BJ's Wholesale Club ( BJ) has delivered one of the more disappointing earnings "beats" you'll see, coming off a drop in traffic and membership renewals. The warehouse club chain announced Tuesday that it beat estimates by 3 cents, on earnings of 77 cents per share vs. the consensus of 74 cents. However, nearly 2 cents of the beat came from lower bonus costs (due to a failure to meet internal goals), and 3 cents came from a lower share count. Excluding lower bonus costs, operating income would have actually declined. Highlights of the quarter included a 12% gain in private brand sales and strength in fresh food. My biggest bone to pick with BJ's is the declining traffic. In the fourth quarter, traffic dropped by 3%. In 2005, membership renewals dropped 1% for both business customers and consumers. The company recently instituted a $5 membership fee increase, which could further negatively affect renewals. Traffic has declined on a monthly basis since August, and, not surprisingly, merchandise sales have also been tracking negatively. The chart below shows the trend of same-store sales (excluding gas) and traffic. It says everything you need to know about BJ's. Management's goals for 2006 are to correct those trends. The company will put more resources into advertising, including newspapers and television, to draw traffic. It also hopes to create more of a "treasure hunt" feel to its stores, something for which rival Costco ( COST) is well known. Another one of the remedies that BJ's hopes to incorporate is a wider variety of quality and price points for general-merchandise items. The CEO seemed especially enthusiastic about his company's offerings of 1,000-thread-count sheets and patio furniture. The strategy makes sense. And while management certainly said the right things, I'm skeptical that it will be able to execute. This management team has done little to earn my confidence up to this point. An example of poor execution is the company's ProFoods Restaurant Supply venture.