<PAGE>
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 July 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 August
26, 2000: 72,443,069
<PAGE>
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------
July 29, July 31,
2000 1999
------------- ------------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C>
Net sales $ 1,177,253 $ 1,015,039
Membership fees and other 24,975 21,877
------------- -------------
Total revenues 1,202,228 1,036,916
------------- -------------
Cost of sales, including buying and occupancy costs 1,070,962 922,680
Selling, general and administrative expenses 79,904 70,577
Preopening expenses 1,981 2,630
------------- -------------
Operating income 49,381 41,029
Interest income, net 1,384 695
------------- -------------
Income before income taxes 50,765 41,724
Provision for income taxes 19,545 15,940
------------- -------------
Net income $ 31,220 $ 25,784
============= =============
Net income per common share:
Basic $ 0.43 $ 0.35
============= =============
Diluted $ 0.42 $ 0.34
============= =============
Number of common shares for earnings per share computations:
Basic 72,904,873 73,700,932
Diluted 74,380,427 75,444,238
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------------
July 29, July 31,
2000 1999
------------ ------------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C>
Net sales $ 2,198,326 $ 1,873,800
Membership fees and other 49,588 42,840
------------ ------------
Total revenues 2,247,914 1,916,640
------------ ------------
Cost of sales, including buying and occupancy costs 2,008,872 1,709,610
Selling, general and administrative expenses 157,848 138,086
Preopening expenses 3,724 4,655
------------ ------------
Operating income 77,470 64,289
Interest income, net 2,716 1,108
------------ ------------
Income before income taxes 80,186 65,397
Provision for income taxes 30,872 25,243
------------ ------------
Net income $ 49,314 $ 40,154
============ ============
Net income per common share:
Basic $ 0.67 $ 0.54
============ ============
Diluted $ 0.66 $ 0.53
============ ============
Number of common shares for earnings per share computations:
Basic 73,271,293 73,761,869
Diluted 74,858,429 75,447,527
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 29, January 29, July 31,
2000 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 41,972 $ 60,437 $ 40,834
Accounts receivable 50,799 51,998 40,117
Merchandise inventories 473,207 446,771 411,244
Current deferred income taxes 6,238 5,995 8,351
Prepaid expenses 14,219 15,482 12,594
------------ ------------ ------------
Total current assets 586,435 580,683 513,140
------------ ------------ ------------
Property at cost:
Land and buildings 350,106 342,817 324,328
Leasehold costs and improvements 61,787 59,350 47,431
Furniture, fixtures and equipment 303,556 279,381 255,473
------------ ------------ ------------
715,449 681,548 627,232
Less accumulated depreciation and amortization 227,356 201,486 190,878
------------ ------------ ------------
488,093 480,062 436,354
------------ ------------ ------------
Property under capital leases 3,319 3,319 6,219
Less accumulated amortization 2,198 2,115 2,032
------------ ------------ ------------
1,121 1,204 4,187
------------ ------------ ------------
Other assets 12,286 11,499 11,932
------------ ------------ ------------
Total assets $ 1,087,935 $ 1,073,448 $ 965,613
============ ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 313,303 $ 288,540 $ 283,390
Accrued expenses and other current liabilities 115,307 137,641 109,159
Accrued federal and state income taxes 17,557 20,806 9,079
Obligations under capital leases due within one year 229 220 210
------------ ------------ ------------
Total current liabilities 446,396 447,207 401,838
------------ ------------ ------------
Obligations under capital leases, less portion
due within one year 1,942 2,050 2,153
Other noncurrent liabilities 43,460 38,431 37,425
Deferred income taxes 8,660 8,362 7,597
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190, 74,410,190
and 74,152,588 shares 744 744 742
Additional paid-in capital 80,742 85,958 81,987
Retained earnings 566,366 517,052 446,082
Treasury stock, at cost, 1,974,923, 867,370 and 445,160 shares (60,375) (26,356) (12,211)
------------ ------------ ------------
Total stockholders' equity 587,477 577,398 516,600
------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,087,935 $ 1,073,448 $ 965,613
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------
July 29, July 31,
2000 1999
--------- ----------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,314 $ 40,154
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property 26,121 22,593
Loss on property disposals 49 79
Other noncash items (net) 54 34
Deferred income taxes 55 (695)
Increase (decrease) in cash due to changes in:
Accounts receivable 1,199 11,017
Merchandise inventories (26,436) (38,504)
Prepaid expenses 1,263 13
Other assets (833) (1,033)
Accounts payable 24,763 69,688
Accrued expenses (11,056) (737)
Accrued income taxes (3,249) (2,678)
Other noncurrent liabilities 5,029 2,497
--------- ----------
Net cash provided by operating activities 66,273 102,428
