Minus Charge, BJ's Numbers Please Street

Don Hogsett, March 7, 2005

Natick, Mass. —Nicked by a $7.2 million non-cash charge to correct errors in the way it accounted for leases, BJ's Wholesale Club saw a 4.4 percent dip in fourth quarter profits, to $47 million from $49.2 million last year.

But stripping out one-time items, the no-frills retailer said its earnings in the period actually advanced 12.3 percent, helped by rising sales and stronger margins, to 73 cents per fully diluted share, up from 65 cents per share during the same period a year ago.

Wall Street was wowed, and sent the retailer's share price rocketing up 8.9 percent, or $2.73 a share, to $33.30 in heavy mid-day trading on Tuesday, March 1, the day the news was released.

Overall sales, including membership fees, advanced 7 percent, to $2.1 billion from $1.9 billion last year. Same-store sales improved 3.4 percent, including a contribution from gasoline sales of about 1.2 percent. For all of last year, sales jumped 10.2 percent, to $7.4 billion from $6.7 billion, while same-store sales jumped 6 percent, including a 1.1 percent contribution from gasoline sales.

Giving a lift to the bottom line, in addition to stronger sales, were widening margins, which improved 50 basis points, or one-half of a percentage point, to 10 percent from 9.5 percent a year ago. But acting as a partial offset, costs climbed as well, rising 40 basis points, or four-tenths of a percentage point, to 7.8 percent of sales from 7.4 percent.

BJ's Wholesale Club Inc.

Qtr. 1/29 (x000) 2005 2004 % change
a. Total company sales, including $40.6 million in membership fees, up 12.7 percent from $36.1 million during the same period a year ago.
b. Fourth quarter results include a $7.2 million one-time, non-cash charge for lease accounting corrections; and an $82,000 after-tax loss from discontinued operations, compared with $154,000 a year ago.
c. Total company sales, including $155.1 million in membership fees, up 11.2 percent from $139.4 million the preceding year.
d. 12-month results include a $7 million provision for credit card claims; a $7.2 million charge for lease accounting corrections; a $9.4 million gain on contingent lease obligations, compared with $4.5 million in 2003; a $2.2 million loss from discontinued operations, compared with $676,000 in 2003. 2003 results include a $1.3 million charge stemming from a change in accounting.
Sales $2,051,721a $1,916,735a 7.0
Oper. Income (EBIT) 85,869 76,387 12.4
Net income 47,045b 49,229b -4.4
Per share (diluted) 0.67 0.70 -4.3
Average gross margin 10.0% 9.5% --
SG&A expenses 7.8% 7.4% --
12 months
Sales 7,220,239c 6,553,924c 10.2
Oper. Income (EBIT) 200,554 172,574 16.2
Net income 114,401d 102,866d 11.2
Per share (diluted) 1.63 1.47 10.9
Average gross margin 8.3% 8.2% --
SG&A expenses 7.7% 7.7% --

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