BJ's Wholesale Club
First, let's look at the earnings numbers that BJ's would like us to focus on -- the ones that adjust out these onerous one-time charges. Using these adjusted numbers, the company reported $1.59 a share in earnings this year against last year's $1.84. GAAP results are a less impressive $1.08 against last year's $1.87.
Unfortunately, a lot of the one-time items company would like us to overlook represent charges to close or abandon operations in which the company previously invested to pursue. They're not from a natural disaster or a one-off tax event. These include $0.23 in ProFoods closing expense, $0.07 in asset impairments, and $0.06 in pharmacy closing expense. Taking these charges is likely the right decision for BJ's, but I'm not buying into giving them a free pass.
Same-store sales for the year increased 1.2%, with 0.7% of that boost coming from gasoline sales, but income from continuing operations declined 31%. Some of the mentioned one-time charges are included in these results, but it's clear that BJ's wouldn't have reported much better than flat results.
Still, BJ's isn't a total loss. It does have a strong franchise in the Northeast, but its overall performance clearly does not compare with that of Costco
BJ's also has a strong balance sheet, and its operating cash flows are still healthy. However, free cash flow is nonexistent, because the company spent heavily on expanding its business. In total, BJ's spent 55% more on capital expenditures this year than last.
The capital expenditures bring us full circle on BJ's. Even if you look at income from continuing operations and adjust out the one-time items, it's hard to justify the returns on the increased investment so far. That's a problem for investors. Rumors of a buyout have been floating around for a while, but if a buyout is the primary investment thesis, I have a tough time buying into it at current prices.
For more on warehouse retailing, check out:
- BJ's Wholesale Club: Buyout Rumors Still Buzzing
- Costco's Sales Delight
- The Best Retail Stock for 2007: Costco
At the time of publication, Nathan Parmelee owned shares in Costco and had a beneficial interest in shares of Wal-Mart. He had no financial interest in any of the other companies mentioned -- but that's nothing personal. He was ranked 164th out of 23,636 Motley Fool CAPS investors. The Motley Fool has an ironclad disclosure policy.