BJ's Wholesale profit up 26 pct, boosts guidance

BJ's Wholesale Club Inc. reported a nearly 26 percent increase in its first-quarter profit and raised earnings expectations for the full year, reaping the benefits of a tough economy that's increasingly sending shoppers to discounters in search of deals.

The nation's third-largest discount warehouse club said Wednesday it earned $17.19 million, or 29 cents per share, in the three months ended May 3. That's up from a profit of $13.65 million, or 21 cents per share, a year ago, when results were boosted a penny per share from the asset sales after BJ's closed 46 in-store pharmacies.

The latest profit beat by a penny per share the consensus estimate of analysts surveyed by Thomson Finanical.

Sales excluding membership fees grew 12 percent to $2.26 billion from $2.06 billion, slightly below analysts' forecast of $2.27 billion. Sales at clubs open at least a year rose 9.6 percent, with gasoline sales accounting for more than a third of the gain.

The Natick, Mass.-based chain of 178 clubs in 16 East Coast states now expects to post a full-year profit of $2.04 to $2.14 per share, a range that's 6 cents per share above the company's previous expectations offered in March. Analysts expect BJ's to post a full-year profit of $2.06 per share, near the lower end of BJ's updated guidance.

For the second quarter, BJ's expects a second-quarter profit of 53 cents to 57 cents per share, slightly above analysts' expectations of 52 cents a share.

Chief Financial Officer Frank Forward told analysts on a conference call that the company was cautious in raising its full-year profit expectations because of broad economic factors that complicate earnings predictions.

"There is a potential for higher inflation and volatile gasoline prices to create unprecedented impacts on the economy," Forward said.

Perhaps reflecting those concerns, shares of BJ's fell 85 cents, or about 2.2 percent, to $38 in morning trading.

Wednesday marked the second time since November that BJ's has raised its 2008 earnings expectations amid a retail environment that's also benefiting larger rivals Costco Wholesale Corp. and Wal-Mart Inc.'s Sam's Club. Warehouse clubs have benefited in the economic slowdown as more cost-conscious consumers buy goods in bulk in response to higher food and gas prices.

The clubs' low fuel prices also have enticed members to fill up on gas while also stocking up on merchandise, although the clubs' gas profit margins are typically low.

BJ's higher profit last quarter was driven by highly profitable perishable foods including meat and dairy products, which posted a 10 percent sales gain, and food sales overall that rose 8 percent. Those gains offset slow sales of items such as cigarettes, videos, tires, sporting goods and jewelry.

BJ's Chief Executive Herb Zarkin has emphasized merchandise with high profit margins as part of a turnaround effort since his predecessor Mike Wedge resigned in November 2006 amid disappointing sales.

In the latest quarter, Zarkin said club members increasingly redeemed coupons and turned to discount stores for bargains.

He said BJ's offered "a compelling alternative to more expensive and less efficient retail channels for food, fuel and general merchandise."

(This version CORRECTS BJ's latest club total to 178 locations, sted 177)