Consumer Spending Lifts BJ's

JON SPRINGER

NATICK, Mass. — Saying its shoppers were in a more positive frame of mind than a year ago, BJ's Wholesale Club boosted sales, earnings and margins in its fiscal first quarter.

Sales for the period ending May 1 increased 12.9% to $2.55 billion, with comparable-store sales, excluding gasoline, climbing by 4.2%. Net income rose 7.2% to $26.1 million, reflecting an uptick in merchandise margins, particularly in perishable food, which experienced an 8% comp increase. Expense control and income from gasoline sales also helped to boost net income.

“We believe that our members were in a more positive frame of mind than they were a year ago, which might have released some pent-up demand,” Laura Sen, chief executive officer, told analysts in a conference call last week. The results prompted BJ's to raise its guidance for the fiscal year slightly, saying it now expects earnings per share of $2.58 to $2.68, up from a previous estimate of $2.54 to $2.64.

Sen said the company was looking to introduce some new private-label items after an SKU rationalization program reduced their presence in clubs. These new launches would be “premium-quality products with remarkable value,” including a premium, all-natural dog-food brand, healthful children's foods, fruit snacks and baked goods under the Wellesley Farms label. Sen explained these products are being added mainly to help distinguish the assortment at BJ's, and not necessarily to compete with national brands or boost margins.

“Our private label is really about continuing along the path to differentiation, so we can have unique products that are at BJ's and are not found elsewhere, that people will come to us for,” she said. “It's nice that can yield a little higher gross margin. That's fine. But it's really about having a unique reason for the member to come to us.”

Sen said the SKU rationalization program rid products “that weren't that meaningful” from BJ's shelves while giving the retailer room to work with branded goods.

“We really found out that our members on large part prefer brands and we're going to work with the brands, do the right thing with brands to drive their business and our business,” she said.

Private-label products comprise about 10% of sales at BJ's, Sen said.

Although Sen noted the sales trends indicated a more confident consumer than a year ago, she noted the chain was still being cautious about introducing impulse items. She said the chain was careful to keep its patio sets under the $1,000 price point, but acknowledged that members in general were responding to more features and a higher price point.

BJ's said it intends to open eight clubs during the fiscal year, including two in the current quarter in Waltham, Mass., and Johnston, R.I. The effect of sales cannibalization as the result of new stores was less than BJ's anticipated, in part due to struggles of a new store affected by construction delays at an adjacent shopping center.