Shares of wholesale club operator BJ's Wholesale Club
BJ's, which currently operates 150 warehouse clubs and 78 gas stations in the eastern U.S., has a smaller presence (in terms of store count) than do key peers Costco
The top-line figures bear this out best. Full-year net sales rose 15% to $6.58 billion, helped by same-store sales growth of nearly 8%. Revenue from membership fees also improved -- but by a slower rate, perhaps suggesting that existing shoppers were more loyal in fiscal 2004.
Moving down the income statement, however, things aren't as pretty. Cost of goods sold as a proportion of net sales (which excludes membership fees) fell year over year, but improved gross margins couldn't power higher net profit. SG&A expense increased and operating income fell. In the end, net income fell some 20% -- slightly more if accounting changes made during 2003 are taken into account -- to $104 million. That figure looks better if post-tax gains connected with certain lease liabilities are removed from both fiscal years.
There is more good news, however. Cash from operations came in well ahead of reported net income, and BJ's did generate more free cash flow than it did last year even as net income fell and capital expenditures rose. Same-store sales were up nearly 8% in February, and management is projecting a return to net income growth this year.
All this has helped BJ's shares outpace the S&P 500 -- not to mention Wal-Mart and Costco -- over the last 12 months, indicating that investors are standing behind the company's efforts to compete with the "big boys."
Talk about the battle for wholesale customers in our BJ's Wholesale Club discussion board.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article. He can be reached via email.