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities - 100
Property additions (45,401) (35,164)
Proceeds from property disposals 5 13
--------- ----------
Net cash used in investing activities (45,396) (35,051)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (99) (87)
Repayment of long-term debt - (30,000)
Purchase of treasury stock (49,772) (16,472)
Proceeds from sale and issuance of common stock 10,529 7,866
--------- ----------
Net cash used in financing activities (39,342) (38,693)
--------- ----------
Net increase (decrease) in cash and cash equivalents (18,465) 28,684
Cash and cash equivalents at beginning of year 60,437 12,150
--------- ----------
Cash and cash equivalents at end of period $ 41,972 $ 40,834
========= ==========
Supplemental cash flow information:
Interest paid, net $ (27) $ 104
Income taxes paid 34,066 28,616
Noncash financing and investing activities:
Treasury stock issued for compensation plans 15,753 4,261
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common
Stock Additional Total
Par Value Paid-in Retained Treasury Stockholders'
$.01 Capital Earnings Stock Equity
--------- ---------- -------- -------- ------------
(Dollars in Thousands except Per Share Amount)
<S> <C> <C> <C> <C> <C>
Balance, January 30, 1999 $ 738 $ 78,376 $ 405,928 $ - $ 485,042
Net income - - 40,154 - 40,154
Sale and issuance of common stock 4 3,611 - 4,261 7,876
Purchase of treasury stock - - - (16,472) (16,472)
--------- ---------- ----------- ---------- -----------
Balance, July 31, 1999 $ 742 $ 81,987 $ 446,082 $ (12,211) $ 516,600
========= ========== =========== ========== ===========
Balance, January 29, 2000 $ 744 $ 85,958 $ 517,052 $ (26,356) $ 577,398
Net income - - 49,314 - 49,314
Sale and issuance of common stock - (5,216) - 15,753 10,537
Purchase of treasury stock - - - (49,772) (49,772)
--------- ---------- ----------- ---------- -----------
Balance, July 29, 2000 $ 744 $ 80,742 $ 566,366 $ (60,375) $ 587,477
========= ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter and six months ended July 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):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $31,220 $25,784 $49,314 $40,154
======= ======= ======= =======
Weighted-average number of common
shares outstanding, used for basic
computation 72,905 73,701 73,271 73,762
Plus: Incremental shares from assumed
exercise of stock options 1,475 1,743 1,587 1,686
------- ------- ------- -------
Weighted-average number of common
and dilutive potential common shares
outstanding 74,380 75,444 74,858 75,448
======= ======= ======= =======
Basic income per share $ 0.43 $ 0.35 $ 0.67 $ 0.54
======= ======= ======= =======
Diluted income per share $ 0.42 $ 0.34 $ 0.66 $ 0.53
======= ======= ======= =======
</TABLE>
5. The Company operated 111 clubs on July 29, 2000 versus 100 clubs on July 31,
1999.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Second Quarter) and Twenty-Six Weeks Ended July 29, 2000 versus
Thirteen and Twenty-Six Weeks Ended July 31, 1999.
Results of Operations
---------------------
Net sales for the second quarter ended July 29, 2000 rose 16.0% to $1.2 billion
from $1.0 billion reported in last year's second quarter. Net sales for the
first half of the year totaled $2.2 billion, 17.3% higher than last year's
comparable period. These increases were due to the opening of new stores,
comparable store sales increases of 5.5% in the second quarter and 6.1% year-to-
date, and an expansion in the number of gas stations in operation from nine at
July 31, 1999 to 24 at July 29, 2000. Sales levels during this year's second
quarter were affected by unseasonably cool and rainy weather. Conversely, warm
weather conditions prevailed during last year's second quarter, which helped to
produce strong sales of air conditioners, fans and other summer seasonal
merchandise. Total revenues in the second quarter included membership fees of
$22.3 million versus $19.5 million in last year's second quarter. Year-to-date
membership fees were $44.2 million versus $38.1 million last year.
Cost of sales (including buying and occupancy costs) was 90.97% of net sales in
this year's second quarter versus 90.90% in the comparable period last year.
For the first six months, the cost of sales percentage was 91.38% this year
versus 91.24% last year. These increases were primarily due to a combination of
three factors: One factor was the increased contribution of gas to the
Company's sales. The gross margin on gas is significantly lower than the
overall gross margin for the rest of BJ's business. Another factor was weaker
sales of higher margin seasonal merchandise this year as compared to last year,
when ideal weather conditions drove strong seasonal merchandise sales. A third
factor was a modest increase in occupancy costs as a percentage of sales this
year, resulting from the opening of a large number of new clubs over the past
several quarters. Sales levels in new clubs typically start below the chain
average and grow over time. Partially offsetting these factors were strong
sales in a number of other product categories which have higher-than-average
gross margins, particularly fresh meat and bakery, apparel and jewelry.
