FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 29, 2000
Commission file number 001-13143
BJ'S WHOLESALE CLUB, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3360747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 651-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____.
----
The number of shares of the Registrant's common stock outstanding as of May 27,
2000: 73,191,076
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
-----------------------------------
April 29, May 1,
2000 1999
--------------- ---------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,021,073 $ 858,761
Membership fees and other 24,613 20,963
--------------- ---------------
Total revenues 1,045,686 879,724
--------------- ---------------
Cost of sales, including buying and occupancy costs 937,910 786,930
Selling, general and administrative expenses 77,944 67,509
Preopening expenses 1,743 2,025
--------------- ---------------
Operating income 28,089 23,260
Interest income, net 1,332 413
--------------- ---------------
Income before income taxes 29,421 23,673
Provision for income taxes 11,327 9,303
--------------- ---------------
Net income $ 18,094 $ 14,370
=============== ===============
Net income per common share:
Basic $ 0.25 $ 0.19
=============== ===============
Diluted $ 0.24 $ 0.19
=============== ===============
Number of common shares for earnings per share computations:
Basic 73,637,712 73,822,806
Diluted 75,330,753 75,427,918
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
April 29, January 29, May 1,
2000 2000 1999
-------------- ---------------- --------------
(Unaudited) (Unaudited)
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 52,578 $ 60,437 $ 10,850
Accounts receivable 42,243 51,998 36,445
Merchandise inventories 462,258 446,771 399,930
Current deferred income taxes 6,116 5,995 8,105
Prepaid expenses 13,672 15,482 12,075
-------------- ---------------- --------------
Total current assets 576,867 580,683 467,405
-------------- ---------------- --------------
Property at cost:
Land and buildings 343,417 342,817 326,607
Leasehold costs and improvements 60,288 59,350 46,204
Furniture, fixtures and equipment 288,982 279,381 245,580
-------------- ---------------- --------------
692,687 681,548 618,391
Less accumulated depreciation and amortization 214,380 201,486 179,806
-------------- ---------------- --------------
478,307 480,062 438,585
-------------- ---------------- --------------
Property under capital leases 3,319 3,319 6,219
Less accumulated amortization 2,157 2,115 1,991
-------------- ---------------- --------------
1,162 1,204 4,228
-------------- ---------------- --------------
Other assets 11,649 11,499 11,363
-------------- ---------------- --------------
Total assets $ 1,067,985 $ 1,073,448 $ 921,581
============== ================ ==============
LIABILITIES
Current liabilities:
Accounts payable $ 285,650 $ 288,540 $ 257,732
Accrued expenses and other current liabilities 121,501 137,641 111,164
Accrued federal and state income taxes 11,572 20,806 8,518
Obligations under capital leases due within one year 224 220 206
-------------- ---------------- --------------
Total current liabilities 418,947 447,207 377,620
-------------- ---------------- --------------
Long-term debt - - 5,000
Obligations under capital leases, less portion
due within one year 1,997 2,050 2,202
Other noncurrent liabilities 40,532 38,431 34,657
Deferred income taxes 8,511 8,362 7,698
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190, 74,410,190
and 74,042,900 shares 744 744 740
Additional paid-in capital 81,300 85,958 80,727
Retained earnings 535,146 517,052 420,298
Treasury stock, at cost, 597,118, 867,370 and 281,388 shares (19,192) (26,356) (7,361)
-------------- ---------------- --------------
Total stockholders' equity 597,998 577,398 494,404
-------------- ---------------- --------------
Total liabilities and stockholders' equity $ 1,067,985 $ 1,073,448 $ 921,581
============== ================ ==============
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
------------------------------
April 29, May 1,
2000 1999
---------- ----------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,094 $ 14,370
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property 12,952 11,159
Loss on property disposals 6 35
Other noncash items (net) 28 17
Deferred income taxes 28 (348)
Increase (decrease) in cash due to changes in:
Accounts receivable 9,755 14,689
Merchandise inventories (15,487) (27,190)
Prepaid expenses 1,810 532
Other assets (173) (452)
Accounts payable (2,890) 44,030
