Over on Comedy Central, professional smart-aleck David Spade has a little thing going called The Showbiz Show. It's gone downhill over the last couple of seasons, but back when it was good, one of the things that made it good was a segment Spade called "While You Were Working."
To help keep us up to speed on Hollywood gossip, Spade developed this segment to recap the Hollywood trivia of each past week in a couple minutes of fast-paced banter. Why do I mention this? Because here at the Fool, we also know that you've got lives. And between working while the sun shines, and watching The Showbiz Show when it doesn't, you probably don't have time to keep up with all the goings-on on Wall Street -- company "investor conferences" for one.
Why the quotation marks?
While these conferences are ostensibly put on to benefit you, the investor, companies know darn well that you don't have the time to listen to the webcasts, much less actually attend the darn things. Yet it's rare that they take the time to transcribe the events and submit them to the SEC as 8-K filings, letting you actually know what went on while you were, you know, working. That's where the Fool comes in -- and more specifically, the raison d' etre of our "Fool on the Street" series.
In today's segment, we're going to recap the news from mega-wholesaler BJ's (NYSE:BJ) Retailing Leaders Conference, held March 21 and hosted by megabank Merrill Lynch. As usual in these kinds of presentations, CEO Herb Zarkin and CFO Frank Forward touched on a number of subjects. To keep this short and sweet, and help you make the best use of your reading time, I'll focus on the three most important topics, in nice, bite-size segments.
Dissing the competition
Pop quiz: When you think of BJ's, who do you think its chief rivals should be?
If you say Costco (NASDAQ:COST) and Wal-Mart's (NYSE:WMT) Sam's Club, well, you've made the logical choices. Unfortunately, they're also wrong, according to management. While these two giants of the warehouse-store industry pose the clearest threat to BJ's business, Zarkin all but writes them off. Arguing that BJ's grew its annual sales at an annual rate of 9.3% over the last five years, while the wholesale club industry as a, er, whole grew at just 8.9%, Zarkin gives the impression of a man firmly convinced that his business is best-in-class.
However, the numbers don't really support that view. Turning to the Fool's data provider, Capital IQ, to fact-check Zarkin's assertions, I found that over the last five years, BJ's has actually seen the slowest growth of the big three, posting annual sales growth of 10.2% to Costco's 11.2% and Wal-Mart's 11.3%.
Public enemy No. 1
But enough quibbling over facts. We were discussing BJ's corporate spin. After spinning away the threat from its uber-rivals, BJ's management moved on to clearly lay out its own view of its main rival. When it comes to targets in this company's corporate sights, your friendly neighborhood supermarket sits front and center.
According to Zarkin, next to the thrill of the "treasure hunt," the key thing that gets customers flowing through BJ's doors is low prices. By selling a "narrow assortment of first-quality brand-name merchandise within a very broad range of food and general merchandise categories," BJ's aims to sell just a very few items within any given category, but at significant discounts to what the competition is charging. Naming names, Zarkin argues that his stores offer savings of "as much as 30% [versus prices found at] some category specialty large guys such as Best Buy (NYSE:BBY), PetSmart (NASDAQ:PETM), Toys "R" Us, [and] Dick's Sporting Goods (NYSE:DKS)."
Sound good? Well, hold on to your shopping cart, because the (alleged) savings get even better when BJ's compares itself to what supermarkets are charging you. "On a basket of like items," says Zarkin, "BJ's members save as much as 30% to 50%" when shopping for groceries at BJ's as opposed to, say, Safeway (NYSE:SWY). Impressive. Savings like these, according to BJ's, lie behind the statistics cited by retail consultancy Management Ventures Inc., which reports that supermarkets have lost 5% of their market share among grocery shoppers over the last five years, and now command just 62% of the $720 billion "U.S. food and consumable market."
Hoping to kick its opponents while they're down, BJ's aims to steal further market share from the supermarkets. Zarkin cited several initiatives in this area, ranging from increasing the "quality and space allocation" of perishable food items in its stores, to improving the number of items it sells in packages so small you don't even need a forklift to take them home.
Bottom line
Moving from strategy to what BJ's hopes to gain from implementing it, CFO Forward came on toward the end of the presentation to lay out some guidance for us. Specifically, BJ's aims to open eight to 10 new stores every year long-term, resulting in annual square footage growth of 5% to 7%. By the end of this year, the company expects to have about 180 stores running. Within those stores, Forward hopes to achieve same-store sales increases of 2% to 4% per year, every year for the foreseeable future.
Add to this mix of revenue growth a desire to expand the firm's gross margin by about 10 basis points per year (that's 0.1% to you and me). Stir well, then decant a few million shares as a result of the firm's continued stock buybacks. Result: Forward thinks investors can expect to see long-term earnings-per-share growth in the neighborhood of 10% to 15%.
Foolish takeaway
So there you have it, folks. We report, you decide ... whether you're willing to pay 31 times trailing earnings for a firm that thinks it can grow 15% per year, at best .
Costco, Best Buy, and PetSmart are all Motley Fool Stock Advisor newsletter recommendations. To find out why the newsletter is outperforming the market so handily, join us today by signing up for a free 30-day trial.
Fool contributor Rich Smith has no position in any of the companies mentioned in this article. If he did, The Motley Fool would require him to tell you so. We're sticklers about things like that. Wal-Mart is a Motley Fool Inside Value recommendation.
