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The Wholesale Club.

The Wholesale Club

The Wholesale Club (WHLS), incorporated in 1982, is a self-service, cash-and-carry membership warehouse. The company has 22 stores in Indiana, Ohio, Wisconsin, Michigan and Minnesota. Each warehouse approximates 100,000 square feet and is standardized for no-frills operating efficiency.

The Wholesale Club was the best-performing stock in our Indiana data base in 1988. Year-to-date, WHLS is up 86 percent from $7.625 on Dec. 31, 1988. While sales have grown rapidly, the company posted losses until mid-1988. Although WHLS is clearly a hypergrowth stock and we expect sales volumes to reach the $550 million range in 1989, we recognize that the Midwest market is subject to an economic slowdown in 1990.

Our earnings estimates, therefore, are conservative and reflect the fact that WHLS makes most of its profit in the fourth quarter when we expect to see the economy begin to slow. We note, however, that in Texas an economic slowdown caused consumers to "trade down" to cheaper cost suppliers such as wholesale clubs. Consumer spending has confounded the experts and remains strong. We expect a "soft landing."

The cash-and-carry membership warehouse concept is a rapidly growing "niche" in retailing with sales estimated to exceed $20 billion. The Wholesale Club has built a strong niche in the upper Midwest market, which is highly competitive. The WHLS units posted same-store revenue gains of 17 percent in the first half in spite of heavy opening expense and conversion to full optical scanning.

With sales growth of 42 percent in the first half and heavy store opening and computerization expenses in the first quarter, we look for a strong second half.
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Article Details
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Author:Diggle, Raymond H.
Publication:Indiana Business Magazine
Article Type:company profile
Date:Oct 1, 1989
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