WESTBOROUGH, Mass. — BJ's Wholesale Club last week said lower costs, higher membership fees and sales growth sparked by perishable foods and anticipated inflation would improve profits in 2011.
For the fourth quarter, which ended Jan. 29, net income was down 81% to $10.2 million as BJ's absorbed expenses for closing five stores and a corporate restructuring. Sales of $2.9 billion during the period were up 7.4% from the same period last year, with comparable store sales improving by 3.8% overall and 1.7% excluding gasoline.
BJ's last month announced the closure of five unprofitable stores and the layoff of around 500 workers. It also acknowledged it was investigating strategic alternatives in the wake of a going-private transaction proposed by investor Leonard Green & Partners.
BJ's officials in a conference call discussing quarterly results did not address the latter issue, but said savings derived from the store closures and corporate restructuring — along with a $5 increase in annual membership fees introduced in January — would support profit growth in 2011.
“The considerable savings associated with these strategic actions will make it possible for BJ's to continue to grow our earnings while maintaining our investments in information technology, chain expansion, club remodels and team member development,” Laura Sen, BJ's chief executive officer, said.
Sen acknowledged “the list is long” of things that went wrong at the stores that closed, particularly three in Georgia.
“They weren't very good locations, and it was a tall order going in where we had two entrenched competitors, a much more dense stable of Wal-Mart supercenters, and a much more competitive grocery landscape. And when we went in we made a strategic mistake [offering] free membership,” she said. “Hindsight is 20/20, but we're being much more selective in the real estate we open these days.”
BJ's plans to open six to eight new stores in fiscal 2011.
Robert Eddy, BJ's chief financial officer, said the company was expecting earnings growth of around 9.4% in 2011, driven by membership income, cost savings and operating initiatives to drive margin growth. BJ's expects comp sales of 2% to 4% during the year, excluding gasoline, and membership income to grow by 9% to 10% as a result of higher fees and growth in BJ's rewards membership.
The guidance was based on expectations of “normal” product cost inflation of around 1%, Sen said, although the chain was seeing “significant” increases already in 2011.
“If these conditions continue it will have an impact on our business, but that impact will not necessarily be negative to our bottom line,” she said. “As a low-cost operator offering significant savings vs. other channels, BJ's is in a position to benefit when price increases challenge families to stretch their budget.”
Sen noted that in the last round of price inflation in 2008, “we benefited not just from the prices hitting our bottom line, but consumers really feeling pressured to save money.”
Sen said perishable foods continue to be a driver of comp increases and margins for BJ's, with the category comping at 7.4% during the fourth quarter. She acknowledged that non-edible consumables including diapers and cleaning supplies had experienced “softness,” which she attributed to several factors including a more aggressive stance on those items by Wal-Mart, price deflation and a controversy surrounding Pampers' Dry Max diapers.