""We drove quarterly comps and profits that were higher than anticipated... Our business was once again fueled by robust traffic, unit volumes and market-share growth inside our clubs and at the gas pumps."" - Bob Eddy (CEO)
BJ's Wholesale Club Holdings Inc (BJ) Q3 2024 Financial Results Report: Strong Membership Growth and Robust Performance Amid Challenges
Executive Summary
BJ's Wholesale Club Holdings Inc reported solid results for Q3 2024, with total revenues reaching approximately $5.1 billion, reflecting a 3.4% year-over-year increase. The growth was supported by strong traffic, comp unit growth, and a significant boost in membership fee income, which grew by 8.4% year-over-year. The company achieved a membership milestone of 7.5 million members, showing an increase in both the number and quality of its membership base. Despite facing challenges such as an East Coast port strike and two hurricanes affecting consumer behavior, BJ's managed to deliver positive comparable sales, indicating resilience and effective strategy execution.
Management emphasized ongoing investments in long-term initiatives, including a recently announced membership fee increase which aims to enhance service quality and member value. These results underscore BJ's competitive positioning within the discount retail sector, marking its strategy as effective in a challenging economic environment.
Key Performance Indicators
Revenue
5.10B
QoQ: -2.04% | YoY:-4.81%
Gross Profit
975.48M
19.13% margin
QoQ: 1.98% | YoY:1.27%
Operating Income
229.38M
QoQ: 12.62% | YoY:3.25%
Net Income
155.75M
QoQ: 7.42% | YoY:6.77%
EPS
1.18
QoQ: 8.26% | YoY:9.26%
Revenue Trend
Margin Analysis
Key Insights
**Revenue**: $5.1 billion (YoY: +3.4%)
**Net Income**: $155.7 million (YoY: +6.8%)
**EPS**: $1.18 (YoY: +9.3%)
**Gross Profit Margin**: 19.1% (YoY: +20 bps)
**Operating Income**: $229.4 million (YoY: +3.3%)
Financial Highlights
### Key Financial Metrics
- Revenue: $5.1 billion (YoY: +3.4%)
- Net Income: $155.7 million (YoY: +6.8%)
- EPS: $1.18 (YoY: +9.3%)
- Gross Profit Margin: 19.1% (YoY: +20 bps)
- Operating Income: $229.4 million (YoY: +3.3%)
- Adjusted EBITDA: $308.3 million (YoY: +13.5%)
- Membership Growth: 7.5 million members (+40% since fiscal 2018)
### Operational Metrics
- Comparable Club Sales (ex-gas): +3.8% (YoY)
- Digital Sales Growth: +30% (YoY)
#### Analysis
The revenue growth was largely driven by robust member acquisition and retention efforts, evidenced by a significant increase in membership fee income and traffic into clubs. Despite facing external challenges, BJ's operating model demonstrated resilience through strategic investments in both merchandising and service enhancements. This reflects a focus on delivering consistent value for its members and indicates a strong operational focus on growing market share in competitive markets.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
5.10B
-4.81%
-2.04%
Gross Profit
975.48M
1.27%
1.98%
Operating Income
229.38M
3.25%
12.62%
Net Income
155.75M
6.77%
7.42%
EPS
1.18
9.26%
8.26%
Key Financial Ratios
currentRatio
0.77
grossProfitMargin
19.1%
operatingProfitMargin
4.5%
netProfitMargin
3.05%
returnOnAssets
2.16%
returnOnEquity
8.84%
debtEquityRatio
1.61
operatingCashFlowPerShare
$1.57
freeCashFlowPerShare
$0.14
priceToBookRatio
6.42
priceEarningsRatio
18.16
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Insights from Q3 2024 Earnings Call
#### Key Themes:
1. Membership Growth: CEO Bob Eddy noted, "Our member momentum is incredibly strong...with hitting a milestone of 7.5 million members in the third quarter, leading to over 8% growth in membership fee income."
2. Value Proposition and Fee Increase: BJ's plans to increase base membership fees for the first time in seven years, which management considers essential for reinvesting into member value and services. Eddy stated, "We plan to reinvest the proceeds from the fee increase into better value for our members."
3. Resilience Amid Challenges: The company faced challenges from external events like hurricanes and port strikes but showcased agility with management commenting, "...our results slightly beat expectations, demonstrating the progress we continue to make on our long-term priorities."
### Themes summarized:
- Strong membership drives revenue
- Increased membership fees with a focus on long-term member value
- Resilience and management of external factors
"We drove quarterly comps and profits that were higher than anticipated... Our business was once again fueled by robust traffic, unit volumes and market-share growth inside our clubs and at the gas pumps."
— Bob Eddy (CEO)
"We are committed to growing our fresh business due to its favorable influence on long-term member behavior."
— Laura Felice (CFO)
Forward Guidance
### Future Outlook
Management has revised the quarterly forecast upwards, expecting comparable sales growth (excluding gas) in Q4 to be between 2.5% and 3%, indicating confidence in membership retention and strategic initiatives. The fee increase planned for January 2025 is predicted to bring in an additional $20 million annually from member fees. There’s an ongoing commitment to invest in enhancing the shopping experience and adapting to changing market dynamics, enabling operational adaptability and sustained member engagement. Brad Eddy outlines, "...we believe our operating model, investments in strategic priorities...keep us well positioned for the future."
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
BJ Focus
19.13%
4.50%
8.84%
18.16%
BIG
36.40%
1.92%
1.51%
6.62%
DLTR
31.00%
4.41%
3.06%
15.34%
DKS
35.80%
9.36%
7.44%
17.09%
WSM
46.70%
17.80%
13.10%
16.68%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
BJ's Wholesale Club continues to show resilience with strong fundamentals and growth potential in a competitive marketplace. The proactive membership fee increase reflects management's confidence in the strength of its model, balancing short-term pressures with long-term value creation. Investors should monitor Q4 performance closely, particularly how membership growth translates into retained sales and profit margins in the coming quarters, alongside broader economic conditions that could influence consumer behaviors.
Key Investment Factors
Growth Potential
BJ's is positioned well for growth, with a robust membership base and continuing investment in digital and fresh strategy enhancements. Expectations for further unit growth and expansion across the East Coast accelerate this potential.
Profitability Risk
Competition from larger peers like Costco poses a constant risk, alongside economic uncertainties impacting consumer discretionary spending. Potential attrition from the membership fee increase could also impact short-term revenue.
Financial Position
A healthy balance sheet with a leverage ratio of 0.5x gives BJ's capacity for growth through strategic investments in new clubs and technology. Cash position remains strong with $33.87 million available, allowing flexibility for operations.
SWOT Analysis
Strengths
Strong membership growth with high renewal rates
Effective cost management leading to sustained profitability
Resilience in overcoming supply chain disruptions
Weaknesses
Lower gross margins due to focus on fresh offerings
Higher costs associated with club openings and operational investments
Opportunities
Expansion of both digital sales and in-store offerings to capture market share
Potential to increase membership penetration in higher tiers
Integration of new digital technologies enhancing customer experience
Threats
Intensifying competition from larger discount retailers