BJ's Wholesale Club (BJ: sentiment, chart, options) is one of the few retailers to post some positive sales results for November. The company announced that sales jumped 5.2% to $783.2 million from $744.4 million for November 2007. Same-store sales jumped 4.1%, including a negative impact from sales of gasoline of 2.1%. Excluding gasoline sales, merchandise comparable-club sales increased by 6.2%, crushing the firm's guidance for an increase of 2% to 3%. The retailer reported that the sales strength was largely due to stronger sales of food and consumables, particularly during week 4.
Digging deeper into the report, November sales increased in all regions, with the highest increase in Metro New York, and the lowest increase in the Southeast region. Furthermore, excluding sales of gasoline, traffic increased by 6%, and the average transaction amount was slightly higher than last year. On a same-store basis, food sales increased by approximately 14%, and general merchandise sales decreased by approximately 4%.
Technically Speaking
The shares of BJ are up more than 4% this afternoon on the positive news. However, this strength is just a continuation of the stock's recent uptrend. The security has rallied nearly 25% from its November 21 low, and taken out resistance at the 38 level. What's more, BJ is poised to finish the week above both its 10-week and 20-week moving averages for only the second time since late August.
From a longer-term perspective, the stock's uptrend remains intact, as the shares continue to make a series of higher highs and higher lows.
Shifting Sentiment?
Options players are somewhat complacent when it comes to BJ. The Schaeffer's put/call open interest ratio for BJ comes in at 1.50, as put open interest outnumbers call open interest among near-term options. This reading is also in the middle of its annual range, giving neither a bullish nor a bearish bias.
However, the International Securities Exchange (ISE) has seen an increase in put trading recently. During the past 10 trading days, an average of 3.9 puts have been bought to open for every 1 call purchased to open. This ratio of puts to calls is higher than 76% of all those taken during the past year, indicating a growing skepticism among options players.
Drilling down into the stock's December open interest configuration, we find that peak front-month call open interest resides at the 35 strike, with more than 8,300 contracts. On the other hand, peak December put open interest sits at the 30 strike, with more than 10,100 contracts. This preference for puts over calls indicates that short-term expectations for the shares are bearish.
Wall Street also has its doubts about the stock. According to Zacks, the stock has earned 2 "strong buys," 11 "holds," and 1 "strong sell." Should the shares continue their strong long-term uptrend, there is ample room for potential upgrades from this dour group to help the security higher.
What's more, the average 12-month price target for BJ stands at $35.36, according to Thomson Financial. This reading is more than 7% below the stock's current trading price. Any price-target increases could also boost the equity.
Meanwhile, short sellers could get squeezed if the stock maintains its winning ways. More than 11 million BJ shares have been sold short, accounting for more than 19% of the company's total float. This buildup of bearish bets is also 5.5 times the stock's average daily trading volume. An unwinding of these pessimistic positions could fuel a significant rally in the shares.
In summary, this combination of lingering pessimism on a stock in a long-term uptrend has bullish implications from a contrarian perspective. Should the shares maintain their uptrend, a shift from bearish to bullish among the investors could create a fresh wave of buying pressure for the security.
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