BJ’s Wholesale Club Holdings, Inc. — FY2023 Form 10-K
Period note: Although the request metadata refers to 2022 Q4, this filing covers the 53 weeks ended February 3, 2024 (fiscal year 2023), compared primarily with the 52 weeks ended January 28, 2023. It is an annual filing, not a standalone quarterly report.
Business context
BJ’s operates membership warehouse clubs concentrated in the eastern United States. At fiscal year-end it had 243 clubs and 174 gas stations across 20 states, and more than 7 million paid members. It reported one operating segment. Grocery represented 70% of net sales, general merchandise and services 11%, and gasoline and other 19%.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $19.55 billion | $18.92 billion |
| Membership fee income | $420.7 million | $396.7 million |
| Total revenues | $19.97 billion | $19.32 billion |
| Operating income | $800.4 million | $738.0 million |
| Net income | $523.7 million | $513.2 million |
| Diluted EPS | $3.88 | $3.76 |
| Adjusted EBITDA | $1.08 billion; 5.5% of net sales | $1.01 billion; 5.3% of net sales |
| Cash from operating activities | $718.9 million | $788.2 million |
| Adjusted free cash flow | $264.1 million | $417.6 million |
Net sales rose 3.3%; total revenues rose 3.4%; operating income rose about 8.5%; and net income rose about 2.1%. Merchandise gross margin rate increased 50 basis points, while reported cost of sales was 83.5% of net sales, versus 84.0%. Interest expense rose to $64.5 million from $47.5 million, primarily due to higher rates. The effective tax rate increased to 28.8% from 25.5%.
At February 3, 2024, cash was $36.0 million and unused ABL revolving capacity was $802.3 million. Gross debt was $719.0 million: $319.0 million under the ABL Revolving Facility and $400.0 million under the First Lien Term Loan. Year-end rates were 6.44% and 7.33%, respectively. A 100-basis-point rate change was estimated to alter annual interest cost by about $7.2 million. The ABL matures July 28, 2027; the term loan matures February 3, 2029. Management said available resources and expected operating cash flows should fund operations for at least 12 months.
Operating lease liabilities totaled approximately $2.20 billion, with about $3.49 billion in future minimum operating lease payments before imputed interest. The company also disclosed approximately $395.1 million of estimated commitments for executed leases not yet commenced.
Material changes versus the prior comparable period
- Total comparable club sales declined 1.0%, reflecting a 2.7% negative gasoline impact; merchandise comparable sales increased 1.7%.
- Grocery comparable sales increased approximately 3.5%, while general merchandise and services declined approximately 8.2%. Lower gasoline prices reduced reported sales despite growth in gallons sold.
- Membership fee income increased 6.0%; the tenured membership renewal rate remained 90%. Higher-tier members and co-branded card members accounted for 49% of merchandise spend, excluding gasoline and membership fees, versus 48% in FY2022.
- Cash from operations fell $69.3 million, primarily due to working-capital and lease-related timing. Adjusted free cash flow declined with lower operating cash flow, higher capital spending and lower sale-leaseback proceeds.
- Investing cash outflow fell from the prior year, which included the $376.5 million Burris Logistics acquisition. FY2023 capital spending increased as the growth mix tilted toward owned clubs.
- Debt outstanding declined from $855.0 million to $719.0 million. The term-loan amendment extended maturity to 2029 and reduced its contractual spread over SOFR; the reported year-end rate nevertheless reflects variable-rate exposure.
Outlook, commentary and risks
The filing provides no quantified FY2024 revenue, earnings, margin or cash-flow guidance. Management expects continued investment in club expansion, member engagement, marketing, digital capabilities and infrastructure; it notes that these investments and new openings may increase SG&A and capital needs. The next fiscal year is the 52 weeks ending February 1, 2025.
Key risks include consumer-spending weakness and inflation, competition and price pressure, member retention, merchandise sourcing and supply-chain disruption, gasoline price and margin volatility, labor costs, cybersecurity and payment-data security, and execution of new-club growth. The New York metropolitan area generated 23% of FY2023 net sales. The business is moderately seasonal, with typically stronger sales, operating income and operating cash flow in the second and fourth quarters.
The company recorded $13.9 million of restructuring charges in FY2023, related to corporate-function restructuring; adjusted net income was $534.5 million versus GAAP net income of $523.7 million. Legal proceedings were described as routine and incidental, with management not expecting a material adverse impact. Workers’ compensation and general liability reserves are significant estimates and were identified as a critical audit matter. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
The company repurchased 1.96 million shares for $130.2 million during FY2023; $189.3 million remained under the repurchase authorization at year-end. It does not expect to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- Confirm the period basis: FY2023 included 53 weeks versus 52 weeks in FY2022, and assess the effect on year-over-year comparisons.
- Track merchandise comparable sales, gasoline’s impact, renewal rates and higher-tier member spending to assess underlying demand and membership strength.
- Monitor working capital, capital expenditure, adjusted free cash flow and new-club returns as expansion continues.
- Review variable-rate debt, borrowing-base availability, covenant restrictions, lease commitments and sensitivity to interest-rate changes.
- Assess the assumptions behind self-insurance reserves and the potential effect of labor, legal, cybersecurity or supply-chain events.
- Reconcile reported debt figures when using this filing: the debt note reports $719.0 million of gross principal, while another risk-factor passage states $717.4 million.