Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BJ's Wholesale Club Holdings Inc (BJ, Financial) reported a 9% growth in membership fees, driven by the largest member count growth in a quarter since the pandemic.
- The company saw a 2.4% growth in comparable club sales, excluding gas sales, in the second quarter.
- BJ's digital business continues to grow, with digitally enabled comp sales up 22% year-over-year.
- The company is making significant investments in long-term initiatives, including a growing real estate pipeline and fresh produce offerings.
- BJ's Wholesale Club Holdings Inc (BJ) reported a 4.8% increase in net sales, reaching approximately $5.1 billion for the quarter.
Negative Points
- The company is experiencing growing pains due to rapid changes in its merchandising assortment, leading to increased labor and markdown costs.
- BJ's Wholesale Club Holdings Inc (BJ) anticipates SG&A deleverage in the back half of fiscal 2024 due to investments in growth initiatives and new club openings.
- The company expects its full-year fiscal 2024 merchandise gross margin rate to be about flat year-over-year, indicating pressure on profitability.
- Pre-opening expenses for new clubs are expected to ramp up to approximately $30 million in the third and fourth quarters, nearly double from last year.
- BJ's Wholesale Club Holdings Inc (BJ) is facing increased costs in its perishable supply chain due to higher labor and freight expenses.
Q & A Highlights
Q: What are the general merchandise trends telling you on how you're positioned for the holiday season? Can you talk about any trends through the quarter and any color on how back-to-school is trending?
A: During the quarter, we were pleased with our general merchandise business, which returned to positive comp growth. We saw continued great performance in consumer electronics, apparel, and home categories. Seasonal items also performed better due to improved weather and great value offerings. As we approach the holiday season, general merchandise becomes a larger portion of our business, and we are excited about the assortment we are bringing in. Back-to-school is not a huge business for us, but we are optimistic about the holiday season.
Q: Are you giving yourself any room to invest in price and general merchandise?
A: Value is central to what we do, so we are always investing in our business and our members. This commitment is reflected in our strong membership statistics and growth in premium tiers. We will continue to invest in value across our business, not just in general merchandise.
Q: Can you elaborate on the profitability view and the change in merchandise margin outlook? Is this in reaction to market conditions or proactive investments?
A: We are playing the long game by investing in price and promotion, particularly in perishables, to build long-term member loyalty. Our perishable business has seen tremendous gains, requiring additional labor and handling costs. We are also transforming our merchandising, which involves some growing pains but is essential for future success. These investments are proactive and aimed at long-term benefits.
Q: What are you doing differently to drive membership growth in comp clubs, and how does this impact your willingness to consider a fee increase?
A: We are running a better business today, providing more value and better assortments. Our team has unlocked methodologies to grow comp club memberships predictably. We are also leveraging premium tiers and co-branded credit cards to drive MFI growth. While we are comfortable with our current value offering, our guidance for the back half does not contemplate a fee increase.
Q: Can you provide more color on the growing pains in changing the assortment?
A: The CMP process is yielding relevant, timely new assortments, but it requires additional labor and markdowns to swap out old items. We are investing in better assortments and presentations, which we believe will pay off in the long term. These changes are essential for building credibility and driving future growth.
Q: What is driving the improvement in general merchandise categories, and are you seeing any differences in big-ticket spending trends between membership tiers?
A: We have invested in better assortments and presentations, which are resonating with our members. Consumer electronics, apparel, and home categories have all performed well. Big-ticket spending trends show that members are value-focused and more selective, waiting for the right price or promotion. We are working to provide the best assortment and value to our members.
Q: How much of the back half change in investments is responding to the environment versus underinvestment earlier in the cycle?
A: It's a mix of both. We are playing both offense and defense, making proactive investments for long-term benefits. While some investments are in response to current market conditions, most are aimed at building our franchise for the future.
Q: On the 20 basis point reduction in your merchandise margin outlook, is this driven by price investments or mix elements?
A: There is some mix involved, particularly with the growth in perishables, which have a lower ring. However, most of the margin pressure comes from proactive investments in everyday value and growing our franchise. Our discounted membership fee model has been very successful, and we will continue to innovate around it.
Q: Do you see a material uptick in membership sign-ups when major grocers close stores in your footprint?
A: We see it as an opportunity to gain share. Our value proposition is compelling, and we expect to attract new members from conventional grocers. We will play offense to capture additional share and introduce ourselves to new customers during these transitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
