BJ’s Wholesale Club Holdings, Inc. — Form 10-Q Summary
Period clarification: The filing covers the 13 weeks ended November 2, 2019 (the third quarter of fiscal 2019), with year-to-date results for 39 weeks. This differs from the request metadata identifying “2018 Q3.”
Business context and reporting period
BJ’s operates warehouse clubs, gas stations and online retail primarily in the eastern United States. At quarter-end it operated 218 clubs and 144 gas stations across 17 states. Results are seasonal, typically stronger in the second and fourth quarters.
Financial performance
| Metric | 13 weeks ended Nov. 2, 2019 | 13 weeks ended Nov. 3, 2018 | 39 weeks ended Nov. 2, 2019 | 39 weeks ended Nov. 3, 2018 |
|---|---|---|---|---|
| Net sales | $3,152.9M | $3,150.2M | $9,493.8M | $9,380.6M |
| Membership fee income | $76.5M | $71.4M | $224.6M | $209.8M |
| Operating income | $100.9M | $90.3M | $270.4M | $193.6M |
| Net income | $55.1M | $54.4M | $145.4M | $63.0M |
| Diluted EPS | $0.40 | $0.39 | $1.04 | $0.55 |
| Adjusted EBITDA | $154.1M | $148.5M | $431.4M | $413.1M |
| Free cash flow | $(49.7)M | $20.0M | $77.1M | $147.6M |
Quarterly total revenue was $3,229.4M, up 0.2%; operating margin was approximately 3.1% versus 2.8%, and net margin approximately 1.7% versus 1.7%. Cost of sales declined to 82.8% of net sales from 83.5%. Adjusted EBITDA is a non-GAAP measure.
Comparable club sales decreased 0.4% in the quarter, while merchandise comparable sales increased 1.1%; lower gasoline sales, associated with lower pump prices, offset merchandise growth. For the 39 weeks, comparable club sales rose 0.7% and merchandise comparable sales rose 1.5%.
Cash flow, debt and liquidity
- For the 39 weeks, operating cash flow was $221.5M, down from $250.9M. Capital expenditures were $144.4M, up from $103.3M, primarily for land and construction of clubs and gas stations.
- Cash was $30.0M at November 2, 2019. The company reported $488.7M of ABL borrowing availability.
- Total debt carrying value was approximately $1.80B: $484.0M outstanding under the ABL Facility and $1.319B under the First Lien Term Loan. The term loan rate was 4.67%; the revolving ABL rate was 2.91%.
- On November 1, the company borrowed $200M under the ABL Facility and used the proceeds to repay part of the term loan. The filing reports $449.4M of current debt, including the ABL term-loan amount classified as current.
- Operating lease liabilities were approximately $2.10B. Adoption of lease accounting in fiscal 2019 added substantial lease assets and liabilities to the balance sheet; prior-year balance-sheet comparatives were not recast.
Material changes, outlook and risks
- Quarterly membership fee income increased 7.1%, attributed to membership growth and the prior-year fee increase. Merchandise margin improvement reflected progress in the category profitability improvement program.
- SG&A rose 2.2% in the quarter, reflecting investments in promotions, data analytics, procurement and optical services. Preopening costs increased to $6.3M from $2.2M as the company prepared club and gas-station openings.
- Year-to-date net income increased substantially, while interest expense fell to $82.3M from $137.8M, principally reflecting prior debt repayment and refinancing. Prior-year results included significant refinancing and debt-extinguishment costs and unusually favorable tax benefits.
- Quarterly free cash flow was negative, primarily because of the timing of capital expenditures for land purchases and new-club construction. Management said cash, anticipated operating cash flow and ABL capacity should be sufficient for operations, debt obligations and planned capital expenditures for at least 12 months.
- Management projected a 27.0% fiscal-year effective tax rate, excluding discrete items; actual reported rates may vary. No specific full-year sales or earnings guidance is stated in the provided filing text.
- Risks highlighted include economic and consumer-spending changes, membership engagement, product mix and sourcing, gasoline-price volatility, labor and occupancy costs, tariffs, seasonality, and variable interest rates. Chinese-sourced goods represented 3% of cost of sales. The company reported no material change in risk factors and no litigation expected to materially affect its financial position or results.
- After quarter-end, on November 20, the board authorized repurchases of up to $250M of common stock through January 2022. The authorization does not require purchases and is subject to liquidity, cash flow and market conditions.
Important facts for investors to verify
- Confirm the period being analyzed: this filing is fiscal 2019 Q3, not 2018 Q3.
- Track comparable merchandise sales separately from gasoline-related sales effects, and monitor membership growth and renewals.
- Assess whether operating cash generation can support elevated capital spending, debt service and any discretionary share repurchases.
- Review debt maturities, ABL availability and exposure to variable rates; $1.2B of floating-rate debt was hedged at an approximately 3.0% LIBOR component.
- Account for the substantial lease liabilities and the lack of recast prior-period lease balance-sheet figures when comparing leverage.
- Distinguish recurring operating performance from non-GAAP adjustments, tax-rate fluctuations and debt-related charges.