Klaus Wedfeld
BJ’s Wholesale Club Holdings Co., Ltd. (New York Stock Exchange:BJ) operates hundreds of membership clubs in more than a dozen states. When you hear the term “membership club,” you immediately think of large companies like Walmart (WMT) Sam Club and Costco Wholesale Corp. (Fee). BJ’s is a company that has been growing slowly and steadily. With the market doing well, BJ’s stock price has skyrocketed. The company is facing rising costs due to inflation, the burden of which is primarily passed on to consumers.
While we would be hesitant to recommend putting new capital into this stock with a tough consumer macro environment and markets at all-time highs, in our view it is a good stock to own for now, although we believe a correction of more than 10% would be a good time to buy.
The company just Reports first quarter earningsIn our opinion, the report stated: However, we are contextualizing it as mixed as we have not raised our guidance despite the slight increase in the top and bottom lines. Let’s discuss the results.
Sales and profit margins
When we look at a retailer’s earnings, we look at sales and margin trends to see if they’re shrinking or expanding. Sales and margins are everything. Perhaps most importantly, we always look at comparable sales. When they’re negative, we almost always don’t buy the stock. That said, net sales were up 4.2% year over year to $4.92 billion. That’s Consensus Estimates Increased by $50 million.
This was due to strong same-store sales. A lot of that is due to fuel and pricing there. Same-store sales, including gasoline, increased 1.6% year over year. Even excluding the impact of gasoline sales, same-store sales rose 0.6%. This is a plus, if not overwhelming. Same-store sales growth due to digitalization through online/app sales also increased by 21.0% year over year. We think this is a positive.
With regards to margins, we are pleased to see expansion in these key metrics. Sales revenue is increasing, which is typically positive for gross margin and earnings change. However, declining margins can result in gross margins declining even as sales revenue increases. Gross margin increased to $883.4 million from $880.0 million in the year-ago quarter. This was a mixed result as it suggests that while total gross margins increased, this slight increase suggests margins have contracted somewhat. In fact, merchandise gross margins, which exclude gasoline sales and membership fee revenue, decreased 50 basis points.
Additionally, selling, general and administrative expenses increased significantly from $689.3 million in the same period last year to $721.8 million. As a result, his income from continuing operations decreased from his $172.1 million in the same period last year to $146.8 million. Adjusted EBITDA decreased 6.0% to $236.4 million compared to $251.5 million in the first quarter of 2023. Perhaps unsurprisingly, as a result, net income fell to $111 million from $116.1 million in the year-ago period. On an EPS basis, profit was $0.85, which was $0.02 higher than expected and unchanged from the previous year.
Front View
Sales increased, but margins declined. The decline in profits was expected, but it was less than expected. Earnings per share were flat due to share buybacks. However, EPS beat expectations, so that’s a positive. However, the market viewed this as mixed because guidance was not raised despite the beaten expectations. In response, we would say that, even though the beaten expectations was minimal, it was minimal.
that’s why The outlook remained unchangedLike-for-like club sales, which exclude the impact of gasoline sales, are expected to grow 1% to 2% year-over-year. Despite the first-quarter margin contraction, merchandise gross margins are expected to improve about 20 basis points year-over-year, leading to adjusted EPS of $3.75 to $4.00 for the full year. This is another reason we’re not a Buy. At the midpoint, we expect adjusted EPS to shrink from $3.96 per share in fiscal 2023.
Considering the impact on consumer sentiment, which is likely to weaken due to a number of ongoing pressures, including high interest rates, high credit card debt, expensive gas, sky-high housing costs, and the fact that student loan repayments are ongoing So we remain neutral on the BJ’s Wholesale Club Holdings, Inc. stock. We believe that a 10% plus correction gives us room to consider long-term entry.
