2.10 to $2.20 per share. Analysts predict a profit of $2.21 per share. The company warned, however, that given the uncertainty of the economy the guidance is subject to change.

For the year ending Jan. 30, 2010, the company expects a profit of $2.27 to $2.39 per share, while analysts expect a profit of $2.30 per share.

Shares of BJ's fell 15 cents to $33.42 amid a broader market selloff spurred by worries about the economy.


AP Retail Writer Mae Anderson in New York contributed to this report.

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