BJ's Preview: Beware Falling Food Prices

BJ's Wholesale is set to report its second-quarter earnings tomorrow. Here is a sneak-peak at what to expect.
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BJ's Wholesale Club

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sure hopes shoppers are hungry, relying, as it is, on food products to drive sales and profits in the second quarter.

But the company's focus on groceries may not yield the results it was hoping for when it releases its second-quarter report on Wednesday.

What's already known is that the preliminary same-store sales in the quarter tumbled 7.7%, which includes a 10.6% plunge in fuel. Gasoline sales were dismal during the current quarter due to higher prices at the pump last year.

While, excluding fuel, comparable sales rose 2.9%, this was still below management's guidance of a 4% to 6% increase.

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Discretionary items like furniture and electronics weighed on sales, but food deflation in meat, dairy and produce also contributed to weaker-than-expected sales.

Indeed, as BJ's heavier emphasis on food and consumable items has helped the company perform well during the recession, as food prices fall, it might prove harder for the company to retain its edge.

Analysts are looking for earnings of 62 cents a share on revenue of $2.56 billion, in line with management's forecast of 60 cents to 64 cents a share.

This compares with a profit of $34.50 million, or 58 cents a share, on revenue of $2.67 billion, in the comparable quarter last year.

Last week J.P. Morgan analyst Charles Grom downgraded the company to neutral from overweight, saying BJ's may not be able to overcome declining food prices. He expects same-store sales to continue to suffer in the second half, but did note that traffic is growing.

Scott Rothbort , contributor to, said

when it comes to BJ's he is waiting on the sidelines

. Rothbort said the company is poised for future growth and is slowly gaining on competition like

Costco Wholesale

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Sam's Club.

Shares of BJ's were up 2% to $31.06 in afternoon trading. The company has traded between $27.26 and $43.06 during the latest 52-week period.

-- Reported by Jeanine Poggi in New York.

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