BJ’s cuts profit outlook, will close 46 pharmacies

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BOSTON (AP) – BJ’s Wholesale Club Inc. on Thursday cut its profit forecast amid sluggish sales and said it will close 46 in-store pharmacies and two restaurant supply locations, moves announced less than two months after the abrupt resignation of BJ’s top executive.

BJ’s store in Auburn, Maine, does not have a pharmacy.

The nation’s No. 3 retail warehouse club also shuffled top managers Thursday to reunite some of its past executive team. Shares of BJ’s fell as much as 10 percent in opening trading before regaining most of the loss to close down 4 percent.

UBS analyst Neil Currie said the moves under the leadership of interim CEO Herb Zarkin could revive speculation that the Natick-based company may become a takeover target. Mike Wedge’s resignation Nov. 22 as CEO and president fueled talk of a possible deal, although the company has said it is not for sale.

Currie said that BJ’s cost-cutting moves primarily seek to eliminate unprofitable parts of its business, but also could draw interest from prospective buyers.

“It potentially could make BJ’s more attractive as a takeover candidate, considering the company is taking down earnings expectations and focusing on the basics,” Currie said.

BJ’s said the lower-than-expected sales will cause it to miss earnings targets. The company now expects a profit range of 17 cents to 25 cents a share for the quarter ending Feb. 3, compared with its earlier forecast for earnings of 83 cents to 87 cents per share.

The new forecast accounts for various charges, including 30 cents to 33 cents per share to create a reserve of at least $20 million tied to the closure of all 46 of BJ’s in-store pharmacies as well as two ProFoods Restaurant Supply locations in the New York City area – moves expected to eliminate about 275 jobs. Lower-than-planned sales and profits will cut another 18 cents to 20 cents from both its fourth-quarter and full-year earnings. For the fiscal year ending Feb. 3, BJ’s now expects a profit of $1.07 to $1.15 per share, down from its earlier forecast of $1.72 to $1.76.

BJ’s said its December sales in the crucial holiday shopping season rose 0.6 percent, below the consensus estimate of analysts surveyed by Thomson Financial, who expected a 1.3 percent rise.

The company separately said it is replacing two executives, one in charge of merchandising and logistics, the other overseeing marketing and membership. Other management changes will retain Frank Forward, the company’s executive vice president and chief financial officer, for three more years. The longtime BJ’s executive had most recently served as CFO on an interim basis.

The moves will bring back some managers to executive roles they previously held at the 23-year-old company.

“I am excited about reuniting a management team that worked so well together during BJ’s most productive and profitable years,” Zarkin said.

In fiscal 2008, BJ’s expects earnings between $1.60 and $1.70 per share, compared with analysts’ forecast of $1.88 per share.

Shares of BJ’s fell $1.31 to close at $30.55 on the New York Stock Exchange, where the stock sank as low as $28.56 early in the session.

Currie, the UBS analyst, said Thursday’s moves strongly bore the imprint of Zarkin, who added the interim CEO title to his chairman position when Wedge resigned after four years as BJ’s top executive. BJ’s is looking for a permanent successor.

In a conference call with analysts, Zarkin said BJ’s plans to reduce the number of brands and sizes it carries for many products and draw shoppers to items available temporarily at bargain prices. Such so-called “treasure hunt” items are more common at Costco Wholesale Corp., one of BJ’s larger rivals along with Wal-Mart Inc.’s Sam’s Club.

BJ’s also plans to offer more competitive pricing, and refocus marketing and merchandise presentation.

“We need to focus on the basics of our core business,” Zarkin said.

Currie said carrying a larger number of brands “was a strategy to make themselves more competitive with supermarkets, which has done well for them in the past. But it’s spread them a little thin, and it gets away from the classic concept of a warehouse club.”

BJ’s, with more than 20,000 employees and nearly $8 billion in 2005 revenue, operates 171 warehouse clubs in 16 states, stretching from Maine to Florida, with the heaviest concentration in the Northeast.

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