A legal settlement over worker pay pushed BJ's Wholesale Club Inc.'s third-quarter profit down 37 percent although sales grew for the retailer.
Consumers' focus on basics in the recession has worked in BJ's favor as membership grew and shoppers continued to flock to its stores.
The company reported some of its strongest sales in cereal, cigarettes, deli housewares and paper products. BJ's management said Wednesday that they are starting to see shoppers slowly begin to buy more general merchandise, but said sales of items like electronics, tires and video games remain weak.
BJ's, based in Natick, Mass., reported that it earned $17.7 million, or 32 cents per share, for the quarter, down from $28.2 million, or 48 cents per share, a year ago.
The results included a charge of $11.7 million pretax, or 13 cents per share, to establish a reserve to settle a legal claim over overtime wages. The company will pay employees for some work they have already completed but said the number of employees who will get back pay and the amount to be paid has not yet been determined. The settlement still requires court approval.
Excluding the legal charge and other items, the company earned $24.6 million, or 45 cents per share.
Revenue rose 2 percent to $2.51 billion from $2.46 billion.
Analysts polled by Thomson Reuters expected the company to earn 45 cents per share on revenue of $2.48 billion. Analyst estimates typically exclude one-time items.
Sales at stores open at least a year fell 2.5 percent in the quarter due largely to lower prices on gasoline compared to last year. Excluding gas, it rose 3.9 percent.
That figure is a key indicator of a retailer's performance because it measures growth at existing stores rather than newly opened ones.
BJ's management said higher traffic in its clubs and an increase in volume of sales, which offset falling food prices, were good signs.
However, the company said the coming quarter _ its holiday period _ will have shoppers buying more food than other items. And falling food prices will continue to be a challenge in the fourth quarter.
BJ's maintained its expectation of earning 96 cents to $1 per share for the fourth quarter, in line with analyst expectations of 97 cents per share. But the company said increased competition and sales skewed toward low-margin departments will pose a challenge to its profit margins for the quarter.
Standard & Poor's Equity Research downgraded its opinion on shares of BJ's to "Hold" from "Buy," saying it sees pricing competition for food retailers to remain intense as food deflation weighs on them. S&P lowered its earnings estimate for the 2010 full year to $2.51 per share from $2.54.
Shares of BJ's fell $1.07, or 2.9 percent, to $35.27 in afternoon trading Wednesday.
AP retail reporter Michelle Chapman contributed to this report from New York.