BJ's Wholesale Club (BJ -7%) is trading lower after reporting its Q2 earnings results. The warehouse club chain beat EPS expectations, marking its largest EPS upside in five quarters. Revenue rose 4.9% year-over-year to $5.21 billion, surpassing estimates. The company also reaffirmed its full-year EPS guidance at $3.75-4.00.
- Despite the positive results, BJ's long-term investments could drive EPS toward the lower end of the guidance range. The company noted that its real estate pipeline is expanding faster than it has in years, with heavy investments today expected to pay off in the future.
- Q2 comps (ex-fuel) were +2.4%, an improvement from +0.6% in Q1 and higher than anticipated. BJ attributed this to robust membership, accelerating traffic and unit growth, and a fast-tracking digital business. This marks BJ's tenth consecutive quarter of traffic growth, with market share gains in both its clubs and gas pumps.
- In Q2, the perishables, grocery, and sundries division delivered nearly +3% comps as more members relied on BJ for household essentials. The general merchandise business improved sequentially from Q1 with +1% comps. However, big-ticket seasonal categories like patio sets saw more discerning purchasing behavior. Apparel, consumer electronics, and home categories all posted positive comps.
- While BJ reaffirmed full-year comps (ex-fuel) at +1-2%, the company hinted at a stronger outlook. BJ expects its strong perishables business to drive comps to the higher end of the range. The company believes it offers good value, helping members stretch their dollars, and expects full-year merchandise gross margins to remain flat year-over-year.
- Membership revenue rose 9.1% year-over-year to $113.1 million, driven by the largest member count growth in a quarter since the pandemic. The company also saw significant growth in premium tier memberships and strong renewal rates, indicating healthy membership expansion across both existing and new clubs.
Overall, investors seem pleased with BJ's solid EPS, revenue, and comp numbers. However, the stock is down due to the company's investments in new locations, which will impact EPS in the near term. Additionally, while keeping prices attractive is beneficial for members, investors may be less enthusiastic about flat full-year merchandise gross margins.
