BJ’s Wholesale Club topped Wall Street’s earnings forecast for the fiscal 2019 third quarter by a penny, despite virtually flat sales.
For the quarter ended Nov. 2, BJ’s tallied net sales of $3.152 billion, up 0.1% from $3.150 billion a year earlier. Membership fee income rose 7.1% year over year to $76.5 million, lifting total revenue for the period 0.2% to nearly $3.23 billion, the warehouse club retailer said Thursday.
Comparable club sales dipped 0.4% in the quarter but, excluding fuel sales, were up 1.1%, BJ’s noted.
Gross profit climbed to $617.6 million from $592.1 million a year ago. Excluding gasoline sales and membership fee income, the merchandise gross margin rate grew about 50 basis points year over year, driven mainly by progress in the company’s category profitability improvement program, according to BJ’s. Operating income was $100.9 million, or 3.1% of total revenue, compared with $90.3 million, or 2.8% of total revenue, in the 2018 quarter.
On the earnings side, third-quarter net income came in at almost $55.1 million, or 40 cents per diluted share, versus $54.4 million, or 39 cents per diluted share, in the year-ago period. Excluding charges and write-offs from 2018 debt refinancing and 2019 debt paydown, as well as the tax impact of net income adjustments, adjusted net earnings were $56.6 million, or 41 cents per diluted share, in the 2019 quarter compared with $53.8 billion, or 40 cents per diluted share, a year earlier.
Analysts, on average, projected adjusted earnings per share (EPS) of 40 cents for the third quarter, with estimates ranging from 37 cents to 44 cents, according to Refinitiv/Thomson Reuters.
“In Q3, we continued our progress in expanding margins, enabling us to deliver another quarter of record earnings with adjusted EBITDA of $154 million, an increase of 4% over the prior year. We posted merchandise comp sales of 1.1%, our ninth consecutive quarter of positive comps,” BJ’s Chairman and CEO Christopher Baldwin told analysts Thursday in a conference call.
“The quarter got off to a strong start as we built on the momentum from Q2, but we faced some unique challenges in October — particularly in general merchandise — that we don't expect to repeat,” he said. “These headwinds included a shift in the timing and scope of our promotions and warmer-than-normal weather in October, which affected our seasonal apparel and cold weather-related general merchandise products.”
Baldwin noted that BJ’s is making strides in efforts to simplify its assortment and bolster private label. The initiative began in general merchandise, with comps up 5% on a two-year stack basis and for the 2019 year to date, and next will shift to food and groceries.
“The work we've done in this area leaves us in a strong position for Q4 and beyond. We're moving forward with a transformation in our edible and nonedible grocery business, with the goal of driving sales growth with a simpler assortment,” he said. “In Q4, we'll continued to roll out a simpler edible grocery assortment. We're also seeing good results from the clubs where we had this assortment in place. We're also testing simplified assortments in our nonedible grocery business and have plans to continue to reduce SKUs over the next year.”
BJ’s own brands play a pivotal role in helping simplify assortments and driving category profitability, according to Baldwin. “We continue to increase home-brand penetration for the quarter, currently about 20%, and we remain on track to get to 21%% for the full year,” he said in the call.
The Westborough, Mass.-based retailer also is seeing progress on the fresh side. “We're particularly pleased with our performance in prepared foods — which we introduced this year at our new clubs in Michigan, largely within extended prepared — for the ensuing very strong revenue results and will provide more details on our performance in Michigan shortly,” explained Baldwin.
“The assortment transformation will go on throughout 2020. We strongly believe limiting our assortment will offer better clarity of offering, provide opportunities for sourcing and savings, and free up space to drive growth entering into new categories,” he added.
BJ’s has kept up investment in omnichannel, as well, to make shopping easier for members. Baldwin said same-day delivery of beer, wine and liquor was launched late in the third quarter at 74 clubs in seven states. The retailer also expanded mobile ordering for deli items to 64 clubs in New York, New Jersey and Boston.
“Our convenient services, while still small compared to the rest of the business, continue to grow and resonate with our members,” he said. “Buy-online-pickup-in-club and same-day delivery continue to accelerate in the third quarter. About half of our BOPIC users make additional purchases once they’re in the club. We're expecting the biggest holiday season ever in digital, driven by a fully integrated marketing campaign, a strong assortment, free shipping for our premium-tier members and, of course, outstanding value.”
Currently, BJ’s operates 219 clubs and 144 BJ's Gas stations in 17 states. That includes two clubs and fuel centers opened earlier this month in Madison Heights and Taylor, Mich., which feature BJ’s new assortment and product mix.
“As we’ve said before, we took a very new approach to marketing to raise awareness in these clubs. We opened these clubs with about 1,000 fewer items than our typical clubs, along with new items such as an expanded prepared food assortment, localized apparel, local craft beers and a snack shop,” said Baldwin. “Though still in the early days, we're very pleased with the initial membership response and our near-term sales trends. Our performance in Michigan, along with our performance in other recently added clubs, is very encouraging for the future of our company.”
So far in fiscal 2019, BJ’s has opened six gas stations and is on track to have added eight to 10 by the year’s end. A new club also is slated to open in Pensacola, Fla., around the end of the year, followed by a third Michigan club in Chesterfield during the first half next year.
Looking ahead, BJ’s pruned its guidance for the full year. The company now forecasts net sales of about $12.9 billion and merchandise comp-store sales growth of 1.3% to 1.5%, compared with 1.5% to 2.5% previously. Adjusted net EPS is estimated at $1.44 to $1.48, up 2 cents at the low end but down 2 cents at the high end from the earlier outlook.
Analysts’ consensus estimate is for full-year adjusted EPS of $1.49, with projections running from $1.45 to $1.51, according to Refinitiv/Thomson Reuters.
“We remain optimistic about the long-term health of our business, and we continue to invest in our transformation to drive growth in sales and profitability,” Baldwin added.