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BJ’s domestics among positive discretionary categories in 3Q

Natick, Mass. – Domestics and housewares were among BJ’s Wholesale Club’s discretionary general merchandise departments that posted positive results during the retailer’s third quarter.

Other discretionary categories that also performed well included appliances, beauty care, best-seller books and footwear.

Laura Sen, president and ceo, said that BJ’s has been seeing recently in its general merchandise departments “some modest improvement in sales. We believe the consumer has a little more confidence this year than they did a year ago. I think last year she was faced with real strong headwinds. There are still quite a few economic challenges. But we believe that we’ll have a stronger ability to deliver sales in that part of the business based on what we’ve seen in the last few weeks or so.”

Still, food and consumables remained the strongest categories for the quarter, Sen said.

“Our third-quarter sales results benefitted from strong unit sales gains of food and consumables, a 5% comp increase in traffic and a modest improvement in general merchandise sales, partly offset by greater-than-expected deflation, especially in perishables,” said Frank Forward, evp, cfo.

Sales for BJ’s third quarter, ended Oct. 31, increased by 2.0% to $2.45 billion from $2.40 billion. Merchandise comp club sales for the 13-week period were also up, increasing 3.9%, but comp club sales were down by 2.5%.

Sen described BJ’s merchandise comp results for the quarter as an “outstanding achievement. It was also our 13th consecutive quarter of merchandise comp sales increases.”

Third quarter net income fell 37.2% to $17.7 million, or 32 cents per share, versus $28.2 million, 48 cents per share. This year’s 3Q net income included a charge of $11.7 million pre-tax ($6.9 million post-tax), or 13 cent per diluted share, to establish a reserve in connection with the proposed settlement of a legal claim. The settlement involves wage and hour job classification claims.

By comparison, the chain’s 2008 net income included post-tax expense of $500,000, or 1 cent per share, related to the closing of the company's Greenville, S.C., club. It also included some unplanned income and expense items that benefited earnings by 10 cents per share.

For the first nine months, BJ’s sales decreased by 1.2% to $7.22 billion from $7.30 billion. Comps for the period were up 4.7% for merchandise and down 4.1% for comp club sales.

Year-to-date net income was $77.1 million, or $1.41 per diluted share -- results that included the aforementioned third quarter charge. By comparison, 2008’s first nine months net income was $81.9 million, or $1.38 per diluted share. These results included the club closing expense and unusual income and expense items from the third quarter, and income of 3 cents per share from state income tax audit settlements recorded during the second quarter.

BJ’s improved its outlook for its fourth quarter, especially for discretionary general merchandise categories.

“We are well positioned to make our plan for comp club sales of 4% to 6% but with a slightly different mix of sales than we talked about during our second quarter conference call,” Sen said. “We now expect a small increase in general merchandise sales versus our original plan for a slight decrease, and we expect the same level of price deflation as we saw in the third quarter versus our original expectation that price deflation would start to cycle in the fourth quarter.”

Looking ahead to 2010, BJ’s plans to make investments in chain expansion, club renovations and other initiatives.

“Our preliminary expansion plans call for 79 new clubs, including two in Massachusetts, one in Metro New York, one in Landover, Maryland, and one club relocation in Rhode Island,” Sen said.

The company plans to provide more details in March.

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