It hasn't been a great year for BJ's Wholesale Club (NYSE:BJ). The company is by no means hurting, but its results have been inconsistent, and many investors absolutely hate it when a company cuts its guidance.
The third-quarter results from BJ's weren't too bad. Problem is they weren't too good, either, and decidedly mediocre results don't get me excited unless a stock is really undervalued. The year-over-year highlights can be found in the Fool by Numbers I put together yesterday.
The positive aspects to the quarter were that the company continues to buy back its shares in the $27 range and that its working capital management remains in line with its growth.
The negatives here are a bit more onerous. During the quarter, the company's comparable-store sales were essentially flat, and they're not much better through the first nine months of the year. There's a good deal of variation in those comparable sales numbers this quarter, depending on the region. New England, the Southeast, and the Mid-Atlantic States have been weak, but upstate New York and metro New York were strong. Also a bit disconcerting in the comparable-store sales mix is the fact that traffic in the stores is off 1%, while the total check is up 2%.
Motley Fool Stock Advisor selection Costco (NASDAQ:COST) and Motley Fool Inside Value selection Wal-Mart's (NYSE:WMT) Sam's Club have also had weakening comparable-store sales recently. But both are better operators, and a bit more profitable than BJ's, because of their faster inventory turns and slightly higher margins.
This is the conundrum for a BJ's investor. It's a good company that generates plenty of operating cash flow, which, during times when the company isn't expanding, means plenty of free cash flow as well. Unfortunately, the company has a spotty history with earning solid returns on its expansion in the Northeast. That said, the cash flow the existing stores generate is absolutely valuable and, at the right price, worth an investment.
To have a reasonable margin of safety, I'd get curious if the share price were in the $25 range. In the meantime, I'm inclined to wait and see how the company's newer stores perform before assuming that the recent round of expansion capital spending will deliver better benefits than past expansion efforts.
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At the time of publication, Nathan Parmelee owned shares in Costco and had a beneficial interest in shares of Wal-Mart, but had no interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
