Rising costs offset BJ's sales increases

Though sales climbed at a double-digit pace, fourth-quarter profits at BJ's Wholesale Club Inc. slumped by 14.0 percent, to $48.5 million from $56.4 million last year, weighed down by sagging margins and rising costs.

As the warehouse operator opened up new clubs, sales climbed higher by 12.4 percent, to $1.7 billion from $1.5 billion a year ago. Same-store sales rose modestly, by 1.6 percent.

Wall Street was surprised when BJ's said profits for this year are likely to come in lower than expected — $1.25 to $1.35 per share, compared with $1.84 last year — as it steps up spending to remodel and tries to match competitors' prices. As part of a campaign to lure customers away from competitors as they move into BJ's Northeast stronghold, the company said it will trade up to more upscale offerings, notably in electronics and apparel.

In response to its earnings forecast, the stock price was at its lowest since trading began on the New York Stock Exchange in 1997 — almost 17 percent, by $2.30 a share, to $11.30 in heavy trading.

Average gross margin contracted severely, by 110 basis points, or 1.1 percentage points, to 9.4 percent from 10.5 percent a year ago. Gross margin dollars declined by 13.0 percent, to $79.9 million from $91.8 million.

Costs climbed higher by 20 basis points, to 6.6 percent of sales from 6.4 percent last year Operating profits fell by 13.0 percent, to $79.9 million.

BJ's Wholeslae Club Inc.

Qtr. 2/1 (x000) 2002 2001 % change
Average gross margin and SG&A expenses are calculated as a percentage of net sales, excluding membership and other fees.
a-Net sales in the fourth quarter and 12 months, excluding membership and other fees. During the fourth quarter, membership fees were $33.8 million, up 7.5 percent from $31.5 million a year ago. For the 12 months, membership and other fees were $130.7 million, up 11.4 percent from $117.4 million in 2001.
b-Fourth-quarter results include a $574,000 loss on contingent lease obligations, compared with a $1.4 million loss the preceding year; and an after-tax loss of $707,000 from discontinued operations, compared with a prior-year loss of $205,000.
b-12-month results include a $15.6 million gain on contingent lease obligations, compared with a prior-year loss of $106.4 million; and a $14.9 million after-tax loss from discontinued operations vs. a year-before loss of $1.4 million.
Sales $1,681,194a $1,495,890a 12.4
Oper. income (EBIT) 79,930 91,822 -13.0
Net income 48,490b 56,352b -14.0
Per share (diluted) 0.70 0.77 -9.1
Average gross margin 9.4% 10.5%
SG&A expenses 6.6% 6.4%
12 months
Sales 5,728,955a 5,105,912a 12.2
Oper. income (EBIT) 219,780 235,061 -6.5
Net income 130,866b 82,348b 58.9
Per share (diluted) 1.84 1.11 65.8
Average gross margin 8.7% 9.3%
SG&A expenses 6.9% 6.8%

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