Accrued expenses (5,620) (1,934)
Accrued income taxes (9,234) (3,239)
Other noncurrent liabilities 2,101 (271)
---------- ----------
Net cash provided by operating activities 11,370 51,398
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities - 100
Property additions (21,681) (22,743)
---------- ----------
Net cash used in investing activities (21,681) (22,643)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (49) (42)
Repayment of long-term debt - (25,000)
Purchase of treasury stock (7,186) (9,959)
Proceeds from sale and issuance of common stock 9,687 4,946
---------- ----------
Net cash provided by (used in) financing activities 2,452 (30,055)
---------- ----------
Net decrease in cash and cash equivalents (7,859) (1,300)
Cash and cash equivalents at beginning of year 60,437 12,150
---------- ----------
Cash and cash equivalents at end of period $ 52,578 $ 10,850
========== ==========
Supplemental cash flow information:
Interest paid, net $ (23) $ 49
Income taxes paid 20,533 12,890
Noncash financing and investing activities:
Treasury stock issued for compensation plans 14,350 2,598
The accompanying notes are an integral part of the financial statement.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common
Stock Additional Total
Par Value Paid-in Retained Treasury Stockholders'
$.01 Capital Earnings Stock Equity
--------- ---------- -------- -------- -------------
(Dollars in Thousands except Per Share Amount)
Balance, January 30, 1999 $ 738 $ 78,376 $ 405,928 $ - $ 485,042
Net income - - 14,370 - 14,370
Sale and issuance of common stock 2 2,351 - 2,598 4,951
Purchase of treasury stock - - - (9,959) (9,959)
--------- ---------- ---------- ---------- -------------
Balance, May 1, 1999 $ 740 $ 80,727 $ 420,298 $ (7,361) $ 494,404
========= ========== ========== ========== =============
Balance, January 29, 2000 $ 744 $ 85,958 $ 517,052 $ (26,356) $ 577,398
Net income - - 18,094 - 18,094
Sale and issuance of common stock - (4,658) - 14,350 9,692
Purchase of treasury stock - - - (7,186) (7,186)
--------- ---------- ---------- ---------- -------------
Balance, April 29, 2000 $ 744 $ 81,300 $ 535,146 $ (19,192) $ 597,998
========= ========== ========== ========== =============
The accompanying notes are an integral part of the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter ended April 29, 2000 are not necessarily
indicative of the results for the full fiscal year or any future period because,
among other things, the Company's business, in common with the business of
retailers generally, is subject to seasonal influences. The Company's sales and
operating income have historically been strongest in the fourth quarter holiday
season and lowest in the first quarter of each fiscal year.
2. The interim financial statements are unaudited and reflect all normal
recurring adjustments considered necessary by the Company for a fair
presentation of its financial statements in accordance with generally accepted
accounting principles.
3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes in the Company's Annual
Report on Form 10-K for the fiscal year ended January 29, 2000.
4. The following details the calculation of earnings per share for the periods
presented below (amounts in thousands except per share amounts):
Thirteen Weeks Ended
--------------------
April 29, May 1,
2000 1999
------- -------
Net income $18,094 $14,370
======= =======
Weighted-average number of common shares
outstanding, used for basic computation 73,638 73,823
Plus: Incremental shares from assumed
exercise of stock options 1,693 1,605
------- -------
Weighted-average number of common and
dilutive potential common shares outstanding 75,331 75,428
======= =======
Basic income per share $ 0.25 $ 0.19
======= =======
Diluted income per share $ 0.24 $ 0.19
======= =======
5. The Company operated 110 clubs on April 29, 2000 versus 96 clubs on May 1,
1999.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (First Quarter) Ended April 29, 2000 versus Thirteen Weeks Ended
May 1, 1999.
Results of Operations
- ---------------------
Net sales for the first quarter ended April 29, 2000 rose 18.9% to $1.021
billion from $859 million reported in last year's first quarter. This increase
was due to the opening of new stores, a comparable store sales increase of 6.9%
and an expansion in the number of gas stations in operation from seven at the
end of last year's first quarter to 20 at April 29, 2000. Total revenues in the
first quarter included membership fees of $21.9 million versus $18.5 million in
last year's first quarter.
