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BJ's margin slide pinches earnings

A 21 percent increase in selling, general and administrative expenses helped topple net income for BJ's Wholesale Club in the third quarter. The warehouse club's net finished the quarter at $20.4 million, off nearly 13 percent from a year ago.

SG&A dollars were $123.7 million for the quarter, or 7.5 percent of sales. BJ's tacked on 20 basis points to its SG&A ratio vs. the third quarter of 2002.

Third-quarter sales were $1.6 billion, a healthy 18 percent ahead of last year's third quarter. Same-store sales performed well, too, growing 11.3 percent in the quarter just ended. Operating income dropped by more than 20 percent, however, to $32.5 million. Average gross margin fell by 90 basis points, to a meager 9.7 percent.

For the year to date, BJ's net income fell by nearly 35 percent, to $53.6 million, on top of $4.8 billion in sales or almost 16 percent more than in the first three quarters of 2002. Operating income plummeted by more than 37 percent, to $87.9 million.

As dreary as these results appear, Mike Wedge, BJ's president and chief executive officer, still found an up side to this report. Wedge noted that the 29 cents per share the company earned in the third quarter was ahead of the 24 cents to 28 cents projection the company announced in October.

BJ's Wholesale Club Inc.

Qtr. 11/1 (x000) 2003 2002 % chg
Sales $1,644,728 $1,394,714 17.9
Operating income 32,464 40,791 -20.4
Net income 20,404 23,423 -12.9
Earnings per share 0.29 0.33 -12.1
Average gross margin 9.7% 10.6%
SG&A percentage 7.5% 7.3%
Nine months 2003 2002 % chg
Sales 4,794,970 4,144,661 15.7
Operating income 87,899 139,850 -37.1
Net income 53,637 82,376 -34.9
Earnings per share 0.77 1.15 -33.0
Average gross margin 9.6% 10.9%
SG&A percentage 7.6% 7.2%


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