Perishables Spark BJ's Q2 Sales Gains

BJ's Wholesale Club posted second-quarter earnings growth of 37% and a sales gain of 8% behind a performance in perishable food sales, Herbert Zarkin, BJ's chief executive officer, said in a conference call last week. Zarkin said new programs built around perishables addressing shrink, labor, pricing and presentation helped drive an 8% increase in comparable sales of perishables

NATICK, Mass. — BJ's Wholesale Club here posted second-quarter earnings growth of 37% and a sales gain of 8% behind a “spectacular” performance in perishable food sales, Herbert Zarkin, BJ's chief executive officer, said in a conference call last week.

Zarkin said new programs built around perishables addressing shrink, labor, pricing and presentation helped drive an 8% increase in comparable sales of perishables during the quarter, which ended Aug. 4. Perishable food sales, Zarkin said, are key to store traffic, market share and sales of higher-margin items at BJ's.

“It was a combination of getting everybody in the organization — the logistics department, the buying organization, the field organization, everybody — to do a spectacular job,” Zarkin said. “I want to make clear we are not where we want to be, and there's still plenty of room for improvement. But we have to have that department click, because that's the generator of people coming to our business to begin with.”

The addition of new and expanded refrigeration cases in stores helped improve food presentation, Zarkin said, adding that BJ's intends to have 55 stores outfitted with new refrigeration equipment by year-end. In addition, a new organic private-label brand — Earth's Pride Organics — showed promising results.

BJ's currently offers 11 items under the Earth's Pride label, including milk, olive oil, butter and broccoli, Zarkin said. It has arrived at a time when BJ's is reducing the number of private-label items and brands from its stores. BJ's has reduced private-label brands from 23 to “10 or 11” since Zarkin assumed the CEO role in early March.

Zarkin noted the company has made more progress with its food presentation and offerings than it had in general merchandise, saying those efforts would gear up as the holiday season approaches.

BJ's reported quarterly net income of $36.3 million, or 55 cents a share, up from $26.4 million in the same period a year ago. The company reported revenues of $2.25 billion and overall comps of 3.5%. Sales results were boosted by 0.7% by increased gasoline sales, and offset by 0.4% resulting from the closure of pharmacy departments.

By region, BJ's was strongest in the Metro New York and Mid-Atlantic regions, posting comparable gains of 6% and 5.9%, respectively. Clubs in the Southeast showed slightly negative comp trends, which Zarkin attributed to cannibalization and to slowing population growth in Florida. He attributed the latter phenomenon to the effects of a housing slowdown: Retiring Baby Boomers in the Northeast have been unable to sell their homes and so are not moving to Florida as rapidly as anticipated.

“There's no doubt the housing market in Florida has not moved, and that's driven by people up North who can't sell their houses,” he said. “There have been a lot of guys, ourselves included, that were building clubs in anticipation of the continued arrival of this population. So some locations tend to be in places that are not built out yet.”

2ND-QUARTER RESULTS
Qtr Ended 8/4/07 7/29/06
Sales $2.25 billion $2.08 billion
Change +8%
Comp Store +3.5%
Net Income $36.3 million $26.4 million
Change +35%
Inc/Share 55 cents 39 cents
26 Weeks 2007 2006
Sales $4.26 billion $3.95 billion
Change +7.8%
Net Income $49.9 million $41.8 million
Change +19.4%
Inc/Share 76 cents 62 cents