Cost of sales (including buying and occupancy costs) was 91.86% of net sales in
this year's first quarter versus 91.64% in the comparable period last year. This
increase was due primarily to three factors: The first factor was the increased
contribution of gas to the Company's sales. The gross margin on gas is
significantly lower than the gross margin for the rest of BJ's business. The
second was lower sales in the Company's higher margin spring seasonal department
due to unseasonably cool weather in April. The third factor was higher costs in
several product categories that had not yet been passed on to the Company's
members at the end of the quarter. Some of these increased costs consisted of
surcharges on freight resulting from rising fuel prices.
Selling, general and administrative ("SG&A") expenses were 7.63% of net sales in
the first quarter versus 7.86% in last year's comparable period. This decrease
was attributable mainly to leveraging fixed expenses against increased
comparable store sales and a growing number of clubs and to the increase in gas
sales, which have low related SG&A costs.
Preopening expenses were $1.7 million in the first quarter this year compared
with $2.0 million in last year's first quarter. While three clubs opened this
quarter, one club opened in February and most of its preopening expenses were
incurred in the fourth quarter of last year. Last year's preopening expenses
were incurred in connection with four second quarter club openings.
Operating income in the first quarter rose to $28.1 million, an increase of
20.8% over last year's first quarter operating income of $23.3 million.
The components of interest income, net were as follows (in thousands):
Thirteen Weeks Ended
----------------------
April 29, May 1,
2000 1999
--------- --------
Interest income $ 1,332 $ 468
Capitalized interest 132 118
Interest expense on debt (73) (110)
Interest on capital leases (59) (63)
-------- -------
Interest income, net $ 1,332 $ 413
======== =======
The increase in interest income in this year's first quarter as compared to last
year's first quarter was due primarily to higher invested cash balances.
The Company's first quarter provision for income taxes was 38.5% of pre-tax
income this year versus 39.3% in last year's first quarter. This decrease was
primarily due to a lower effective state income tax rate.
Net income in this year's first quarter was $18.1 million, or $.24 per diluted
share, versus $14.4 million, or $.19 per diluted share, in last year's first
quarter.
Over the remainder of the year, the Company plans to open an additional 15 to 20
gas stations. Although the gas stations operate at a lower margin rate than the
rest of BJ's business, they have had a positive effect on club sales and
membership.
During April, the Company began the rollout of debit card acceptance, which is
expected to be operational chainwide by the end of the second quarter. The
Company believes this program will help offset the growth in credit card
processing costs it has experienced in recent years.
Seasonality
- -----------
The Company's business, in common with the business of retailers generally, is
subject to seasonal influences. The Company's sales and operating income have
historically been strongest in the fourth quarter holiday season and lowest in
the first quarter of each fiscal year.
Recent Accounting Standards
- ---------------------------
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. The adoption of
this statement, which becomes effective in 2001, is not expected to have a
material impact on the Company's results of operations, financial position or
cash flows or to produce any major changes in current disclosures.
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 was
released on December 3, 1999 and provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The implementation date for SAB 101 is during the second quarter of 2000. The
Company does not believe that the implementation of SAB 101 will have a material
effect on its results of operations, financial position or cash flows.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $11.4 million in the first quarter
of 2000 versus $51.4 million in last year's comparable period. The decrease
from last year in cash provided by operating activities was attributable mainly
to the decrease in cash provided by the change in accounts payable. Accounts
payable balances were higher than normal at the beginning of the current fiscal
year due in part to the January replenishment of inventories in categories with
millennium-related demand, much of which was paid for after the end of January.
Cash expended for property additions was $21.7 million in the first quarter of
2000 versus $22.7 million in the first quarter of 1999. The Company opened
three new clubs in this year's first
quarter. No new clubs were opened in last year's first quarter; however, four
new clubs opened in the second quarter.
The Company's capital expenditures are expected to total approximately $115
million in 2000, based on plans to open approximately ten to eleven new clubs,
relocate one club, open fifteen to twenty gas stations, and begin construction
of a new cross-docking facility to replace the current facility outside of
Philadelphia. The timing of actual club openings and the amount of related
expenditures could vary from these estimates due, among other things, to the
complexity of the real estate development process.
