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

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BJ's Wholesale Club, Inc. (BJ)

F2Q09 Earnings Call

August 19, 2009 8:30 am ET

Executives

Cathy Maloney - Vice President, Investor Relations

Frank Forward - Chief Financial Officer

Laura Sen - President and Chief Operating Officer

Herb Zarkin - Chairman and Chief Executive Officer

Analysts

Bob Drbul - Barclays Capital

David Schick - Stifel Nicolaus

Daniel Binder - Jefferies & Co.

Neil Currie - UBS

Robert Ohmes - Banc of America

Mark Wiltamuth - Morgan Stanley

Laura Champine - Cowen & Company

Peter Benedict - Robert W. Baird

Adrianne Shapira - Goldman Sachs

Nathan Rich - Citigroup

Presentation

Operator

Please stand by. Good morning and welcome to the BJ's Wholesale Club Incorporated second quarter earnings results conference call. There will be some formal remarks made by the company and then we will open up the call for questions.

At this time, I would like to turn the call over to Cathy Maloney, Vice President of Investor Relations.

Cathy Maloney

Thank you, Mark. With me this morning are Laura Sen, President and CEO; and Frank Forward, Chief Financial Officer.

Before we begin, let me remind everyone that the discussions we are having include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual results, events, and our performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, levels of gasoline profitability, levels of customer demand, economic and weather conditions, federal, state, and local regulation in the company’s markets, federal budgetary and tax policies, litigation, competitive conditions, and other factors discussed in the company’s most recent annual report, which is on file with the SEC.

Forward-looking statements represent our estimates only as of today. 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.

And now I will turn the call over to Frank Forward.

Frank Forward

Thank you, Cathy. Good morning, everyone. For the second quarter ended August 1, 2009, net income was $35.1 million, or $0.54 per diluted share. Comparatively, for last year’s second quarter ended August 2, 2008, net income was $36.5 million, or $0.61 per diluted share.

Last year’s second quarter results included [inaudible] income of $2 million, or $0.03 per share, related to favorable tax, income tax audit settlement.

Adjusting for last year’s unusual item on a non-GAAP basis, EPS was $0.64 per share this year versus $0.58 per share last year, a 10.3% increase, and net income was $35.1 million this year versus $34.5 million last year, an increase of 1.7%.

For the first half of 2009, net income was $59.4 million, or $1.09 per diluted share, and for the first half of 2008, net income was $53.7 million, or $0.90 per share. Last year’s first half results included the post-tax income of $2 million, or $0.03 per share related to the state income tax audit settlements.

Adjusting for the unusual item last year, on a non-GAAP basis first half EPS was $1.09 per share this year versus $0.86 last year, a 26.7% increase, and net income was $59.4 million this year versus $51.7 million last year, an increase of 15.0%.

Our second quarter sales were unfavorably affected by unseasonably cool and wet weather in the Northeast, weak consumer spending, and increased price deflation, particularly in some perishable departments such as dairy, milk, meat and produce.

Despite these top line challenges, our earnings beat the midpoint of our guidance range of $0.60 to $0.64 per share by $0.02 per share, primarily due to the higher than planned merchandise margin rates, strong gasoline profitability, and good control of public expenses.

Also worth noting is that Q2 comp traffic remained strong at 4%, and we continue to see good unit sales growth, both of which are encouraging signs of increased market share.

Total sales for the second quarter were $2.51 billion, compared to $2.64 billion last year, a decrease of 5.2%. This was unfavorably affected by gasoline sales that were about 52% below last year. Second quarter comparable club sales decreased by 7.7%, which included an unfavorable impact from gasoline sales of 10.6%.

Comparable merchandise sales excluding gasoline increased by 2.9%, which was lower than our guidance of 4% to 6%, again primarily due to the weather and deflation issues I mentioned earlier.

Next, our breakout comp club sales by major market, including the impact from sales of gasoline. There will be five columns. I will begin with the region and read across four more columns, beginning with Q2 comp sales, then Q2 gasoline impact, then first half comp sales, and then Guitar Hero gasoline impact.

New England, negative 7.3%; negative 10.1%; negative 4.5%; negative 9.4%.

Upstate New York, negative 14.7%; negative 15.8%; negative 11.1%; negative 15.2%.

Metro New York, 2.5%; negative 2.1%; 4.5%; negative 1.9%.

[inaudible], negative 8.9%; negative 10.2%; negative 6.1%; negative 9.4%.

Southeast, negative 14.8%; negative 17.1%; negative 11.0%; negative 16.0%;

And total comp, negative 7.7%; negative 10.6%; negative 4.8%; and negative 9.8%.

[inaudible] of gasoline, second quarter [inaudible] in the average transaction [inaudible]

approximately 5% transaction [inaudible] for the full year.

We estimate that given the [inaudible]

[Technical Difficulties]

-- as well as increases in comp sale dollars, although at a lower rate of growth than in the first quarter.

Departments with strong second quarter sales included candy, cereal, cigarettes, computer equipment, dairy, deli, fresh meat, frozen, health and beauty aids, household chemicals, ice cream, paper products, pet foods, produce, snacks, and television.

Departments with weakest second quarter sales included air conditioners, apparel, domestics, electronics, jewelry, juices, lawn and garden, milk, oil and shortenings, pre-recorded video, sporting goods, summer seasonal, tires, trash bags, and [inaudible].

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