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BJ's Wholesale Club (BJ) Q3 Earnings Top, Comps Increase Y/Y

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Shares of BJ’s Wholesale Club Holdings, Inc. (BJ - Free Report) rose 19.9% during the trading session on Nov 18, following the company’s stronger-than-anticipated third-quarter fiscal 2021 results. While the top line improved year over year, the bottom line declined marginally from the prior-year period. Impressively, this operator of membership warehouse clubs registered double-digit growth in total comparable sales during the quarter. Also, the company continued to witness decent increase in digitally-enabled sales.

President and CEO Bob Eddy said, “Our business accelerated during Q3 on broad based strength, and we saw growth in all of our divisions, with acceleration in traffic and ticket, growth in digitally-enabled sales and conventional sales, all underpinned by strong membership statistics in both new and tenured members.” Shares of this Zacks Rank #3 (Hold) company have surged 26.5% in the past three months against the industry’s decline of 7.9%.

Q3 Insights

BJ’s Wholesale Club reported adjusted earnings of 91 cents a share that surpassed the Zacks Consensus Estimate of 81 cents. However, the quarterly earnings fell 1.1% from 92 cents in the year-ago quarter.

This Westborough, MA-based company generated total revenues of $4,264.1 million that rose 14.3% from the year-ago quarter’s levels and outpaced the Zacks Consensus Estimate of $3,952 million. Net sales moved up 14.4% to $4,172.6 million, while membership fee income jumped 7.7% to $91.5 million. The company notified that membership grew 3% during the quarter, while own brands penetration increased to 23% of merchandise sales.

Total comparable club sales during the quarter under review rose 13.1%, reflecting two-year stacked comp sales of 27.2%. Excluding the impact of gasoline sales, comparable club sales jumped 5.7%, reflecting two-year stacked comp sales of 24.2%. Comps in grocery business rose 6% in the quarter and 25% on a two-year stacked basis.

We note that digitally-enabled sales surged 44% during the quarter, as members continue to take benefit of services such as BOPIC and curbside pickup. On a two-year stacked basis, digitally-enabled sales soared 244%. It drove nearly two percentage points of merchandise comp.

A Look at Margins

During third-quarter fiscal 2021, gross profit rose to $791.2 million from $743.3 million in the year-ago period. Merchandise gross margin rate, which excludes gasoline sales and membership fee income, decreased 20 basis points from the year-ago quarter’s level. The contraction was due to higher freight costs and price investments in inflationary categories.

Operating income declined 10.6% to $170.2 million, while operating margin shrunk 110 basis points to 4%. We note that adjusted EBITDA decreased 5.7% to $228.4 million during the quarter due to the wage investments along with higher freight logistics and sanitation expenses.

SG&A expenses climbed 11.9% to $ $618 million from the year-ago quarter. This reflects investments worth $24.3 million in club team member wages, $13.7 million in management incentive compensation and other expenses related to volume and continued investments to drive the company’s strategic priorities.

Key Financial Details & Other Updates

BJ’s Wholesale Club ended the reported quarter with cash and cash equivalents of $84.7 million. Long-term debt amounted to $748.1 million, while stockholders’ equity stood $567.7 million. The company had paid down approximately $360 million in debt in the 39 weeks ended Oct 30, 2021.

Net cash provided by operating activities during the quarter was $173.9 million, while free cash flow amounted to $99.2 million. As part of its share repurchase program, the company bought back $71.5 million worth of shares in the quarter. The board of directors approved a new share buyback program, effective immediately, that allows the company to repurchase up to $500 million of stock. The program expires in January 2025.

BJ’s Wholesale Club plans to open five new clubs this year. Seabrook, NH club was opened in June. The company plans to open new locations in Port Charlotte, FL; Lansing, MI; and Pittsburgh, PA. The company intends to open as many as 10 more new clubs in fiscal 2022. With respect to gas stations, the company plans to open seven this fiscal year, and a dozen or more in fiscal 2022.

Outlook

BJ’s Wholesale Club estimates low single-digit growth in comps for the fourth quarter based on solid momentum and membership results, offset by lower stimulus payments impacting members.

Sturdy membership trends, assortment initiatives, enhanced digital capabilities and robust real estate pipeline are likely to help BJ’s Wholesale Club to sustain stellar growth. However, the company expects continued investments in price as well as significant increases in freight, distribution and labor expenses.

3 Hot Stocks to Consider

We have highlighted three better-ranked stocks, namely, Boot Barn Holdings (BOOT - Free Report) , Tractor Supply Company (TSCO - Free Report) and Costco (COST - Free Report) .

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 82.6% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 25.4% in the past six months.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 7.7%, on average. Shares of the company have jumped 38.5% in the past six months.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 9.6% and 9.7%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.6% for three-five years.