BJ's Wholesale Club: Earnings Preview

| About: BJ's Wholesale (BJ)

BJ’s Wholesale Club Inc. (NYSE:BJ), a leading warehouse club operator in the United States, is scheduled to report its second-quarter 2011 financial results before the bell on Wednesday, August 17, 2011. The current Zacks Consensus Estimate for the quarter is 76 cents a share. The Zacks Consensus estimates revenue at $3,005 million for the second quarter.

First-Quarter 2011, a Synopsis

BJ’s Wholesale posted better-than-expected first-quarter 2011 results on the heels of a rise in traffic, increase in sales of perishable foods and gasoline, and effective cost management. The quarterly earnings of 63 cents a share beat the Zacks Consensus Estimate of 56 cents, and surpassed its own guidance range of 54 cents to 58 cents. The quarterly earnings also rose 26% from 50 cents in the prior-year quarter.

Total revenue, which includes net sales, membership fees and other revenue, jumped 10% to $2,829 million from the prior-year quarter and came well ahead of the Zacks Consensus Estimate of $2,802 million. Comparable club sales for the quarter grew 6.3%, including a positive impact of 3.9% from gasoline sales.

Second-Quarter 2011 Consensus

The analysts surveyed by Zacks expect BJ’s Wholesale to post second-quarter 2011 earnings of 76 cents a share. The current Zacks Consensus Estimate compares with 67 cents a share earned in the year-ago quarter. The estimates in the current Zacks Consensus for the quarter range from a low of 72 cents to a high of 80 cents.

Zacks Agreement & Magnitude

Of the 13 analysts following the stock, only 1 analyst revised the estimate upwards in the last 30 days, having no material impact on the Zacks Consensus Estimate of 76 cents. In the last 7 days, none of the analysts revised their estimates keeping the Zacks Consensus Estimate unchanged.

Mixed Earnings Surprise History

With respect to earnings surprises, BJ’s Wholesale has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 8.2% to positive 19.4%. The average remained at positive 6.8%. This suggests that BJ’s Wholesale has beaten the Zacks Consensus Estimate by an average of 6.8% in the trailing four quarters.

BJ’s in Neutral Lane

BJ’s will sustain its investments in Club payroll, Club remodels and technology to augment the sales of perishable items, which have helped in increasing sales, improving traffic count and gaining market share. The company has also benefited from rising gasoline prices.

Further, a negligible debt-load and healthy cash reserves augur well for future operating performance. However, a sluggish economic recovery and an erratic consumer behavior could intensify pricing competition. Moreover, BJ’s clubs being highly concentrated in northeastern U.S. may see cannibalization of sales with the opening of new stores in existing markets.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, BJ’s Wholesale, which faces stiff competition from Costco Wholesale Corporation (NASDAQ:COST), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.