BJ's Shuts Pharmacies, Pro Foods

JON SPRINGER

NATICK, Mass. — BJ's Wholesale Club here said last week it would close all of its in-store pharmacies, as well as its two ProFoods restaurant supply stores, as part of a retro-focused restructuring under interim Chief Executive Officer Herb Zarkin.

Zarkin, BJ's chairman and a former president and CEO, stepped back into the CEO chair in November after Mike Wedge resigned. In a press conference last week, Zarkin detailed a plan harking back to the chain's heady growth of the 1990s, including the rehiring of two key executives from that era. Zarkin also promised to reduce SKU selection, sharpen pricing, curb new club growth, and improve marketing and merchandising at BJ's, which, Zarkin said, has endured “self-inflicted” struggles with general merchandise sales and insufficient membership growth.

“We believe very strongly we must renew our focus on BJ's core business, which is to deliver high-quality merchandise at outstanding values,” Zarkin told analysts in the conference call.

The focus on core values signaled the end of ProFoods, a restaurant supply concept launched under Wedge a little more than two years ago. That business, considered a “test” concept by BJ's executives, is expected to lose around $5.1 million for the fiscal year, which ends Feb. 7, BJ's said. The 46 in-store pharmacies — among 117 club locations — suffered from low prescription growth, Zarkin said.

“We got into the pharmacy business too late, and we haven't seen the script growth we need. It just didn't make sense to keep on investing in it,” Zarkin said. “Truthfully, I'd rather invest that money in e-commerce, which has better prospects for growth down the road.”

Executives returning to BJ's are Laura Sen, named executive vice president of merchandising and logistics, and Ed Gillooly, senior vice president of marketing and membership. Both executives served in the same roles under Zarkin previously, with Gillooly leaving in 2002 after 11 years and Sen leaving in 2003. Sen succeeds Paul Bass, who is retiring, BJ's said. Gillooly replaces Alison Corcoran, who has left the company.

Frank Forward, executive vice president and chief financial officer, agreed to extend his contract for three years, BJ's added.

“I think Herb Zarkin's comments about what needs to change lean on what worked when he was the CEO, and there's nothing wrong with that,” Chuck Cerankosky, an analyst for FTN Midwest Research, Cleveland, told SN.

While BJ's has been the subject of private-equity takeover speculation in recent months, the changes announced last week do not appear to telegraph such a move, Cerankosky added.

Zarkin said he will address soft sales by changing the company's approach to marketing and merchandising, reducing SKU selection — particularly in areas such as apparel — and focusing on sharp everyday pricing and enticing store displays. He suggested the company would spend less energy on branding and would refrain from enticing shoppers with short-term discounts through coupons. Instead, BJ's will focus on gathering and retaining club shoppers through direct marketing and the Internet and through outstanding prices in the store, he said.

“High-low couponing has been very disruptive to the natural flow,” Zarkin said.

BJ's said last week that overall sales in December increased by 5% compared to the same period last year, but that comparable-club sales increased by 0.6%. BJ's expects comparable sales in January to increase by 1% to 3%, including a 1% gain from gasoline sales. GM sales in December fell by 3%.

The lower-than-expected sales will have an earnings impact of 18-20 cents per share in the fourth quarter, BJ's said. In addition, expenses from the ProFoods closures, severance and impairment charges will reduce fourth-quarter earnings to a range of 17-25 cents a share, down from previous estimates of 83-87 cents per share.