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 May 5, 2001
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 June 2,
2001: 72,893,754
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
----------------------------------------
May 5, April 29,
2001 2000
-------------- ---------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,134,172 $ 1,021,073
Membership fees and other 27,861 24,613
-------------- ---------------
Total revenues 1,162,033 1,045,686
-------------- ---------------
Cost of sales, including buying and occupancy costs 1,041,161 937,910
Selling, general and administrative expenses 84,680 77,944
Preopening expenses 278 1,743
-------------- ---------------
Operating income 35,914 28,089
Interest income, net 1,424 1,332
-------------- ---------------
Income before income taxes 37,338 29,421
Provision for income taxes 14,375 11,327
-------------- ---------------
Net income $ 22,963 $ 18,094
============== ===============
Net income per common share:
Basic $ 0.32 $ 0.25
============== ===============
Diluted $ 0.31 $ 0.24
============== ===============
Number of common shares for earnings per share computations:
Basic 72,623,411 73,637,712
Diluted 74,283,486 75,330,753
The accompanying notes are an integral part of the financial statements.
2
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
May 5, February 3, April 29,
2001 2001 2000
--------------- --------------- --------------
(Unaudited) (Unaudited)
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 87,327 $ 120,392 $ 114,725
Accounts receivable 47,443 55,250 42,243
Merchandise inventories 518,216 495,285 462,258
Current deferred income taxes 7,814 7,677 6,116
Prepaid expenses 15,542 15,967 13,672
--------------- --------------- --------------
Total current assets 676,342 694,571 639,014
--------------- --------------- --------------
Property at cost:
Land and buildings 385,318 364,418 343,417
Leasehold costs and improvements 67,251 67,565 60,288
Furniture, fixtures and equipment 335,393 331,129 288,982
--------------- --------------- --------------
787,962 763,112 692,687
Less accumulated depreciation and amortization 247,973 239,198 214,380
--------------- --------------- --------------
539,989 523,914 478,307
--------------- --------------- --------------
Property under capital leases 3,319 3,319 3,319
Less accumulated amortization 2,323 2,281 2,157
--------------- --------------- --------------
996 1,038 1,162
--------------- --------------- --------------
Other assets 19,765 14,211 11,649
--------------- --------------- --------------
Total assets $ 1,237,092 $ 1,233,734 $ 1,130,132
=============== =============== ==============
LIABILITIES
Current liabilities:
Accounts payable $ 342,459 $ 335,060 $ 347,797
Accrued expenses and other current liabilities 136,559 147,536 121,501
Accrued federal and state income taxes 16,802 31,807 11,572
Obligations under capital leases due within one year 245 240 224
--------------- --------------- --------------
Total current liabilities 496,065 514,643 481,094
--------------- --------------- --------------
Obligations under capital leases, less portion due
within one year 1,769 1,828 1,997
Other noncurrent liabilities 42,681 44,453 40,532
Deferred income taxes 7,799 7,895 8,511
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190 shares 744 744 744
Additional paid-in capital 71,656 75,583 81,300
Retained earnings 671,491 648,528 535,146
Treasury stock, at cost, 1,641,142, 1,947,341 and
597,118 shares (55,113) (59,940) (19,192)
--------------- --------------- --------------
Total stockholders' equity 688,778 664,915 597,998
--------------- --------------- --------------
Total liabilities and stockholders' equity $ 1,237,092 $ 1,233,734 $ 1,130,132
=============== =============== ==============
The accompanying notes are an integral part of the financial statements.
3
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
-------------------------------------
May 5, April 29,
2001 2000
------------- --------------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,963 $ 18,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property 14,775 12,952
Loss on property disposals 14 6
Other noncash items (net) 32 28
Deferred income taxes (233) 28
Tax benefit from exercise of stock options 9,431 5,222
Increase (decrease) in cash due to changes in:
Accounts receivable 7,807 9,755
Merchandise inventories (22,931) (15,487)
Prepaid expenses 425 1,810
Other assets (5,577) (173)
Accounts payable 7,399 1,686
Accrued expenses (534) (5,620)
Accrued income taxes (15,005) (9,234)
Other noncurrent liabilities (1,772) 2,101
------------- --------------
Net cash provided by operating activities 16,794 21,168
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (41,266) (21,681)
------------- --------------
Net cash used in investing activities (41,266) (21,681)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations (54) (49)
Proceeds from sale and issuance of common stock 7,130 4,465
Purchase of treasury stock (15,669) (7,186)
------------- --------------
Net cash used in financing activities (8,593) (2,770)
------------- --------------
Net decrease in cash and cash equivalents (33,065) (3,283)
Cash and cash equivalents at beginning of year 120,392 118,008
------------- --------------
Cash and cash equivalents at end of period $ 87,327 $ 114,725
============= ==============
Supplemental cash flow information:
Interest paid, net $ (15) $ (23)
Income taxes paid 29,613 20,533
Noncash financing and investing activities:
Treasury stock issued for compensation plans 20,497 14,350
The accompanying notes are an integral part of the financial statements.
