NATICK, Mass. - Marketing initiatives designed to drive traffic and sales fell below plan, and high gas prices cut into profits at BJ's Wholesale Club, the retailer here said last week.
The company subsequently slashed its full-year sales and earnings expectations and said it would slow its new-store opening program.
"We expected better and know we can do better," Michael Wedge, chief executive officer, said in a conference call discussing results for the fiscal second quarter that ended July 29. Overall sales increased 5.6% to $2.1 billion during the quarter, but comparable-store sales, excluding gasoline, fell by 0.1%. "While we had some success earlier in the quarter with direct mail coupon promotions, overall our incremental marketing programs failed to generate the sales and traffic that we planned for."
Wedge said the retailer had fewer "milk run" shopping visits during the quarter, as store traffic decreased by 4% overall. However, basket size increased by 4%. "In the face of higher gas prices the consumer is revising their calculus as to what is the best value in terms of driving four or five miles," Wedge said. "We clearly see an impact in those baskets."
Wedge said he expects gas prices to remain high, and for price competition for gas to intensify, in the coming months.
Plans for lower gas margins for the remainder of the year also prompted BJ's to lower its full-year earning estimates by 9 cents per share in the second half. BJ's also moderated its plans for comparable-store sales and square footage growth: Comps are now expected to fall in the 2%-4% range, including gasoline, as opposed to earlier estimates of 3%-5% growth. Square footage will grow 5%-7% per year through 2008, vs. earlier estimates of 10% annual growth. BJ's will open two fewer stores this year than initially planned, Wedge said.