BJ’s Wholesale Club Holdings, Inc. — Form 10-K Summary
Period note: The supplied filing is the annual report for fiscal 2020, the 52 weeks ended January 30, 2021, filed March 19, 2021. It is not a fiscal 2019 Q4 filing. Fiscal 2019, ended February 1, 2020, is the principal comparison; fiscal 2020 Q4 figures are also shown below.
Business context
BJ’s operates membership warehouse clubs, primarily on the U.S. East Coast. At year-end it had 221 clubs in 17 states, more than six million paid memberships, and 150 gasoline stations. Grocery represented 77% of net sales, general merchandise and services 14%, and gasoline and other 9%. The company has one reportable segment.
Financial results and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales | $15.097 billion | $12.889 billion |
| Total revenue, including membership fees | $15.430 billion | $13.191 billion |
| Operating income | $642.4 million | $352.2 million |
| Net income | $421.0 million | $187.2 million |
| Diluted EPS | $3.03 | $1.35 |
| Operating cash flow | $868.5 million | $355.1 million |
| Adjusted EBITDA | $857.5 million | $581.6 million |
| Free cash flow (company-defined) | $676.1 million | $179.8 million |
- Net sales rose 17.1%; comparable club sales increased 15.9%, including a 21.3% increase in merchandise comparable sales. Membership fee income grew 10.2% to $333.1 million; the renewal rate was 88%, up from 87%.
- Cost of sales declined to 82.5% of net sales from 83.5%, while SG&A declined to 15.4% from 16.0%. Operating margin was approximately 4.2% of total revenue, versus 2.7% in fiscal 2019; net margin was approximately 2.7%, versus 1.4%.
- Fiscal 2020 Q4 net sales were $3.861 billion versus $3.395 billion a year earlier; net income was $95.9 million versus $41.8 million, and diluted EPS was $0.69 versus $0.30.
- Cash and cash equivalents were $43.5 million. Debt carrying value was $1.106 billion, comprising $801.9 million on the First Lien Term Loan and $310.0 million under the ABL Facility, before unamortized debt costs and discounts. The company reported $641.1 million of unused ABL capacity.
- Current assets were $1.471 billion and current liabilities $2.031 billion. Operating lease liabilities totaled approximately $2.120 billion; future minimum operating lease payments were $3.532 billion. Capital spending, net of disposals, was $218.3 million.
Material changes and drivers
- Management attributed the strong sales and earnings performance primarily to pandemic-related demand for groceries, which more than offset weaker general merchandise and services demand. Grocery sales grew approximately 24%; general merchandise and services grew approximately 11%.
- Gasoline sales declined 18.3%, mainly because of lower retail prices. Gasoline represented 9% of net sales, versus 13% in fiscal 2019. Improved gas margins contributed to the lower cost-of-sales ratio.
- SG&A rose in dollars, including pandemic-related labor costs of $79.6 million, safety and sanitation costs of $34.5 million, and bonus incentive costs of $36.1 million. Lower interest expense, $84.4 million versus $108.2 million, also supported earnings.
- Operating cash flow increased substantially, which management attributed to stronger operating performance, working-capital benefits from higher sales and inventory turnover, higher membership income, and lower interest payments.
- Debt carrying value fell from $1.681 billion to $1.106 billion. The company made significant term-loan repayments, partly funded by ABL borrowings, and repurchased $99.7 million of shares under its program during the year.
Outlook, risks, and unusual items
- No specific financial guidance was provided. Management said the pandemic’s longer-term effects were uncertain and warned that elevated grocery demand could reverse as consumer behavior changes. It expects SG&A to increase with growth, investment, and pandemic-related costs.
- Key risks include dependence on member loyalty and renewal, intense price competition, vendor and supply-chain disruption, pandemic-related changes in demand and operations, and concentration in the New York metropolitan area, which generated 25% of net sales.
- Other material exposures include substantial lease commitments, debt and variable interest rates, LIBOR transition, cybersecurity and payment-card security, SNAP/EBT policy changes, and reliance on a third party to consolidate most perishables for shipment. The company identified no material off-balance-sheet arrangements.
- Fiscal 2020 included $4.1 million of debt refinancing and prepayment fees/write-offs and $6.9 million of reclassified unrealized swap losses in interest expense. No impairment charges were recorded in fiscal 2020; fiscal 2019 included $13.3 million of impairment charges.
- Management did not believe current legal proceedings would have a material adverse impact. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the audit highlighted workers’ compensation and general liability reserves as a critical audit matter.
Investor verification priorities
- Confirm the filing period and distinguish fiscal 2020 results from the metadata’s “2019 Q4” label.
- Assess how much of the exceptional comparable-sales and profit growth is sustainable after pandemic-driven demand normalizes.
- Review the debt repayment and ABL borrowing mix, near-term maturities, borrowing-base availability, and interest-rate exposure.
- Evaluate lease obligations and cash requirements alongside planned club, gas-station, and digital investment.
- Track membership renewal and fee growth, merchandise mix and margins, gasoline contribution, and pandemic-related operating costs.