Can BJ's Wholesale Maintain Its Run Up?

BJ’s Wholesale Club Holdings Inc. (NYSE: BJ) reported second-quarter fiscal 2020 results before markets opened Thursday. The members-only retailer posted adjusted diluted earnings per share (EPS) of $0.77 on revenue of $4.0 billion, including membership fees. In the same period a year ago, BJ’s reported EPS of $0.39 on revenue of $3.3 billion. Second-quarter results also compare to consensus estimates for $0.60 EPS and $3.7 billion in sales.

Though far smaller than either Walmart or Target, BJ’s experienced much the same shopper behavior as its larger rivals. Membership fee income was up by more than 10% and digital sales revenues were up 300% year over year.

Comparable store sales, excluding gasoline, rose by 24.2% year over year, and income from continuing operations rose nearly 97% to $106.7 million.

Gross profit rose by 23.4% in the quarter, but the merchandise gross margin rate was flat. The company said that improvement in its merchandise business was “offset by cost inflation of certain commodities, most notably beef, and distribution costs associated with the coronavirus pandemic.” Distribution costs also contributed to a decline of 20 basis points in gross margin rate for the first half of the year. The other weight on gross margin for the first half was a decline in the higher-margin apparel business and the temporary shutdown of the company’s services business in the first quarter.

While BJ’s does not depend on apparel sales in the same way as TJX Companies, the decline in clothing purchases, combined with the uncertainty about school openings, is expected to lead to more consumer spending on electronics and slightly less on clothing, according to the National Retail Federation. Students in grades K-12 are still growing, so clothing purchases will continue but at lower levels.

BJ’s did not provide guidance, but analysts estimate third-quarter EPS at $0.53 and revenue at $3.74 billion. For the full fiscal year, consensus estimates call for EPS$2.32 on sales of $14.63 billion.

The company does not pay a dividend but reported repurchasing more than 900,000 shares of stock valued at $34.1 million during the second quarter. For the first half of the year, BJ’s has repurchased 1.1 million shares for $38.1 million.

Shares traded up nearly 3% in Thursday’s premarket to $44.65, just above a $44.63 52-week high posted Wednesday. The 52-week low is $18.84, and the consensus price target on the stock is $42.00.