Selling, general and administrative ("SG&A") expenses were 6.79% of net sales in
the second quarter versus 6.95% in last year's comparable period. Year-to-date
SG&A expenses were 7.18% of net sales this year versus 7.37% last year. These
decreases were attributable mainly to leveraging fixed expenses against
increased comparable store sales and sales from new clubs, the increase in gas
sales, which have low related SG&A costs, and effective control of payroll
costs. The Company also completed its rollout of debit card acceptance in the
second quarter, which helped to slow the growth rate of credit costs experienced
in recent years.
Preopening expenses were $2.0 million in the second quarter this year compared
with $2.6 million in last year's second quarter. Year-to-date preopening
expenses totaled $3.7 million this year versus $4.7 million last year. The
Company opened four new clubs in the first half of this year. One new club
opening and the relocation of the Hialeah, Florida, club took place in the
<PAGE>
second quarter. Most of the preopening expenses for one club opened in February
were incurred in the fourth quarter of last year. All four of last year's first
half club openings occurred in the second quarter.
Operating income in the second quarter rose to $49.4 million, an increase of
20.4% over last year's second quarter operating income of $41.0 million. Year-
to-date operating income this year was $77.5 million, 20.5% higher than last
year's $64.3 million.
The components of interest income, net were as follows (in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $1,403 $ 760 $2,735 $1,227
Capitalized interest 113 61 245 179
Interest expense on debt (75) (62) (148) (172)
Interest on capital leases (57) (64) (116) (126)
------ ----- ------ ------
Interest income, net $1,384 $ 695 $2,716 $1,108
====== ===== ====== ======
</TABLE>
This year's increase in net interest income was due primarily to higher invested
cash balances.
The Company's year-to-date provision for income taxes was 38.5% of pre-tax
income this year versus 38.6% in last year's comparable period. This decrease
was due to a lower effective state income tax rate.
Second quarter net income was $31.2 million, or $.42 per diluted share, compared
with $25.8 million, or $.34 per diluted share, in last year's second quarter.
Net income in this year's first six months was $49.3 million, or $.66 per
diluted share, versus net income of $40.2 million, or $.53 per diluted share, in
last year's first half.
The Company opened five gas stations in the first half of this year and expects
to open 15 to 20 for the full year. 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.
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.
<PAGE>
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 was
released on December 3, 1999 and provides the staff's view in applying generally
accepted accounting principles to selected revenue recognition issues. The
implementation date for SAB 101 has been delayed to the fourth 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 $66.3 million in the first six
months of 2000 versus $102.4 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
this 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 $45.4 million in the first half of 2000
versus $35.2 million in the first half of 1999. The Company opened four new
clubs in the first half of both this year and last year and relocated one club
to a new facility this year. Five new gas stations were also opened in the
first half of this year versus four in last year's comparable period. The
Company's capital expenditures are expected to total approximately $115 million
in the current fiscal year, based on plans to open approximately eleven new
clubs, relocate one club, open fifteen to twenty gas stations, and construct a
new cross-docking facility, which is planned to replace the current facility
outside of Philadelphia next spring. The timing of actual 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.
On May 25, 2000, the Board of Directors authorized the repurchase of up to $50
million of the Company's common stock in addition to $100 million previously
authorized. During the first six months of 2000, the Company repurchased
1,625,600 shares of common stock for $49.8 million, or an average price of
$30.62 per share. From the inception of its share repurchase activities in
August 1998 through July 29, 2000, the Company has repurchased a total of $115.7
million of stock at an average cost of $25.66 per share. The Company's
remaining repurchase authorization was $34.3 million at July 29, 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 July 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.
<PAGE>
The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $23.3 million
was outstanding at July 29, 2000, and an additional $20 million uncommitted
credit line for short-term borrowings.
Cash and cash equivalents totaled $42.0 million as of July 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, 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 spin-off from Waban Inc. (now known as HomeBase, 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
January 29, 2000.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company believes that its potential exposure to market risk as of July 29,
2000 is not material because of the short contractual maturities of its cash and
cash equivalents. No bank debt was outstanding at July 29, 2000. The Company
has not used derivative financial instruments.
<PAGE>
PART II. OTHER INFORMATION
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 July
29, 2000.
<PAGE>
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: September 7, 2000 /s/ John J. Nugent
----------------------- -------------------------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 7, 2000 /s/ Frank D. Forward
----------------------- --------------------------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
