BJ's Restructures Amid Sale Talk

JON SPRINGER

NATICK, Mass. — BJ's Wholesale Club said last week that it would close five clubs and lay off almost 500 workers as part of a strategic restructuring that some observers interpreted as prelude to additional headlines, including a potential sale.

BJ's has been the frequent subject of leveraged-buyout speculation, but interest — and BJ's stock price — heightened last summer when the Los Angeles-based private equity firm Leonard Green and Partners announced it had acquired a 9% stake in BJ's and intended to discuss a going-private transaction with the retailer.

The company, however, has not made any public announcements regarding discussion with Green, despite reports that BJ's had hired an investment bank to consider an auction, and more recently, that Green was considering a hostile takeover.

That backdrop prompted some observers to interpret last week's announcement as a prelude to a sale, although Chuck Cerankosky, an analyst with NorthCoast Research in Cleveland, said the moves more likely reflected only the effects of that interest, and that BJ's strategic options remained wide open. “These were running-the-business moves,” Cerankosky told SN.

The clubs slated for closure include three in the Atlanta market and one each in Charlotte, N.C., and Sunrise, Fla. BJ's in a statement said the stores had “historically underperformed” and combined to lose an estimated $4 million to $5 million in the current fiscal year. They will close by the end of the month.

“The savings associated with the actions we are announcing today will be invested in new clubs, remodels and information technology, all of which are vital to our competitiveness, future growth and profitability,” Laura Sen, BJ's chief executive officer, said in a statement.

About 380 store-based employees will be affected by the store closures. An additional 61 workers at BJ's headquarters and 53 field-based employees were also let go, a company spokeswoman told SN.

BJs said the actions would result in after-tax charges of between $42 million and $44 million in its current fiscal fourth quarter.

“Management is clearly running the business to improve, maintain and augment shareholder value, Cerankosky said. “I think there is clearly a strong retailer here that wants to address costs in the business and get ready for what we believe will be a stronger consumer.

“If that is all motivated by Leonard Green, to the extent that the stock price has gone up because of Leonard Green's involvement, it's a barometer by which management is going to be judged,” he added. “Investors are looking for the maintenance of the current stock price either by the company's financial performance or by financial arrangement with Leonard Green or other balance sheet mechanics.”

Such mechanics could include a recapitalization similar to that undertaken by convenience-store operator Casey's General Stores when Casey's last year fought off a hostile takeover attempt by rival Alimentation Couche-Tard, Cerankosky said. It could partner with other private investors, or another retailer.

“There are a lot of things that could happen,” he said. “Right now the stock has responded very positively to Leonard Green's involvement and recent financial results that were better than expected.”

Separately, BJ's said Robert W. Eddy, senior vice president and director of finance, has been named executive vice president and chief financial officer, and Cornel Catuna, senior vice president of field operations, has been named executive vice president of club operations, both effective Jan. 30. Frank Forward, executive vice president and chief financial officer, and Thomas F. Gallagher, executive vice president of club operations, will retire effective Jan. 29. Forward's retirement is a planned transition, while Gallagher has decided to retire for health reasons, the company said.