BJ's Billions (Fool Plate Special) August 17, 1999

An Investment Opinion

BJ's Billions

By Rick Aristotle Munarriz (TMF Edible)
August 17, 1999

Who would have dreamed that patrons would flock towards the rustic charm of shopping for food and discounted wares under exposed beams and rolling forklifts? Warehouse club pioneers like BJ's Wholesale Club (NYSE: BJ), Costco (Nadsaq: COST), and Wal-Mart's (NYSE: WMT) Sam's Club dared to live the dream and today are grocery-peddling behemoths.

This morning BJ's reported its 25th consecutive quarter of higher operating income. The milestones have been piling pallet-high for BJ's. For the July quarter, the company broke the billion-dollar mark in quarterly revenues. The chain also recently opened its 100th store.

In reporting $0.34 a share for July -- versus $0.27 the year before -- the company also showed other signs of strength. Margins improved. Same-store sales rose 7.5%. Shareholders have enjoyed the fruits of BJ's labor (beyond the actual eye-catching produce displays). The stock has doubled off of October's lows; it split 2-for-1 back in March. For a cash-rich company with no long-term debt, BJ's represents a new breed of the typically leveraged-to-the-hilt retail supermarket chain.

The warehouse concept has evolved. While membership fees continue (though they accounted for just 2% of BJ's revenues last year) they have made strides in pleasing the customer. Once "Cash or Checks Only" BJ's began accepting Visa two years ago. Last year the chain put out its own co-branded MasterCard. That is in line with Costco's partnership with American Express (NYSE: AXP) announced earlier this month.

While opting for plastic beyond paper could have hurt margins, that has not been the case for the warehouse clubs. For BJ's, Selling, General & Administrative expenses have run a rock solid 7.3% each of the last three years. The margin improvement beyond the added credit card enabling costs has been a tribute to the genre's ability to control costs and edge prices higher while still outdrawing its past performance. BJ's is storming forward -- in bulk.