BJ's announces new merchandising efforts - BJ's Warehouse Club

DSN Retailing Today, Dec 16, 2002 by Mike Duff

NATICK, MASS. -- BJ's Warehouse Club is undertaking a series of merchandising initiatives aimed at coaxing more dollars from the wallets of existing customers. Under the heading Building a Better BJ's, the efforts range from leveraging Customer Relationship Management to boosting the number of in-club road shows.

As a whole, the initiatives BJ's has in store include 60 improvements to its technical capacities. For instance, the company will make it increasingly easy to apply for rebates on line.

And the changes don't stop there. BJ's also will expand its pricing comparison studies to take in about half of its 6,000 SKUs; weigh the state of older clubs with the intent of expanding them to boost fresh categories; hire additional employees for certain service departments such as jewelry; add rotisserie chicken to half its units; install new prototype bakeries; look at slicing; and add self-checkout to 40 more clubs.

"The object is to challenge ourselves on the consistency of our value equation," Michael Wedge, BJ's president and ceo, said of the new initiatives.

BJ's will continue its test of pharmacy as well, adding two more departments as part of its ongoing experiment in filling scripts. The two coming retrofit operations will add to the three retrofits and four pharmacies built into the retailer's recently opened Atlanta locations. Wedge said the company is still ironing out the bugs in pharmacy. "We really have a good story and a not-so-good story on pharmacy right now," he said.

On the positive side, the company has discovered that rub-off sales from pharmacy are better than expected. On the negative, pharmacy volume in the retrofit stores hasn't yet made the grade. The company is addressing marketing shortcomings impacting pharmacy retrofits, Wedge said.

In a move to boost additional sales and to smooth the way for new pharmacy tests, BJ's will test expand and reset health and beauty aids departments in 40 clubs. Wedge said that the expansions, if they prove successful, will put BJ's in a better position to add pharmacies later.

In the third quarter ended Nov. 2, BJ's posted net income of $23.4 million, or 33 cents per diluted share vs. a net loss of $33.5 million, or 46 cents per diluted share, in the year earlier period. Of the loss in the period last year, 87 cents per share represented contingent liability related to the bankruptcy of House2Home. Lacking that, earnings per share for the quarter would have been 38 cents. Net sales in the 2002 third quarter gained by 11% to $1.4 billion, while comparable store sales slipped 0.1%.

In the third quarter, BJ's repurchased 902,200 shares of stock at an average cost of $20.67 per share, or a total of $18.6 million.

Wedge said he expected the fourth quarter and next year to produce little more than flat comp store sales. Many analysts reacted negatively to the conference call, with A.G. Edwards downgrading the stock from "hold" to "sell" and W.R. Hambrecht cutting its rating on BJ's to "sell" from "buy." In a research note, A.G. Edwards analyst Robert Buchanan said BJ's management had essentially thrown in the towel on next year.

Wayne Hood of Prudential Financial maintained his "hold" rating, noting in a report that third quarter earnings per share from continuing operations of $0.38, exceeded his forecast and the First Call consensus estimate by a penny, but he pointed out that the company cut guidance for the year to $1.90 for 2003, a 5% decline from last year and considerably lower than his previous estimate of $2.27. In looking at BJ's prospects, Hood said industry saturation will weigh on fundamentals, including samestore sales, operating margins and renewal rates. "We expect to see further pressure on key operating metrics as the wholesale niche becomes increasingly crowded," he said.

Even BJ's merchandising initiatives discussed in the conference call suggest risk to the company, Deborah Weinswig of SolomonSmithBarney said in an earnings note, as they may place the retailer in more direct competition with Gostco. "With customers already viewing BJ's more as a supermarket, placing BJ's in competition with food retailers and supercenters, we believe that the new test strategy will just compound the problems and confuse customers," she said.

BJ's share price, which had been hovering over $20 closed at $18.36 on Nov. 19 and remained in the high teens through the opening days of December.