Attention, big-box shoppers. Next up in the earnings parade is BJ's Wholesale Club (NYSE:BJ). BJ's reports fourth-quarter and full-year 2006 numbers Wednesday morning.

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts follow BJ's, which garners four buy ratings, 11 holds, and a pair of sells.
  • Revenues. On average, they expect to see 12.6% quarterly sales growth to $2.42 billion.
  • Earnings. Profits, in contrast, are predicted to slide 16% to $0.66 per share.

What management says:
Over the three months since it last reported earnings, BJ's has issued a pair of interesting press releases. First, it announced the closure of two ProFoods Restaurant Supply clubs and the repeal of its recent initiative to set up in-club pharmacies. The twin restructuring efforts will be complete by the time you read this and will subtract as much as $41 million in pre-tax profits from Wednesday's results. Another $7 million in pre-tax charges will come from severance costs associated with executive departures. From a cash-flow perspective, the company expects to make about $24.3 million in cash outlays.

One-time charges aside, the company had some good operational news to report last month. Over the course of the year, it experienced a same-store-sales rise of 1.2%, which accelerated to 1.5% in Q4, which in turn accelerated to 3.5% in January.

What management does:
Profitability, however, has remained pretty much stagnant -- or actually declined. Whether you focus on gross, operating, or net margins, they've all been dropping over the past few quarters. Our hope is that perhaps tomorrow's good sales news will turn this trend around.

Margins

7/05

10/05

1/06

4/06

7/06

10/06

Gross

10.4%

10.4%

10.4%

10.4%

10.3%

10.3%

Operating

2.4%

2.4%

2.6%

2.5%

2.5%

2.3%

Net

1.6%

1.6%

1.6%

1.6%

1.5%

1.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

The Fool says:
The last time I looked closely at BJ's, I came away "unimpressed by BJ's business ... relative to those of its primary competitors, Costco (NASDAQ:COST) and Wal-Mart (NYSE:WMT) ... [because] BJ's has the lowest gross, operating, and net margins of the three." Three quarters after I wrote those words, the situation appears unchanged. BJ's remains the lowest-margin operation of the three, and its situation is getting worse, not better.

Reviewing the numbers from the last couple of quarters, we've seen companywide sales rise 4.4% in comparison to last year. Meanwhile, cost of goods sold edged out that growth rate by 20 basis points, and selling, general, and administrative costs by 150 basis points. Meanwhile, the company continues to grow its inventories faster than sales, at about 6% -- an indication of lackluster demand for what BJ's has to offer.

As a BJ's customer myself, I can't help noticing that my personal experience jibes well with the corporate numbers. The BJ's store closest to me does a pretty lousy job of customer service; food items are often sold out, mispricing or actual lack of pricing on items is common, and there's a perpetual logjam at the mostly-unmanned checkout stands. While one location's problems, viewed in isolation, do not a companywide disaster make, you'd expect disgruntled customers (which depresses sales) and unsold goods (which yields higher inventories) if the problem is widespread. And that's precisely what the company's income statements and balance sheets are showing.

What was BJ's stocking last quarter? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.