BJ's Wholesale Club (NYSE: BJ ) announced lower third-quarter earnings this morning, as the warehouse club retailer continued to battle higher expenses and the effects of lowering its prices.
Total revenues rose 18% to $1.6 billion, while comparable-store sales increased an impressive 11.3%, with gasoline sales contributing 3.8% of that gain. Earnings dipped 13% to $20.4 million from $23.4 million. Per share, BJ's earned $0.29, including a one-cent gain from a reduction in a lease reserve, compared to $0.33 a share in the prior year.
In last year's fourth quarter, BJ's set out to price its merchandise more competitively, in order to better manage threats from Costco (Nasdaq: COST ) and Wal-Mart's (NYSE: WMT ) Sam's Club. The move has weighed on gross margins and overall profitability for BJ's all year. However, given its strong Q3 comps, the retailer may finally be getting some of the traction it was looking for with that strategy.
BJ's is also actively targeting consumer shoppers, letting Costco and Sam's Club duke it out over the business customer. Remodeled stores better address consumers' needs, and the company has added deli and rotisserie departments to some of its stores. BJ's has also rolled out "Life-Size" products in an attempt to reach shoppers with fewer bulk needs, and has introduced pharmacy departments at select locations.
BJ's wants to take market share from what it dubs the "less efficient forms of retail" -- that is, supermarkets and is moving gradually toward a hybrid form of warehouse club. While I respect and certainly sympathize with BJ's desire to differentiate itself from Costco and Wal-Mart, I'm not yet convinced that moving toward a supermarket/warehouse hybrid is the answer. Will people keep paying membership fees for the privilege of buying grocery-store-sized items from BJ's, with the occasional larger pack thrown in? It's not clear to me what the value-add is there.
Still, most businesses cower in the face of a Wal-Mart or Costco, and here you have BJ's dealing with both. The company is working hard to find a niche it can compete in, so that it might thrive against these two. It's innovative in its thinking, and I applaud it for that. Whether or not all the pieces will come together in the end, though, remains to be seen.
Costco is a Motley Fool Stock Advisor recommendation. And Tom Gardner has still managed to outperform the S&P 500 rather handsomely.