Membership-only discount retailer BJ’s Wholesale Club (NYSE:BJ) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 3.5% year on year to $5.10 billion. Its non-GAAP profit of $1.18 per share was 26.7% above analysts’ consensus estimates.
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BJ's (BJ) Q3 CY2024 Highlights:
- Revenue: $5.10 billion vs analyst estimates of $5.11 billion (3.5% year-on-year growth, in line)
- Adjusted EPS: $1.18 vs analyst estimates of $0.93 (26.7% beat)
- Management raised its full-year Adjusted EPS guidance to $3.95 at the midpoint, a 1.9% increase
- Operating Margin: 4.5%, in line with the same quarter last year
- Free Cash Flow Margin: 0.4%, similar to the same quarter last year
- Locations: 247 at quarter end, up from 238 in the same quarter last year
- Same-Store Sales rose 1.5% year on year (0.3% in the same quarter last year)
- Market Capitalization: $11.36 billion
“Our third quarter results demonstrate the combination of great value and strong execution. We delivered robust membership growth and hit a milestone of 7.5 million members. Our value proposition continues to resonate in new and existing markets,” said Bob Eddy, Chairman and Chief Executive Officer, BJ’s Wholesale Club.
Company Overview
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE:BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
Large-format Grocery & General Merchandise Retailer
Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
BJ's is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences consumer purchasing decisions. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth.
As you can see below, BJ’s sales grew at a mediocre 9.4% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.
This quarter, BJ's grew its revenue by 3.5% year on year, and its $5.10 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, a deceleration versus the last five years. We still think its growth trajectory is attractive and suggests the market is baking in success for its products. Some tapering/deceleration is natural given the magnitude of its revenue base.
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Store Performance
Number of Stores
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
BJ's operated 247 locations in the latest quarter. It has opened new stores quickly over the last two years and averaged 3.4% annual growth, faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at shops open for at least a year.
BJ’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.8% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.
In the latest quarter, BJ’s same-store sales rose 1.5% year on year. This growth was a deceleration from its historical levels, showing the business is still performing well but losing a bit of steam.
Key Takeaways from BJ’s Q3 Results
We were impressed by how significantly BJ's blew past analysts’ EPS expectations this quarter. We were also liked that full year EPS guidance was raised. Overall, we think this was still a solid quarter with some key areas of upside, especially after Target missed badly yesterday. The stock traded up 6.9% to $91.60 immediately after reporting.
Indeed, BJ's had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.