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BJ's Wholesale Club Holdings, Inc. (BJ)

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BJ's Wholesale Club, Inc. (BJ)

F4Q08 Earnings Call

March 4, 2009 8:30 am ET

Executives

Cathy Maloney - Vice President, Investor Relations

Frank Forward - Chief Financial Officer

Herb Zarkin - Chairman and Chief Executive Officer

Laura Sen - President and Chief Operating Officer

Analysts

Deborah Weinswig - Citigroup

Charles Grom - J.P. Morgan

Mark Lipacis - Morgan Stanley

Adrianne Shapira - Goldman Sachs

David Schick - Stifel Nicolaus & Company

Bob Drbul - Barclays Capital

Daniel Binder - Jefferies & Co.

Charles Cerankosky - FTN Midwest Securities Corporation

Joe Feldman - Telsey Advisory

Neil Currie - UBS

Presentation

Operator

Good morning and welcome to the BJ's Wholesale Club, Inc. fourth quarter and year end earnings results conference call. There will be some formal remarks made by the company, and then we will open up for questions.

At this time I'd like to turn the conference to Cathy Maloney, Vice President of Investor Relations. Please go ahead, ma'am.

Cathy Maloney

Thank you, [Augusta]. Welcome to the BJ's Wholesale Club fourth quarter and year end conference call for the year ended January 31, 2009. With me this morning are Herb Zarkin, Chairman of the Board, Laura Sen, President and CEO, and Frank Forward, Chief Financial Officer.

Before we begin, let me remind you that the information presented and discussed today includes forward-looking statements which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements. The risks and uncertainties related to such statements include levels of gas profitability, levels of customer demand, economic and weather conditions and other factors detailed in our fiscal 2008 10-K and subsequent 10-Q for fiscal 2009. While the company may elect to update its forward-looking statements, the company specifically disclaims any obligation to do so, even if the company's estimates change.

During this call we will be referring to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principals. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release, which is posted on our Investor Relations website at www.bjsinvestor.com.

With that, I'll turn the call over to Frank Forward, CFO.

Frank Forward

Thank you, Cathy. Good morning, everyone.

For the fourth quarter ended January 31, 2009, net income was $52.7 million or $0.91 per diluted share. Fourth quarter results included post-tax income of $1.3 million or $0.02 per diluted share from favorable state income tax audit settlements. Comparatively, for last year's fourth quarter ended February 2, 2008, net income was $50.2 million or $0.80 per diluted share. Adjusting for the unusual item this year on a non-GAAP basis, EPS was $0.89 per share this year versus $0.80 per share last year, an 11.3% - and net income was $51.3 million this year versus $50.2 million last year, an increase of 2.2%.

In summary, the fourth quarter reflected strong increases in comp sales and customer count, gasoline income slightly above last year, and strong expense control. However, this was partially offset by merchandise margin rates that were below [LY]. Most importantly, BJ's continued to gain market share despite the difficult macro environment, merchandise comp sales excluding gasoline increased 6.4%, driven by an 11% increase in food and perishables and customer count increased 6%. Perishables itself had a 13% comp increase. General merchandise comp sales were flat to last year, which we consider a good performance relative to the retail universe.

For the year ended January 31, 2009, net income was $134.6 million versus $122.9 million in 2007, an increase of 9.5%. And EPS was $2.28 per share versus $1.90 per share, an increase of 20%.

The full year 2008 earnings included unusual items netting to income of $2.8 million post tax of $0.05 per share. This included post-tax income of $3.3 million or $0.06 per share for various favorable state tax audit settlements, offset by expense of $0.5 million post tax or $0.01 per share from the club closing reserve recorded within the discontinued operations line.

The full year 2007 earnings included unusual income items of $6.5 million post tax or $0.10 per share. These unusual income items in 2007 included $3.6 million or $0.05 per share from favorable income state tax audit settlements, $2.4 million or $0.04 per share for Pro Food's lease reserve adjustment, and $0.6 million or $0.01 per share from the sale of pharmacy assets.

Adjusting both years for the unusual items that I just discussed, on a non-GAAP basis our 2008 earnings were $2.23 per share versus $1.80 in 2007, an increase of 23.9%. And post-tax net income was $131.8 million versus $116.3 million, an increase of 13.3%.

However, as we discussed in our last conference call, the 2008 full year GAAP and non-GAAP results also included earnings from the third quarter that we don't expect to repeat next year of about $5.8 million post tax or $0.10 per share. This is composed of an extraordinary level of gasoline income, partly offset by expenses for severance, sales tax audit settlements, and extra bonus costs related to the gasoline income. In addition, full year results included about $0.08 per share of expense from investments made in three areas - the road map technology project, [inaudible] rates, and remodel.

Now I'll move on to the fourth quarter sales detail. Total sales in Q4 increased 3.2% to $2.50 billion compared to $2.42 billion last year. Comparable club sales in Q4 increased 1.7%, which included an unfavorable impact from gasoline sales of 4.7%. Comp merchandise sales excluding gasoline increased by 6.4%, which was near the midpoint of our guidance range of 5.5% to 7.5%.

For the full year, total sales increased 11.5% to $9.80 billion versus $8.79 billion in 2007. Full year comparable club sales increased 9.4%, which included a benefit from gasoline sales of 3%. Comp merchandise sales excluding gasoline increased by 6.4%.

Next I'll break out comp club sales by major market, including the impact from sales of gasoline. I'll begin with the region, then read across four columns, beginning with the Q4 comp and Q4 gasoline impact, then full year comp then full year gasoline impact.

New England - 0.5%, negative 4.5%, 6.9%, 2.0%.

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