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BJ's Wholesale Profit Outpaces Estimates, Helped by Strong Sales

Warehouse club operator BJ's Wholesale Club said Tuesday its second-quarter profit rose 37 percent, the first quarterly boost in profits for the nation's No. 3 warehouse club since disappointing results last year toppled its chief executive.

The results, which beat Wall Street expectations, were driven by strong sales of perishable foods under Chief Executive Herb Zarkin's plan to reinvigorate BJ's product mix and merchandise presentation.

Natick, Mass.-based BJ's said net income grew to $36.3 million, or 55 cents per share, from $26.4 million, or 39 cents per share, a year ago.

The latest period's profit was boosted 9 cents per share by various one-time gains, compared with one-time charges of 2 cents per share in the year-ago period.

Not counting these items, the company would have earned 46 cents per share in the latest period, compared with 41 cents in the second quarter of 2006.

Analysts surveyed by Thomson Financial were expecting a profit of 41 cents per share in the latest period, on average.

Shares of BJ's rose $1.31, or 4.3 percent, to $32.10 in morning trading Tuesday.

A BJ's Wholesale Club in Stoneham, Massachusetts.
Michael Dwyer
A BJ's Wholesale Club in Stoneham, Massachusetts.

Sales for the second quarter increased 8 percent to $2.25 billion from $2.08 billion a year earlier. Including membership fees, total revenue grew to $2.29 billion from $2.12 billion.

Sales at clubs open at least a year increased 3.7 percent for the second quarter.

The latest quarter's 37 percent profit gain followed a 77 percent decline in the fourth quarter and an 11 percent dip in the first quarter.

The second-quarter performance "reflects the momentum that has been building over the first six months of the year," Zarkin told analysts on a conference call.

BJ's recent emphasis on refrigerated foods such as cheese and produce to drive customer traffic paid off, yielding an 8 percent increase in perishable food sales in the quarter.

Sales of flat-screen televisions also drove customers in, although profit margins for TVs are down amid a price war. BJ's also saw a sharp decline in sales of air conditioners from a year ago, because of a mild summer in many regions.

BJ's expects a profit of 30 cents to 34 cents per share for the third quarter, 70 cents to 74 cents for the fourth quarter and $1.75 to $1.85 for the full year. The third- and fourth-quarter projections are in line with analysts' expectations.

Zarkin took over as BJ's president and chief executive after slow sales heading into the holiday shopping season led to the abrupt November resignation of predecessor Mike Wedge.

Among other things, Zarkin has sought to cut the number of brands and sizes BJ's carries to open up shelf space for additional product lines.

BJ's currently operates 175 BJ's Wholesale Clubs in 16 states, stretching from Maine to Florida, with the heaviest concentration in the Northeast. BJ's is dwarfed by larger rivals Costco Wholesale and Wal-Mart's Sam's Club.

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