I'd imagine that investors in and customers of BJ's Wholesale Club (NYSE: BJ ) have pretty different views of the company. From Wall Street's point of view, after all, BJ's -- the stock -- has been soundly trouncing both of its primary Main Street competitors, Costco (Nasdaq: COST ) and Wal-Mart (NYSE: WMT ) , for a while now.
Then again, longer-term investors might well agree with BJ's customers that the company is simply not playing in the same league as its rivals. Speaking as a customer myself, I'm firmly in the long-term investors' camp. Our BJ's in Alexandria, Virginia, has to be one of the worst-run businesses I've ever patronized. The store lies in perpetual disarray, the employees are surly and few, and on any given shopping trip, customers are treated to a combination of as many as three mental games: "guess the price," "guess where we've hidden the ice cream," and the ever-popular companion game, "guess whether we moved the ice cream, or just never got around to ordering any."
Based on the poor quality of the local BJ's, from an investor's point of view, I can only marvel at the impressive performance of both the company's profits and its stock over the past year. It seems to me that BJ's must be in a never-ending race to cut costs faster than its cost-cutting drives customers away to its better-run competitors.
On the other hand, it could just be that our local BJ's is the exception to the rule prevailing elsewhere in the chain -- because, however the company is doing it, it's so far winning the profits race. When it last reported earnings in November, BJ's was able to boast of a year-on-year, 15-basis-point rise in its net margins to 1.27%. Now 15 basis points isn't much in most industries -- but when it comes to the ultra-low margin wholesale business, it can do wonders in translating rising revenues into profits. And year-to-date, BJ's has boosted its profits per diluted share by 22% on just an 11% rise in revenues. Obviously, something is working. And the stock? That's done pretty nicely too, outperforming the S&P 500 by a wide margin and rising 26% over the past year.
Tomorrow, we'll see whether BJ's kept its juggling act going for the three months needed to close out a truly successful year. The company pretty much gave away the ending to this story earlier this month, when it reassured investors that its margins remained strong and preannounced earnings in the range of $0.69 to $0.73 per share. So with luck, the only surprise BJ's investors will receive tomorrow will be to learn that earnings landed in the upper end of that range.
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Fool contributor Rich Smith owns no shares of any company mentioned in this article.
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