Release Date: November 21, 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 impressive third quarter results with higher-than-anticipated comps and profits.
- Membership fee income grew by over 8%, reaching a milestone of 7.5 million members, with a 40% increase in the member base since 2018.
- The company announced its first membership fee increase in 7 years, with added benefits such as 2 free same-day deliveries for Plus members.
- BJ's digital business is growing rapidly, with a 30% increase in digitally-enabled comp sales in the third quarter.
- The company is expanding its footprint, opening 3 new clubs and 4 gas stations in the third quarter, with plans to open 8 more clubs by the next earnings call.
Negative Points
- The East Coast port strike and hurricanes caused temporary shifts in member behavior, impacting sales.
- General merchandise and services division delivered approximately flat comps in the third quarter.
- SG&A expenses increased due to new unit growth and investments, leading to deleverage as a percent of net sales.
- The fresh business, while driving strong comp sales, comes at a lower margin rate, impacting overall merchandise margins.
- The company is facing an uncertain economic backdrop, which could affect future sales and growth.
Q & A Highlights
Q: Can you clarify the number of members in the higher tier and how you're thinking about attrition rates with the upcoming fee increase?
A: Robert Eddy, CEO: We're thrilled with our membership performance, with all-time high renewal rates and improving member behavior. Our higher tier members, who are our best members, have been growing nicely. We see a path to grow this further with our enhanced value proposition, including two free same-day deliveries. Laura Felice, CFO: The fee increase will contribute about $20 million annually, back half-weighted, and will be reinvested into the business.
Q: What is the outlook for SG&A growth, considering your investments in new clubs?
A: Laura Felice, CFO: Growing our unit base is a strategic priority, which does provide some SG&A deleverage. We'll discuss next year's outlook in March, but expect deleverage in Q4. Robert Eddy, CEO: We're proud of our progress in opening new clubs effectively, which will pressure near-term earnings but benefit us long-term.
Q: What are the assumptions for holiday sales in your Q4 guidance, particularly for general merchandise and digital sales?
A: Robert Eddy, CEO: We're cautiously optimistic about Q4, expecting better performance in general merchandise compared to Q3. Our digital business is growing rapidly, with 30% growth in the last quarter. While digital sales are more costly, they result in larger baskets and better renewal rates.
Q: Why is now the right time for a membership fee increase, and how are you feeling about new member growth momentum?
A: Robert Eddy, CEO: We're bullish on our membership momentum, with all-time high first-year renewal rates. The fee increase is timely due to significant investments in our business over the past seven years. We expect minimal disruption to renewal rates and plan to reinvest the proceeds into enhancing membership value.
Q: What impact do adding gas stations to existing clubs have on membership and comps?
A: Robert Eddy, CEO: Adding gas stations significantly boosts club performance, improving comps and membership renewal rates. Gas is a great way to show value, and we plan to add gas stations wherever feasible, as they enhance club trends.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
