BJ's Wholesale Club (BJ) is trading roughly flat after
reporting Q2 (Jul) earnings results this morning. If you do not live on the
east coast, you may not be too familiar with BJ's Wholesale Club, but
essentially, it's a warehouse club operator that is similar to Costco (COST)
and Sam's Club (WMT). The stock recently (late June 2018) re-entered the public
markets in an IPO. The stock had traded publicly until 2011, when it was
acquired by two private equity firms with the goal of turning around the
Over the last two years, it has hired a new CEO (Chris Baldwin) and has made multiple senior management hires and changes, adding personnel with experience in consumer-packaged goods, digital, and consulting to its leadership team. This new management team has implemented significant cultural and operational changes, including transforming how the company uses data to improve member experience, instilling a culture of cost discipline, adopting a more proactive approach to growing its membership base, and building an omnichannel offering.
Its stores are all on the East Coast of the U.S. It offers value to its members, consistently offering 25% or more savings on manufacturer-branded groceries compared to traditional supermarkets. It provides an assortment focused on perishable products, general merchandise, gas and other ancillary services.
Since pioneering the warehouse club model in New England in 1984, BJ has grown to 215 large-format, high volume warehouse clubs spanning 16 states. In its core New England markets, which have high population density, BJ operates almost 3x the number of clubs compared to the next largest warehouse club competitor.
BJ has more than five million members paying annual fees. The annual membership fee for its base Inner Circle Membership is $55 per year, and its BJ's Perks Rewards Membership costs $110 annually. Also, its two private label brands, Wellsley Farms and Berkley Jensen, represent over $2 bln in sales, and are the largest brands BJ sells.
Turning to the Q2 (Jul) results, non-GAAP EPS rose 41% year/year to $0.31/share, which was slightly better than market expectations. Revenue (ex-Membership fee income) rose 4.3% year/year to $3.24 bln, which was slightly below market expectations. Same store comps increased +5.0%. Excluding gasoline sales, merchandise comps were +2.0%, representing the fourth consecutive quarter of positive merchandise comps. Membership fee income increased 9.7% to $70.4 mln. Looking ahead, for FY18, BJ expects non-GAAP EPS of $1.17-1.24 on sales of $12.6-12.7 bln. Merchandise comps (excluding gasoline) are expected in the +1.8-2.1% range.
In sum, this was BJ's first quarterly report since re-entering the public markets. The muted stock reaction indicates that the market thought it was pretty much as expected, perhaps a bit below what was expected. Management seems to want some patience form investors. They note that they are still in the very early stages of transformation. Our take is that they are making progress, but the turnaround will take some time. The stock has done well since the June IPO, when it priced at $17 then opened at $21.25. It traded as high as $29.90 but had pulled back a bit heading into this report.
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