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BJ's Wholesale Club (BJ) Q1 Earnings Beat, Comps Rise Y/Y

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BJ’s Wholesale Club Holdings, Inc. BJ reported first-quarter fiscal 2022 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also increased year over year. Sturdy membership trends, assortment initiatives, enhanced digital capabilities and a robust real estate pipeline aided the company’s performance. Impressively, this operator of membership warehouse clubs registered double-digit growth in total comparable club sales. Markedly, the company’s recent acquisition of the perishable supply chain from Burris Logistics will help expand its fresh food offerings.

Shares of BJ’s Wholesale Club were up 7.4% during the trading session on May 19. This Zacks Rank #3 (Hold) stock has declined 12.9% in the past three months compared with the industry’s decline of 16%.

Q1 Insights

BJ’s Wholesale Club reported adjusted earnings of 87 cents a share that surpassed the Zacks Consensus Estimate of 73 cents. Markedly, the quarterly earnings increased 20.8% from 72 cents in the year-ago quarter.

This Westborough, MA-based company generated total revenues of $4,496.4 million, up 16.2% from the year-ago quarter’s levels. Net sales moved up 16.3% to $4,399.8 million, while membership fee income jumped 11.9% to $96.6 million.

Total comparable club sales during the quarter under discussion jumped 14.4%. Excluding the impact of gasoline sales, comparable club sales rose 4.1%, driven by traffic growth. Comps in the grocery, perishables and sundries division grew 7% in the quarter.

We note that digitally-enabled sales rose 26% during the quarter, as members continued to take benefit of services such as BOPIC and curbside pickup.

BJ's Wholesale Club Holdings, Inc. Price, Consensus and EPS Surprise

BJ's Wholesale Club Holdings, Inc. Price, Consensus and EPS Surprise
BJ's Wholesale Club Holdings, Inc. Price, Consensus and EPS Surprise

BJ's Wholesale Club Holdings, Inc. price-consensus-eps-surprise-chart | BJ's Wholesale Club Holdings, Inc. Quote

A Look at Margins

During first-quarter fiscal 2022, gross profit rose to $790.6 million from $726.7 million in the year-ago period. Merchandise gross margin rate, which excludes gasoline sales and membership fee income, contracted 30 basis points from the year-ago quarter’s level. Higher freight costs and tactical investments in inflationary categories hurt merchandise margins.

Operating income increased 19.1% to $150.3 million while operating margin remained flat at 3.3%. We note that adjusted EBITDA climbed 9.1% to $220.8 million during the quarter. However, the adjusted EBITDA margin shriveled 30 basis points to 4.9%.

SG&A expenses rose 5.9% to $635.4 million from the year-ago quarter. This reflects higher labor costs due to last year’s wage investments, occupancy costs as a result of new club openings, and the buyout as well as integration expenses related to the acquisition of assets from Burris Logistics. As a percentage of total revenues, SG&A expenses shrunk 140 basis points to 14.1%.

Other Financial Details

BJ’s Wholesale Club ended the reported quarter with cash and cash equivalents of $38 million. Long-term debt amounted to $749 million, while stockholders’ equity was $721.3 million. Net cash provided by operating activities during the first quarter was $44.3 million.

As part of its share repurchase program, the company bought back 570,506 shares worth $35.8 million in the first quarter. At the end of the quarter, the company had $435 million remaining under its $500 million buyback authorization.

BJ’s Wholesale Club opened three clubs and two gas stations in the first quarter. The company intends to open 11 clubs this fiscal and another 10 next year.

Outlook

BJ’s Wholesale Club continues to expect fiscal 2022 earnings per share to remain flat year over year. Management cited that excess gas profits realized in the first quarter will be largely offset by heightened margin pressure owing to increasing supply chain costs.

3 Hot Stocks to Consider

We have highlighted three better-ranked stocks, namely McCormick & Company MKC, Kroger KR and Tractor Supply Company TSCO.

McCormick, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 6.1% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 7.3%, on average.

Kroger, the renowned grocery retailer, carries a Zacks Rank #2 at present. The company has an expected EPS growth rate of 9.9% for three-five years.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago reported numbers. KR has a trailing four-quarter earnings surprise of 22.1%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 12.4%, on average.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 8.8% and 10.2%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.8% for three-five years.


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