During the first quarter of 2000, the Company repurchased 202,000 shares of
common stock for $7.2 million, or an average price of $35.57 per share. On May
25, 2000, the Board of Directors authorized the repurchase of an additional $50
million of the Company's stock. From the inception of its repurchase activities
in August 1998 through May 25, 2000, the Company has repurchased a total of
$91.8 million of stock at an average price of $24.74 per share. Including the
new authorization, the Company's remaining repurchase authorization was $58.2
million as of May 25, 2000.
The Company has a $200 million unsecured credit agreement with a group of banks
which expires July 9, 2002. The agreement includes a $50 million sub-facility
for letters of credit, of which $3.4 million was outstanding at April 29, 2000.
The Company is required to pay an annual facility fee which is currently 0.10%
of the total commitment. Interest on borrowings is payable at the Company's
option either at (a) the Eurodollar rate plus a margin which is currently 0.25%,
(b) the agent bank's prime rate or (c) a rate determined by competitive bidding.
The facility fee and Eurodollar margin are both subject to change based upon the
Company's fixed charge coverage ratio. The agreement contains covenants which,
among other things, include minimum net worth and fixed charge coverage
requirements and a maximum funded debt-to-capital limitation, prohibit the
payment of cash dividends on the Company's common stock, and generally limit the
cumulative repurchase of the Company's common stock to $50 million plus 50% of
net income (as defined by the agreement) earned after January 30, 1998.
The Company also maintains a separate $33 million facility for letters of
credit, primarily to support the purchase of inventories, of which $3.5 million
was outstanding at April 29, 2000, and an additional $20 million uncommitted
credit line for short-term borrowings.
Increases in inventory and accounts payable from May 1, 1999 to April 29, 2000
were due primarily to the addition of new clubs.
Cash and cash equivalents totaled $52.6 million as of April 29, 2000 and there
were no borrowings outstanding on that date. The Company expects that its
current resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through the next twelve months. However,
the Company may from time to time seek to obtain additional financing.
Factors Which Could Affect Future Operating Results
- ---------------------------------------------------
This report contains a number of "forward-looking statements," including
statements regarding planned capital expenditures, planned store, gas station
and cross-docking facility openings, plans to accept debit cards chainwide and
the effect of debit cards on the Company's credit card processing costs,
exposure to market risk and other information with respect to the Company's
plans and strategies. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "estimates,"
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from those indicated
by such forward-looking statements, including, without limitation, economic and
weather conditions and state and local regulation in the Company's markets;
competitive conditions; contingent liabilities under the Company's
indemnification agreement with The TJX Companies, Inc.; and events which might
cause the Company's 1997 spin-off from Waban not to qualify for tax-free
treatment. Each of these factors is discussed in more detail in the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 2000.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company believes that its potential exposure to market risk as of April 29,
2000 is not material because of the short contractual maturities of its cash and
cash equivalents. No bank debt was outstanding at April 29, 2000. The Company
has not used derivative financial instruments.
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the 2000 Annual Meeting of Stockholders of the Company (the "Annual
Meeting") held on May 25, 2000, the re-election of Kerry L. Hamilton,
Bert N. Mitchell and John J. Nugent was acted upon by the stockholders
of the Company.
The number of shares of common stock outstanding and entitled to vote
at the Annual Meeting was 73,692,370. The other directors of the
Company, whose terms of office as directors continued after the Annual
Meeting, are S. James Coppersmith, Ronald R. Dion, Thomas J. Shields,
Lorne R. Waxlax, Edward J. Weisberger and Herbert J. Zarkin.
The results of the voting on the re-election of directors are set forth
below:
Votes Votes
For Withheld
---------- ---------
Kerry L. Hamilton 62,843,146 1,001,236
Bert N. Mitchell 63,514,676 329,706
John J. Nugent 62,847,525 996,857
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended April
29, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BJ'S WHOLESALE CLUB, INC.
-------------------------
(Registrant)
Date: June 9, 2000 /s/ JOHN J. NUGENT
----------------- -------------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 9, 2000 /s/ FRANK D. FORWARD
---------------- -------------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)