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    Grocery Sales Bright Spot in Sorry Q4 Showing for BJ's

    NATICK, Mass. -- Despite food comps up about 3 percent and strong showings in such categories as bakery, paper products, produce, and soda and water, financially struggling BJ's Wholesale Club, Inc. here posted overall net income for the fourth quarter of 2006 of $11.9 million, or 18 cents per diluted share, vs. net income of $51.6 million, or 76 cents per diluted share for the fourth quarter of 2005 -- a dive of 77 percent.

    NATICK, Mass. -- Despite food comps up about 3 percent and strong showings in such categories as bakery, paper products, produce, and soda and water, financially struggling BJ's Wholesale Club, Inc. here posted overall net income for the fourth quarter of 2006 of $11.9 million, or 18 cents per diluted share, vs. net income of $51.6 million, or 76 cents per diluted share for the fourth quarter of 2005 -- a dive of 77 percent.

    Results for the fourth quarter of 2006 included, on a post-tax, per-diluted-share basis, about six cents of income for an extra week of sales compared with last year, 44 cents of expense connected with restructuring, and four cents of stock-based compensation expense, the company explained. Fourth-quarter 2005 results included one cent per diluted share of unusual expense to boost the company's reserve for credit card claims and $0.2 million in stock-based compensation expense.

    President and c.e.o. Herb Zarkin seemed undaunted by the challenge, however. "Over the next few months we'll see some dramatic improvement, hopefully, in our business," he said during a conference call yesterday, adding a little later, "Top line, sales is the driver. We have to get better sales."

    Net sales for the fourth quarter of 2006, based on 14 weeks of sales in 2006 and 13 weeks of sales in 2005, rose 13.4 percent, to $2.4 billion, while comparable-club sales for the quarter, based on 14 weeks of sales in both years, rose 1.5 percent, including a contribution from gasoline sales of 0.2%.

    For 2006, which included 53 weeks, BJ's reported net income of $72.0 million, or $1.08 per diluted share, vs. $128.5 million, or $1.87 per diluted share, in 2005, which included 52 weeks. Results for 2006 included, on a post-tax, per diluted share basis, approximately $.09 of unusual income, approximately $.43 of expense for unusual items and $.16 of stock-based compensation expense.

    Net sales for 2006, based on 53 weeks in 2006 and 52 weeks in 2005, grew 7.2 percent, to $8.3 billion. Comps, based on 53 weeks of sales in both years, increased 1.2 percent, including a contribution from gas sales of 0.7 percent.

    Food looms large in the recovery plan posited by Zarkin, who has newly returned to lead the company he had helmed during the 1990s. During the conference call, he provided more detail on the strategy to boost sales and profits, outlining such measures as selectively lowering prices on competitive items, reducing clutter and better employing end caps; "major improvements" in the quality and space allocation of perishables that will include the expansion of the retailer's organic and prepared food selection; and better training for in-club perishables managers; and SKU rationalization "to achieve a better clarity of offering," with a planned adjustment to BJ's private label portfolio "to optimize SKU productivity and margin."

    Zarkin reiterated his intention to reduce private label SKUs "by several hundreds."

    Zarkin also revealed that since January, the company has been hiring in-club marketing specialists to promote the benefits of membership to shoppers and help them get the most out of the shopping experience. BJ's now intends to increase the number of such specialists to about 160 from 32, making them available at nearly every club. BJ's also now has marketing specialists in the field whose job is to generate group memberships through sales calls to corporations and small businesses in the company's market area. The number of these specialists will grow from 120 to 160, according to Zarkin.

    In a bid to improve operations, BJ's will undertake fewer remodels and fewer merchandise sets, and reduce operating hours, noted Zarkin. Additionally, more autonomy will be allowed club managers as regards payroll, and training will be stepped up to permit more advancement within the ranks -- moves Zarkin said are designed to improve employee retention and morale.

    Having opened nine new clubs opened last year, BJ's plans eight to 10 locations in 2007, most in the Northeast markets where it already maintains a strong presence.

    During the month of February, BJ's sales grew 7.2 percent, to $601.7 million from $561.2 million last year. Comps rose 3.0 percent for the month, including a positive impact of 0.9 percent from gas sales and a negative impact of 0.4 percent from the absence of pharmacy sales vs. last year.

    The company completed the closing of its 46 in-club pharmacies during February. Last year BJ's logged comparable-club sales growth of 1.6 percent, including a positive impact from gas sales of 1.9 percent.

    BJ's operates 172 BJ's Wholesale Clubs in 16 states.

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