4
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)
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
============= =========== ============ ============ =============
Balance, February 3, 2001 $ 744 $ 75,583 $ 648,528 $ (59,940) $ 664,915
Net income - - 22,963 - 22,963
Sale and issuance of common stock - (3,927) - 20,496 16,569
Purchase of treasury stock - - - (15,669) (15,669)
------------- ----------- ------------ ------------ -------------
Balance, May 5, 2001 $ 744 $ 71,656 $ 671,491 $ (55,113) $ 688,778
============= =========== ============ ============ =============
The accompanying notes are an integral part of the financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter ended May 5, 2001 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 February 3, 2001.
4. The components of interest income, net were as follows (amounts in
thousands):
Thirteen Weeks Ended
----------------------
May 5, April 29,
2001 2000
-------- ---------
Interest income $ 1,424 $ 1,332
Capitalized interest 128 132
Interest expense on debt (75) (73)
Interest on capital leases (53) (59)
-------- ---------
Interest income, net $ 1,424 $ 1,332
======== =========
5. The following details the calculation of earnings per share for the periods
presented below (amounts in thousands except per share amounts):
Thirteen Weeks Ended
----------------------
May 5, April 29,
2001 2000
-------- ---------
Net income $ 22,963 $ 18,094
======== =========
Weighted-average number of common shares
outstanding, used for basic computation 72,623 73,638
Plus: Incremental shares from assumed
exercise of stock options 1,660 1,693
-------- ---------
Weighted-average number of common and
dilutive potential common shares outstanding 74,283 75,331
======== =========
Basic earnings per share $ 0.32 $ 0.25
======== =========
Diluted earnings per share $ 0.31 $ 0.24
======== =========
6
6. The Company operated 118 clubs on May 5, 2001 versus 110 clubs on April 29,
2000.
7. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
7
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (First Quarter) Ended May 5, 2001 versus Thirteen Weeks Ended
April 29, 2000.
Results of Operations
Net sales for the first quarter ended May 5, 2001 rose 11.1% to $1.134 billion
from $1.021 billion reported in last year's first quarter. This increase was due
to the opening of new stores, a comparable store sales increase of 4.4% and an
expansion in the number of gas stations in operation from 20 at the end of last
year's first quarter to 35 at May 5, 2001. Total revenues in the first quarter
included membership fees of $25.2 million versus $21.9 million in last year's
first quarter. This year's results benefited from an increase in the membership
fee for Business and Inner Circle members from $35 to $40, effective January 1,
2001.
Cost of sales (including buying and occupancy costs) was 91.80% of net sales in
this year's first quarter versus 91.86% in the comparable period last year. This
decrease in percentage was due primarily to a favorable merchandise mix, which
reflected strong sales in a number of departments that have above average
margin. This factor more than offset the increased contribution of low margin
gasoline sales and higher expenses for utilities, which were impacted by higher
rates and colder than normal weather for much of this year's first quarter.
Selling, general and administrative ("SG&A") expenses were 7.47% of net sales in
the first quarter versus 7.63% in last year's comparable period. This percentage
decrease was attributable mainly to effective control of payroll expenses,
reduced advertising costs for new clubs (three new clubs were opened in last
year's first quarter versus none this year), and an increase in gasoline sales,
which have low related SG&A costs. SG&A also continued to benefit from the
increased use of debit cards by BJ's members, which resulted in lower credit
costs as a percentage of sales in the first quarter. (The rollout of debit card
acceptance was completed in last year's second quarter.) These favorable factors
were partially offset by higher medical benefit costs for employees.
Preopening expenses were $.3 million in the first quarter this year compared
with $1.7 million in last year's first quarter, when three new clubs opened. No
new clubs were opened in this year's first quarter.
Operating income in the first quarter rose to $35.9 million, an increase of
27.9% over last year's first quarter operating income of $28.1 million.
Interest income, net was $1.4 million in this year's first quarter versus $1.3
million in the comparable period last year.
The Company's first quarter provision for income taxes was 38.5% of pre-tax
income both this year and last year.
Net income in this year's first quarter was $23.0 million, or $.31 per diluted
share, versus $18.1 million, or $.24 per diluted share, in last year's first
quarter.
