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    BJ's Sees Income Slide, Food Comps Rise in Q3

    NATICK, Mass. -- BJ's Wholesale Club, Inc. here yesterday posted net income for its third quarter ended Oct. 28, 2006 of $18.3 million, or 28 cents per diluted share, vs. net income of $27.8 million, or 41 cents for the third quarter of 2005.

    NATICK, Mass. -- BJ's Wholesale Club, Inc. here yesterday posted net income for its third quarter ended Oct. 28, 2006 of $18.3 million, or 28 cents per diluted share, vs. net income of $27.8 million, or 41 cents for the third quarter of 2005.

    The results included $2.7 million post-tax, or four cents per share, for stock-based compensation expense, compared with about $0.2 million post-tax, for stock-based compensation expense last year. Also affecting the results were income of $1.9 million, post-tax, or three cents, from a VISA/MasterCard antitrust class action litigation settlement, and expense of two cents per share for uninsured losses due to Hurricane Wilma.

    During a conference call yesterday BJ's president and c.e.o. Mike Wedge admitted that top-line growth this quarter was "disappointing," but added that BJ's was continuing to invest in its business and expand, citing such initiatives as "department reinventions" of consumer electronics in 146 clubs and the September launch of a transactional Web site, which will offer 2,000 items by the end of the month.

    BJ's c.f.o. Frank Forward noted that third-quarter comparable-club food sales were up about 2 percent, with produce and paper products among the strong performers. Fresh food and private label were the undoubted stars, with produce comps for the third quarter up over 18 percent, on top of a 30 percent surge last year, and private label accounting for 13 percent of total sales, up from 11 percent in the year-ago period.

    On a comparable-club basis, private label rose 14 percent during the quarter and over 19 percent year to date, following a whopping 47 percent in the first nine months of 2005. The company now carries 1,100 private label items, vs. 950 last year. Wedge proudly summed up private label's performance at BJ's as "a great story."

    Wedge also spoke about the retailer's burgeoning private label program, from which he expected "double-digit increases" over the next three to four years. Wedge noted that the company had seen strength across all of its private label brands, especially its "workhorse" Berkeley & Jensen line, which customers most identify with BJ's. He also singled out "the fresh area" as a "standout," citing the meal solutions and fresh bakery items sold under the company's Wellesley Farms brand.

    Wedge said that the company was on track to open 10 clubs in 2007. This year the company is opening 10 clubs as well, five of them during the fourth quarter, including a location in Fort Myers, Fla. that will be BJ's third "research and development" club. The retailer also opened five gas stations during the third quarter and will open four more in the fourth quarter, to end the year with 98 gas stations.

    Additionally, BJ's is expanding its food court offerings. Of the 10 clubs opening in 2008, eight have or will have a Subway unit, according to Wedge, and one location will have a Sbarro's, while two will feature a Dunkin' Donuts outlet. Another 18 clubs will receive Subway food courts during the fourth quarter, said Wedge, who wound up his presentation by noting, "We are confident we are doing the right things for this business."

    Net income for the first nine months of 2006 was $60.2 million, or 90 cents per share, as opposed to net income of $76.9 million, or $1.11, for the comparable period in 2005, the company noted.

    However, net sales for the third quarter were about $2.0 billion, an increase of 2.9 percent over the third quarter of 2005. Comparable-club sales for the quarter grew 0.1 percent, including a negative impact from sales of gas of about 0.6 percent. For the nine months of 2006, total sales went up 4.9 percent and comparable-club sales rose 1.3 percent, including a contribution from gas sales of 0.9 percent.

    The retailer also said that it bought 1 million shares of BJ's common stock during the quarter for an average price of $27.15 per share, or about $27 million. Year to date, BJ's has bought 3.6 million shares of the company's common stock for an average price of $28.17 per share, or about $103 million.

    For the fourth quarter, Forward gave guidance of a 15 percent to 17 percent total sales increase and a 2 percent to 4 percent comparable-club increase.

    BJ's currently operates 170 clubs, including two ProFoods Restaurant Supply clubs.

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