Short (meetings) and sweet (sales) at BJ’s

NATICK, MASS. —BJ’s chairman and ceo Herb Zarkin looked down at his watch in disappointment, “Six minutes.” He had hoped to conclude the company’s May 22 annual meeting in less than five—times being good as they are.

Shareholders don’t complain or protest too much when a company is having the kind of year BJ’s has enjoyed, even as times have worsened for the general economy. Who would protest a net sales gain to $8.81 billion in fiscal 2007 from $8.3 billion in fiscal 2006, or a net income advance to $122.9 million, $1.90 per diluted share, from $72 million, $1.08 per diluted share, considering all the major retailers who lately have suffered sales and earnings declines? Comparable-club sales trended at a 3% boost, excluding the 1.1% lift from gasoline and an 0.4% hit from pharmacy closures.

What’s more, the good times continued into the first quarter, when BJ’s announced net income of $17.2 million, 29 cents per diluted share, for the first quarter of 2008, versus $13.7 million, or 21 cents per diluted share, for the year-earlier quarter. BJ’s net sales increased by 12.3% to $2.26 billion in the first quarter, while comparable-club sales increased by 9.6% with a 3.9% contribution from gasoline. First-quarter fiscal 2007 results included income of $600,000 post-tax, or 1 cent per diluted share, in connection with the closing of in-club pharmacies.

The closing of pharmacies represents one element of a retrenchment that occurred after Zarkin returned to the ceo role two years ago. Before that, then ceo Mike Wedge pursued more aggressive food retailing growth, targeting both supermarkets and restaurant supply operators with additional marketing and new in-store initiatives. Zarkin pulled the company back to a more traditional warehouse club positioning, but retained BJ’s emphasis on food.

In a fourth-quarter conference call in March, Zarkin attributed the 2007 success to a variety of factors, including a 7% comp-club sales gain in food in the fourth quarter that reflected strength in perishables, which advanced by 8.4%, following consecutive rises in the previous quarters. “Throughout the year, the main driver of our perishables businesses were fresh produce, fresh meat, prepared foods [and] frozen foods and dairy items,” said Zarkin.

The strength of perishables is notable because, although food has a generally lower comp than general merchandise, perishables are more profitable than grocery items and represent BJ’s highest-margin category.

In 2007 BJ’s also focused on electronics, adding products from important manufacturers such as Sony, Sharp, Samsung and Bose. And it refined its methods for competitive price checking, becoming more aggressive on pricing, in part by responding to changing conditions quicker. BJ’s pushed its trial membership program and added Member Acquisition and Retention Managers (MARMs) to clubs and saw income from memberships improve.

BJ’s initiatives have paid off as economic conditions in the United States have softened. In a first-quarter conference call in late May, coo Laura Sen noted that while stock-up items are selling well, she “think[s] it’s important to point out that consumers also spent freely on non-essential or discretionary purchases when they found the right items at the right prices.”

She noted that, at a time when consumers are moving away from casual dining eateries, BJ’s is having success with restaurant-branded foods from Panera, Legal Seafood, Chili’s, Boston Market and Macaroni Grill. “Our sales of home meal replacement items continued to grow [as did] sales of European cheeses, natural chicken, beef and pork, [and] organic produce including salads, carrots, tomatoes and spinach. These are premium-quality products that most people might consider discretionary, yet they consistently generate strong comp sales increases for us,” Sen said.

In reviewing BJ’s first quarter results, Citigroup analyst Deborah Weinswig noted, “The company’s focus on higher margin perishables and improved general merchandise offerings, as well as improved execution by the seasoned MARMs…is driving strong results.”

And it seems strong results lead to short annual meetings.