FRESH FOOD, RESETS PACE BJ'S

JON SPRINGER

NATICK, Mass. -- An accelerated program of merchandise resets to complement a focus on food items helped drive a sales increase of 12.1% during the first quarter at BJ's Wholesale Club here, company officials said.

BJ's remerchandised approximately 75% of the aisles in its club stores -- more than 1 million linear feet -- during the first quarter ended May 3. The resets will help BJ's drive shopper frequency and margins as it continues to sharpen its competitive focus on supermarkets, said Mike Wedge, president and chief executive officer, during a conference call last week.

"We see tremendous potential for increased market penetration based on the supermarket industry's inefficiencies and higher retail prices," Wedge said. "We know that our best members spend only 25% of their annual food budget with us. This represents a multi-billion-dollar share-of-wallet opportunity."

Sales of $1.6 billion increased 12.1%, vs. the same period a year ago; comparable-store sales increased by 6.6%. Food sales increased by 9% on a comparable-store basis, with fresh food up 20%. Net income of $16.1 million, or 23 cents a share, increased 28.8% from the first quarter of last year.

BJ's accelerated its planned remerchandising effort during the quarter, accomplishing in 10 weeks what the company initially thought would take twice as much time, Wedge said. The project involved rearranging several store aisles and adding faster-turning new items like beverages and snacks, while removing slower-moving items including home-fitness equipment and some automotive products. The new items and mix will provide better margins and drive more frequent shopping visits, Wedge explained. The chain will carry around 7,000 stockkeeping units this year, up from 6,500 last year, he said.

"The downside was the disruption caused in the clubs and confusion experienced by our members as we moved products around," Wedge said. "The upsides are many. We are seeing higher comp sales in the month of May, and the negative margin pressure caused by liquidating discontinued product lines is now behind us."

Wedge said BJ's stores would be 90% in-stock for added food and beverage items by next month. "The SKU changes offer key share-of-wallet opportunities and enable us to take additional market share from food, drug and mass stores," he stated.

The company is also proceeding with a plan to purchase produce directly, which Wedge said would result in a higher-quality fresh offering. Twenty-six stores in the Southeast will begin to purchase produce directly by July, with the majority the

stores planning to do so by the end of the year.

"Our main goal in self-distributing produce is not to increase the profitability of produce, but rather to dramatically increase the quality of the produce we offer," Wedge said, adding that member research suggested quality produce to be essential to driving more frequent shopper visits. BJ's also plans to double the number of in-store pharmacies to 28 by year-end, Wedge added.

For the second quarter, BJ's expects a sales gain of 10% to 12%, with comparable-store sales climbing by 6% to 8%. The company said it expects earnings for the year to be $1.60 to $1.66.

1ST-QUARTER RESULTS

Qtr Ended: 5/1/04; 5/3/03

Sales: $1.61 billion; $1.44 billion

Change: 12.1%

Comp-store: 6.6%

Net Income: $16.1 million; $12.5 million

Change: 28.8%

Inc/Share: 23 cents; 16 cents