BJ’s Wholesale Club posted double-digital net and comparable sales gains in the fiscal 2020 second quarter, with net income nearly doubling year over year.
BJ’s said Thursday that for the quarter ended Aug. 1, net sales climbed 18.4% to $3.87 billion from $3.27 billion a year earlier. Including 10.4% growth in membership fee income, total revenue was up 18.2% to $3.95 billion. The membership base grew 10.6% to over 6 million paid members.
At the bottom line, net earnings came in at $106.6 million, or 76 cents per diluted share, compared with $54.5 million, or 39 cents per diluted share, in the 2019 second quarter. Adjusted net income totaled $107.5 million, or 77 cents per diluted share, versus $55 million, or 39 cents per diluted share, a year ago.
Earnings surpassed the high end of Wall Street’s forecast. Analysts, on average, had projected adjusted earnings per share of 60 cents, with estimates ranging from a low of 52 cents to a high of 72 cents, according to Refinitiv/Thomson Reuters.
“Q2 was another remarkable quarter with strong top-line growth, profitability and free cash flow,” BJ’s President and CEO Lee Delaney said today in a conference call with analysts. “As I reflect on our results to date and the implications to the future, I believe that we have turned the corner from merely reacting to the pandemic to proactively transforming our business to enable a much brighter future for the company.
“We have a radically different company than we had just six short months ago,” he noted. “In many areas of the company, we are now years ahead of how we thought our transformation would evolve, and we are actively looking for ways to increase the pace of progress.”
Comparable-club sales in the 2020 second quarter surged by 17.2% overall. Merchandise comp sales, which exclude fuel, were up 24.2%.
“Our merchants did a terrific job engaging with existing and new suppliers to keep us in stock and to expand into highly relevant new categories. We added 32 new vendors to bolster our supply chain in food, paper and cleaning supplies, and to participate in new personal protective equipment categories,” Delaney said. “We dramatically accelerated the reset of our food business with a new set in nearly 200 clubs that incorporates more healthy and organic options months ahead of our initial schedules. We knew new changes here would be important to engage younger members and accomplish so quickly. It should aid our retention efforts with our first-tier members.”
Comparable sales in grocery climbed 25% in the second quarter.
Increases in customer traffic and ticket size helped propel comp-sales in the quarter, according to Chief Financial Officer Robert Eddy.
“We had significantly more members shopping our clubs, consolidating their trips and growing their baskets. These trends were relatively consistent across all of our geographies,” he told analysts in the call. “We saw consistently strong comp performance during the quarter, with comps exceeding 20% for each month. We exited the quarter with July merchandise comp growth of 24%, and trends remained strong in August, which is running at a 20% comp so far.”
Grocery proved to be a catalyst in the quarter, with comp sales rising 25%, Eddy reported. “We saw very strong growth rates in expected categories — paper products, cleaning essentials, fresh meat and produce, frozen, dairy and beverages,” he explained. “Our team improved our in-stock levels during the quarter, including in certain very active in categories by innovatively working with both existing and new suppliers. Our general merchandise and services division saw a comp growth of 22%, driven by strong sales in apparel, TVs and other home-related categories.”
Online sales skyrocketed in the second quarter, jumping 300% and continuing the momentum from 350% growth in the first quarter.
“Our digital business is crucial to our existing and new members and is stronger than ever. We grew digitally enabled sales by more than 300% and made dramatic progress, rolling out new digital services,” Delaney said. “After a brief test, we launched curbside pickup in all clubs earlier this month, and we expect buy-online-pickup-in-club [BOPIC] for perishables to be available by the end of the third quarter. The initial response from members has been encouraging. We will move aggressively to add infrastructure in our clubs to handle these rapidly growing offerings, knowing that our economics are at an advantage versus our competitive set.”
Digital sales accounted for about six percentage points of BJ’s 24.2% merchandise comp-sales growth in the quarter, Eddy said, adding that about 75% of the e-commerce sales gain was driven by same-day delivery — for which BJ’s partners with Instacart — and BOPIC.
“The complexion of this growth is important, as it is centered in those fulfilling methods where we have an economic advantage, as we know we operate a limited-SKU warehouse environment with significantly higher average tickets, which allows us to be much more efficient,” he explained. “BOPIC sales tend to skew towards higher-ticket items, and same-day delivery sales have the same margins as traditional sales in our clubs.”
BJ's expects to open two new clubs in late fiscal 2020 and up to six new clubs next year.
The current COVID-19-driven consumer trends are “likely to continue for the foreseeable future,” according to Delaney. That will push BJ’s to continue efforts to expand its membership, which in the past six months has achieved growth that typically would require 18 months, he said.
“This pace should it continue would have us experience three years of membership growth in this one transformative year. Not only are new members joining at elevated levels, they skew younger and are more digitally engaged. We believe our membership will be stickier, and we are adding incremental efforts to ensure higher levels of engagement,” Delaney said. “We have added incremental marketing to support member outreach and have been encouraged by the results in new and existing gloves. We are also focused on ensuring our members remain engaged, especially new members. We are closely monitoring their behavior and utilizing a targeted personalized approach to keep them engaged in shopping. We will lean aggressively into membership investments throughout the balance of 2020.”
Westborough, Mass.-based BJ’s finished the 2020 second quarter with 219 clubs and 148 BJ’s Gas stations in 17 states, up from 217 clubs and 141 fuel stations in 16 states a year ago.
“We remain focused on expanding our footprint in a much more aggressive fashion. Our third club in Michigan opened late in July and, while it’s still in the very early days, we are pleased with the initial membership response and sales trends,” Delaney told analysts. “We expect open two new clubs in New York around the end of the fiscal year and can currently see opening as many as six new clubs next year. We are moving aggressively to make those numbers even larger ones.”
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