BJ’s Hurt in Q2 by Weaker TV Sales, Pricing Pressure from Wal-Mart

BJ’s Wholesale Club was hurt by weak TV sales in Q2 ended July 31, the company said Wednesday. BJ’s shares fell 2.75 percent or $1.19 after it reported results for Q2 2009 that were stronger than Q2 2009 but weaker than analysts’ estimates and the company slashed its fiscal year forecast.

Traffic increased 4 percent from Q2 2009, but the average dollar amount on each sale in Q2 dipped about 1 percent due to “competitive forces and difficult comparisons to strong sales of TVs last year,” Chief Financial Officer Frank Forward said in an earnings call. Comparable club TV sales fell about 25 percent from Q2 last year, when TV sales were given a lift from the transition to digital TV, he said. Target reported a similar trend on Wednesday.

Q2 profit increased to $35.8 million, 67 cents per share, from $35.1 million, 64 cents, in Q2 last year. Revenue increased 8.6 percent to $2.7 billion, while comparable club sales increased 4.4 percent. Excluding gasoline, merchandise comparable club sales increased 2.9 percent.

BJ’s now expects to report profit of $128.5-$134.5 million, $2.40-$2.50 per share, on an 8-10 percent increase in sales for the fiscal year ending Jan. 29, down from its prior forecast of $136.9-$141.9 million in profit, $2.58-$2.68 per share, on a 9.2-11.2 percent increase in sales.

The company plans to open nine more clubs by the end of this fiscal year, including one relocation, one more than originally planned, CEO Laura Sen said. Of the new locations, three will be its new 85,000-square-foot prototype and the rest will be about 120,000 square feet each, she said. It plans to open two new clubs in Q3: One each in Maryland and Virginia. It plans to open four new clubs in Q4: One each in Brooklyn, N.Y.; Massachusetts; Delaware and Connecticut, she said.

Target, meanwhile, said profit for Q2 ended July 31 increased to $679 million, 92 cents per share, from $594 million, 79 cents, in Q2 last year. Sales grew 3.8 percent to $15.1 billion due to new store openings and a 1.7 percent increase in comparable store sales, it said.

CE, videogames and packaged movie and music demand “softened noticeably” at Target and its rivals in Q2, Kathryn Tesija, executive vice president of merchandising at Target, said in an earnings call. “While some interpret this trend as a sign that consumers are pulling back on discretionary purchases, we believe it’s also related to product life cycle stages in these categories,” she said. For example, TV sales faced a “daunting comparison” to last year’s transition to digital TV, she said. Videogame hardware platforms “are as mature as they've ever been, and a weaker new release schedule led to softer sales,” she said. She predicted the trends “will begin to moderate in the fall as we move beyond the digital conversion” and as new videogame product “creates interest and spurs sales."

The current recovery “will be slow and inconsistent,” Target CEO Gregg Steinhafel said. Customers were “still cautious,” but Target was “encouraged that we continue to see” such trends as “strong traffic” and “strong market share gains” in various categories, he said. The company plans to open 10 stores in Q3 and a net total of 10 stores, factoring in relocations and closings, overall this year, he said. Twenty or more new store openings are planned for 2011 and more than 30 for 2012, he said.

Improvements in Target’s CE and videogame departments, among other sections, continue, Steinhafel said. The updates are “leading to greater cross-shopping” by customers, in addition to increased traffic, Tesija said.