Should You Join BJ's Club?

BJ's (NYSE: BJ  ) , which operates a well-known wholesale club, reported second-quarter earnings yesterday. Let's bulk up on the stats.

Total sales for the three-month timeframe increased 8% to $2.3 billion. Net income from continuing operations increased 27% to $0.52 per diluted share, versus $0.41 per diluted share last year. After adjusting for a beneficial tax audit, income from continuing operations becomes $0.46 per diluted share. That diminishes the growth rate, but it was still enough to beat Wall Street's expectations.

Same-store sales growth wasn't overly dramatic, at 3.7%, but membership fees (which also include the ambiguous "other" category) did rise almost 8% for the quarter and 9% for the past six months. Warehouse clubs such as Costco (Nasdaq: COST  ) and Wal-Mart's (NYSE: WMT  ) Sam's Club love to see increases in membership-fee income, since it obviously carries a tremendous margin advantage.

As Rich Smith hoped in his Foolish Forecast, the cash flow statement yielded another attractive bit of growth. Net cash from operations jumped far more than 100% to $164.8 million, helping to generate $121.1 million in positive free cash flow, as opposed to the negative year-ago figure. Besides the cash flow, I like BJ's balance sheet as well -- the company has more cash on the books, and less long-term debt.

BJ's also foresees a better-than-expected year -- it upped its earnings outlook to between $1.75 and $1.85 per share, compared to its previous anticipated range between $1.60 and $1.70 per share. The company is trying to turn itself around right now, and it's making positive changes to inventory selections, hoping to drive increasing margins. BJ's is definitely getting interesting, and while I like the current quarter's numbers -- especially the cash flow characteristics -- I'd like to see more data next quarter on how BJ's is proceeding with its goals. I'm just not ready to join this club yet.

Check out some more articles on BJ's:

Costco is a proud member of the Motley Fool Stock Advisor recommendation list. Sign up for a free 30-day trial of the service, with no obligation whatsoever. The Gardner brothers can help you construct a long-term, wealth-building portfolio. Wal-Mart is a member of the Motley Fool Inside Value portfolio.

Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 7,827 out of more than 60,000 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool's disclosure policy buys frozen dinners by the crate.


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