BJ’s Wholesale Club Holdings, Inc. (BJ Quick QuoteBJ - Free Report) came up with its second-quarter fiscal 2024 results, delivering strong performance as revenues and earnings surpassed the Zacks Consensus Estimate, with year-over-year improvements in both metrics. Additionally, the company's comparable club sales showed decent growth.

Despite better-than-expected results, shares of the Marlborough, MA-based company dropped approximately 6.8% during the Aug 22 trading session. The company's cautious outlook primarily drove the market reaction, as it now anticipates earnings to fall toward the lower end of its previously provided range, largely due to ongoing long-term investments.

Coming back to the quarter, the company experienced stellar growth in membership, traffic and unit volumes. BJ’s Wholesale Club’s enhancements in merchandising and digital conveniences, focused on providing compelling value, effectively resonate with members. Additionally, the company is expanding its presence and is slated to open 11 new clubs in the next six months.

BJ’s Second-Quarter Insights

BJ’s Wholesale Club reported adjusted earnings of $1.09, which beat the Zacks Consensus Estimate of $1.00 and increased from 99 cents reported in the year-ago period.

This operator of membership warehouse clubs generated total revenues of $5,205.4 million, which grew 4.9% from the year-ago quarter’s level and came ahead of the consensus mark of $5,157 million. Net sales increased 4.8% to $5,092.3 million, while membership fee income jumped 9.1% to $113.1 million.

Total comparable club sales during the quarter under discussion rose 3.1% year over year. Excluding the impact of gasoline sales, comparable club sales jumped 2.4%, faring better than our estimate of a 1.5% increase. Markedly, digitally enabled comparable sales advanced 22% during the quarter.

A Look at BJ’s Margins

The gross profit rose to $956.6 million from $896.8 million in the year-ago period. The merchandise gross margin rate, which excludes gasoline sales and membership fee income, expanded 10 basis points from the year-ago quarter’s level owing to efficient inventory cost management.

The operating income increased 1.7% year over year to $203.7 million, while the operating margin, as a percentage of total revenues, contracted 10 basis points to 3.9%. We note that adjusted EBITDA improved 4.9% to $281.3 million during the quarter, while the adjusted EBITDA margin remained flat at 5.4%. We had anticipated 20 basis points and 10 basis points of contraction in the operating and EBITDA margins, respectively.

SG&A expenses rose 8% from the year-ago quarter to $750.3 million. This reflects higher labor and occupancy costs as a result of new club and gas station openings in addition to other investments to drive strategic priorities. As a percentage of total revenues, SG&A expenses deleveraged 40 basis points to 14.4%. We had anticipated SG&A expenses to deleverage 20 basis points.

Other Details on BJ’s Wholesale Club

BJ’s Wholesale Club ended the quarter with cash and cash equivalents of $38.1 million. The long-term debt amounted to $398.6 million, while stockholders’ equity was $1,654.9 million.

Net cash provided by operating activities and adjusted free cash flow totaled $221.4 million and $87.5 million, respectively, for the 13 weeks ended on Aug 3, 2024. As part of its share repurchase program, the company bought back 451,982 shares worth $40.4 million in the quarter. 

This Zacks Rank #3 (Hold) stock has fallen 7.4% in the past three months compared with the industry’s decline of 3.8%.

Here is What BJ Guided

For fiscal 2024, BJ’s Wholesale Club anticipates a 1% to 2% increase in comparable club sales, excluding gasoline, compared to the previous year. This growth is expected to be driven by higher traffic, unit expansion and robust performance in perishables, which may lead to achieving the higher end of this range.

The company’s business model and long-term strategies have facilitated investments in enhancing its value proposition, allowing members to maximize their spending power. As a result, merchandise gross margins are expected to remain roughly flat year over year. Additionally, management anticipates that adjusted earnings for fiscal 2024 will be closer to the lower end of the guided range of $3.75-$4.00.

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