Shoppers looking to warehouse clubs for deals on groceries buoyed food sales at Costco Wholesale Corp. and BJ's Wholesale Club Inc., but both companies said Wednesday that sales of other items kept sliding in the downturn.
Costco reported a 27 percent drop in its fiscal second-quarter profit due largely to weak sales of products other than food and deep discounting. BJ's, meanwhile, said fiscal fourth-quarter profit rose 5 percent on strong food sales and the benefit of tax audit settlements.
Executives at Costco said the sales of food, health and beauty items were the strongest categories for the quarter, with notable growth in its in-house Kirkland Signature brand products. BJ's said food sales grew 11 percent for the quarter as shoppers gobbled up dairy, meat and prepared foods.
Shoppers have sharply restricted their spending during the economic downturn, limiting purchases to the most-essential items and even there, are keenly focused on deals. Companies like Costco and BJ's have both benefited from the trend with food sales.
"For BJ's, economic downturns create challenges and opportunities," Chief Executive Laura Sen told investors during her first conference call as CEO. "We are strategically looking to take advantages of downturn to gain market share and we are very optimistic about BJ's long-term prospects."
Costco's sales of most non-grocery items were sluggish, aside from some growth in television sales that analysts had predicted for both companies due to pricing and the upcoming digital conversion. BJ's did see some growth in television sales, but overall, merchandise sales were flat.
Issaquah, Wash.-based Costco reported that revenue slipped 1 percent for the quarter, just shy of analyst estimates. Its same-store sales dropped 3 percent for the quarter, but rose 5 percent once gasoline sales and the strong dollar's effect were excluded. Same-store sales, which compares sales at stores open at least a year, are considered a key measure of a retailer's health.
Same-store sales at the significantly smaller BJ's rose 1.7 percent for the quarter. Excluding gas, same-club sales rose 6.4 percent. Its earnings rose 5 percent to $52.7 million, or 91 cents per share for the quarter that ended Jan. 31. Revenue grew 3 percent.
Analysts were cheered by BJ's results and had expected Costco's results, as the company had warned a month earlier that it would miss estimates. But they remained cautious looking forward, given the continued impact of the economic downturn on consumer spending.
The strategies Costco and BJ's are adopting for surviving the downturn differ.
Costco said it will not abandon plans to keep the lowest possible prices for customers, adding that a focus there will earn customer loyalty in the long run even if it means a short-term hit to margins.
"The customer gets it," Chief Financial Officer Richard Gallanti told analysts. "They are in our view, they are more value-conscious than ever before."
BJ's, on the other hand, has seen its market share grow by drawing shoppers away from traditional grocers, rather than other wholesale clubs, with a mix of more fresh and prepared foods than other warehouse clubs.
The Natick, Mass.-based company, which conceded that it is not the price leader on all items, said it will increase its competition against grocers and reinvest in lower prices for customers.
Standard & Poor's Equity Research analyst Joseph Agnese reiterated a "hold" rating on Costco on Wednesday, saying while he expects margin pressure to weaken, consumer demand will remain weak. He lowered his earnings estimate and target price.
S&P was a bit more bullish on BJ's, with Agnese reiterating a "buy" rating on its shares and increasing his earnings estimate.
"We believe the company is well positioned to benefit from grocery market-share gains with its low-priced consumable offerings amid weak discretionary demand," he wrote in a note.
Shares of BJ's rose $1.98, or more than 7 percent, to close at $29.42 Wednesday. Shares of Costco rose 12 cents to close at $40.81.
Copyright 2009 AP News
