Pricing, Perishables Drive BJ's Sales Growth in Q3

NATICK, Mass. — Strong sales of perishable foods and improved price effectiveness helped BJ's Wholesale Club post a 24% increase in profits during its fiscal third quarter, which ended Nov. 3.

Sales of $2.17 billion increased by 8% compared with the same period a year ago, with comparable-store sales increasing by 3.4%, including negative impacts of reduced sales in pharmacy and gasoline, the retailer said. Pharmacy sales were reduced from the closure of prescription departments at some BJ's stores. Gasoline comps suffered amid rising gas prices.

Sales of perishable foods paced the comp-store gains at BJ's, with the category showing an 8.3% comparable increase.

“Perishable foods represents our greatest opportunity to capture market share from supermarkets, because of the outstanding savings we are able to provide on a wide assortment of items,” Herb Zarkin, chief executive officer, said in a conference call. “Our team members are doing a tremendous job of raising our standards of quality and presentations in this area, particularly in produce and prepared foods.”

Zarkin said the food offerings at BJ's have been enhanced by replacing “coffin-style” refrigerated cases with multi-deck cases.

BJ's invested resources and new processes to ensure price competitiveness, which also sparked sales, Zarkin said. “We refined the method by which we make competitive price checks so we can respond more quickly to market conditions,” he said. BJ's at the same time reduced the number of coupons it offered as compared to a year ago, but saw greater impact from the coupons it did issue.

Though Zarkin said inflation was modest in the third quarter, he predicted “unusually high inflation” in 2008, based on posted price increases from manufacturers.

“We have seen a number of CPG companies posting price raises for next year,” he said. “We are pretty sure we are going to see fairly good inflation next year, based on the price of oil and on other things going on.

“We have seen it in junk food as well. Anything that has got plastic and that is oil-driven.”

Zarkin said rising prices could represent an increase of 1%-2% in comparable sales next year. He said he expects BJ's could post overall comp growth of 4% to 6% next year.

By region, BJ's experienced its strongest performance in metro New York, with comps up 6.7% in the quarter.

Comparable-store sales in the Southeast fell by 1.1% as the result of new competition and cannibalization.

Net earnings of $22.7 million, or 35 cents per share, exceeded analyst estimations 33 cents, according to Thomson Financial.