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BJ's Wholesale Club (BJ) Down 4% Despite Q1 Earnings Beat

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Shares of BJ’s Wholesale Club Holdings, Inc. (BJ - Free Report) slid 4% during the trading session on May 20, despite posting robust first-quarter fiscal 2021 results. Investor’s sentiments were impacted by management’s dismal expectations for the fiscal.

Although management refrained from providing a formal guidance, due to uncertainties surrounding consumers’ shifting preferences, it expects comparable sales to decline in the 10%-range for the remaining part of the year. This is likely to stem from consumers’ shift away from at-home consumption practices.

Speaking of first-quarter results, the company’s top and bottom line increased year on year as well as surpassed the Zacks Consensus Estimate. Markedly, the company continued to witness strong growth in digitally-enabled sales.

Moreover, management highlighted that the quarterly performance gained from market share retention, solid execution of strategies and higher consumer spending. However, comparable sales, excluding gasoline sales, witnessed a decline during the quarter. Moreover, gross profit fell year on year.

We note that BJ’s Wholesale Club is on track with growth initiatives such as investments to boost memberships and digital capabilities. In a separate release, the company informed about its plans to open six new clubs this year.

Shares of this Westborough, MA-based company have surged 7% in the past three months compared with the industry’s decline of 6.7%.

Q1 Insights

The operator of membership warehouse clubs reported adjusted earnings of 72 cents a share that surpassed the Zacks Consensus Estimate of 57 cents. Moreover, earnings increased 4.3% from 69 cents reported in the year-ago quarter. Management highlighted that overall business strength and reduced interest expenses fueled bottom-line performance in the said period.

BJ’s Wholesale Club generated total revenues of $3,868.2 million that increased 1.9% from the year-ago quarter’s levels and surpassed the Zacks Consensus Estimate of $3,733 million. Net sales moved up 1.7% to $3,781.8 million, while membership fee income was up 8.6% to $86.4 million.

Comparable club sales during the quarter under review inched up 0.3%. Excluding the impact of gasoline sales, comparable club sales declined 5% during the quarter. On a two-year stacked basis, merchandise comparable sales excluding gasoline improved 22%.

We note that digitally-enabled sales rose 31% during the first quarter. On a two-year stacked basis, the metric surged 381% and drove nearly 7 percentage points of merchandise comparable sales, excluding gasoline sales. On a two-year stacked basis the company witnessed sturdy growth in all its digital channels, especially BOPIC, curbside pickup and same-day delivery. A significant portion of digital growth is fulfilled through clubs. Additionally, digital growth during the quarter was mainly fueled by consumers’ response toward the company’s app.

During the quarter, gross profit declined 1.4% to $726.7 million. Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 80 basis points from the year-ago quarter’s levels. The upside was aided by general merchandise sales mix and continued execution of category profitability improvement

Operating income fell 12.2% to $ 126.2 million, while operating margin declined 50 basis points to 3.3%.

SG&A expenses rose 1.7% to $ $599.9 million from the year-ago quarter’s levels, including stock compensation expenses, severance related charges and a couple of one-time costs.


Key Financial Details & Other Updates

BJ’s Wholesale Club, which carries a Zacks Rank #3 (Hold), ended the first quarter with cash and cash equivalents of $62.9 million. Long-term debt amounted to $747.3 million, while stockholders’ equity stood at $413.5 million.

Additionally, net cash provided by operating activities were $249 million, while free cash flow amounted to $190.9 million.  

As part of its share repurchase program, the company bought back $14 million worth shares during the first quarter.

BJ’s Wholesale Club also issued details regarding its plant to open six new clubs in fiscal 2021. The move will help expand the company’s footing in the eastern part of the United Sates. The new clubs will feature an extensive assortment of fresh foods and household essentials. Moreover, the clubs will offer convenient delivery and pickup services as well as exciting offers that will help members generate greater savings.

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