Story Stocks^®

BJ's Wholesale Club (BJ -7%) is trading lower after reporting Q2 (Jul) earnings results this morning. This warehouse club chain beat on EPS, its largest EPS upside in five quarters. Revenue rose 4.9% yr/yr to $5.21 bln, which also was better than expected. It also reaffirmed full year EPS at $3.75-4.00.

• However, with its investments for the long term, BJ says this could possibly drive EPS toward the low end of that range. Specifically, BJ says its real estate pipeline is growing faster than it has in years. These investments are heavy today, but in the years ahead, the company believes it will be thrilled that it made them.
• BJ reported Q2 comps (ex-fuel) at +2.4%, which was an improvement from +0.6% in Q1 (Apr) and higher than BJ had anticipated. BJ says Q2 benefitted from robust membership, accelerating traffic and unit growth, and a fast-tracking digital business. Notably, this was BJ's tenth consecutive quarter of traffic growth. BJ grew market share inside its clubs and at the gas pumps.
• Its perishables, grocery, and sundries division delivered close to +3% comps in Q2 as more members rely on BJ for household essentials and more often too. Its general merchandise business improved sequentially from Q1 with +1% comps in Q2. However, members remain discerning in their purchasing behavior, which was evident in big ticket seasonal categories, such as patio sets and structures. Apparel, consumer electronics, and home categories all performed well with positive comps.
• While BJ reaffirmed full year comps (ex-fuel) at +1-2%, the language in the press release was a bit more bullish. BJ says its strong perishables business will likely drive comps to the higher end of the range. BJ believes it offers good value, which helps members stretch their dollars. BJ added that it's doing right by customers on this front as BJ expects full year merchandise gross margins to remain approximately flat yr/yr.
• Membership revenue rose a healthy 9.1% yr/yr to $113.1 mln, which BJ believes is perhaps the greatest marker of long-term progress. Growth was driven by the largest member count growth in a quarter since the pandemic. The company also saw great growth in premium tier memberships and strong renewal rates. BJ is driving healthy membership expansion across both existing and new clubs.

Overall, we think investors are pleased with the solid EPS, revenue and comp numbers. However, we think the stock is down because BJ described the investments its making in new locations. That makes sense for the long term, but is going to pinch EPS in the near term and BJ is now guiding to the low end of its EPS guidance range. We also think BJ's decision to keep prices attractive is good for members, but perhaps investors are less thrilled that full year merchandise gross margins will be flat.