8
Over the remainder of the year, the Company expects to continue to benefit from
the membership fee increase noted above. Because members renew throughout the
year and because membership fee income is recognized over the life of the
membership, the benefit of the fee increase will be spread over a two-year
period. The income benefit in 2001 is projected to be offset by several factors.
The Company will absorb initial excess capacity costs for its new cross-dock
facility in Burlington, New Jersey, which opened in April 2001, and which has
approximately twice the capacity of the facility it replaced. Rate increases for
utilities and employee medical benefits are expected to be higher than normal
throughout 2001. Expenses are also planned in 2001 for the relocation of two
clubs and for preopening costs for clubs expected to open in early 2002.
Finally, the Company will not benefit from the impact of a 53-week fiscal year,
as it did in 2000. Taken together, these expenses have the potential to offset
the first year benefit from the membership fee increase.
The incurrence of preopening costs and advertising costs for new clubs is
projected to be heavily weighted toward the second half of the year; seven new
clubs are forecasted to open in the third quarter of this year; five new club
openings and the two relocations are expected to occur in the fourth quarter.
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 became effective at the beginning of 2001, did not have a
material impact on the Company's results of operations, financial position or
cash flows.
Liquidity and Capital Resources
Net cash provided by operating activities was $16.8 million in the first quarter
of 2001 versus $21.2 million in last year's comparable period. Cash provided by
net income before depreciation and amortization was $37.7 million in the first
quarter of 2001 versus $31.0 million in last year's comparable period.
Cash expended for property additions was $41.3 million in the first quarter of
2001 versus $21.7 million in the first quarter of 2000. The Company opened three
new clubs in last year's first quarter. No new clubs were opened in this year's
first quarter; however, all twelve of this year's scheduled new clubs are
currently under construction and the relocation of the Company's cross-dock
facility to Burlington, New Jersey, was completed during the first quarter. One
new gas station was opened in the first quarter of both this year and last year.
The Company's capital expenditures are expected to total approximately $150
million in 2001, based on plans to open approximately fourteen new clubs,
including the relocation of two clubs, and approximately 25 gas stations. The
Company expects to own five or six of the new club
9
locations opening in 2001 and also plans to spend approximately $20 to $25
million in 2001 for clubs that will open in 2002. 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 2001, the Company repurchased 359,700 shares of
common stock for $15.7 million, or an average price of $43.56 per share. On May
24, 2001, 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 24, 2001, the Company has repurchased a total of
$146.0 million of stock at an average price of $27.38 per share. Including the
new authorization, the Company's remaining repurchase authorization was $54.0
million as of May 24, 2001.
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 $3.7 million was outstanding at May 5, 2001. 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 $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $11.8 million
was outstanding at May 5, 2001, and an additional $20 million uncommitted credit
line for short-term borrowings.
Cash and cash equivalents totaled $87.3 million as of May 5, 2001 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.
10
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding membership fee income, utility costs, employee medical
benefit costs and preopening and advertising expenses, planned capital
expenditures, planned store and gas station openings and relocations 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 Inc. 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 February 3, 2001.
Any forward-looking statements represent the Company's estimates only as of the
day this quarterly report was first filed with the Securities and Exchange
Commission and should not be relied upon as representing the Company's estimates
as of any subsequent date. While the Company may elect to update forward-looking
statements at some point in the future, the Company specifically disclaims any
obligation to do so, even if its estimates change.
Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its potential exposure to market risk as of May 5,
2001 is not material because of the short contractual maturities of its cash and
cash equivalents. No bank debt was outstanding at May 5, 2001. The Company has
not used derivative financial instruments.
11
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
At the 2001 Annual Meeting of Stockholders of the Company (the "Annual
Meeting") held on May 24, 2001, the re-election of directors S. James
Coppersmith, Thomas J. Shields and Herbert J. Zarkin 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 72,791,034.
The results of the voting on the re-election of directors are set forth
below:
Votes Votes
For Withheld
---------- --------
S. James Coppersmith 65,326,464 250,321
Thomas J. Shields 65,335,892 240,893
Herbert J. Zarkin 65,335,630 241,155
The other directors of the Company, whose terms of office as directors
continued after the Annual Meeting, are Ronald R. Dion, Kerry L.
Hamilton, Bert N. Mitchell, John J. Nugent, Lorne R. Waxlax and Edward
J. Weisberger.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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 May 5,
2001.
12
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 13, 2001 /S/ JOHN J. NUGENT
-------------------------- ------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 13, 2001 /S/ FRANK D. FORWARD
-------------------------- --------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13