BJ’s Wholesale Club Holdings, Inc. — Form 10-Q Summary
Period: The filing covers the 13 and 26 weeks ended July 31, 2021 (fiscal 2021 Q2 and first half), compared with periods ended August 1, 2020. This differs from the request metadata identifying 2020 Q2.
Business context
BJ’s operates warehouse clubs and gas stations primarily in the eastern United States. At quarter-end, it had 222 clubs and 151 gas stations across 17 states, and more than six million paid members. Membership fees, merchandise, gasoline and omnichannel sales are key components of its business.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenue | $4.177 billion | $3.954 billion | $8.045 billion | $7.752 billion |
| Net sales | $4.088 billion | $3.872 billion | $7.870 billion | $7.590 billion |
| Membership fee income | $88.8 million | $82.5 million | $175.1 million | $162.1 million |
| Operating income | $163.8 million | $163.6 million | $290.0 million | $307.3 million |
| Net income | $111.0 million | $106.6 million | $192.6 million | $202.4 million |
| Diluted EPS | $0.80 | $0.76 | $1.39 | $1.46 |
| Adjusted EBITDA | $220.1 million | $216.9 million | $422.5 million | $410.8 million |
| Adjusted EBITDA / net sales | 5.4% | 5.6% | 5.4% | 5.4% |
Q2 comparable club sales increased 4.0%, while merchandise comparable sales fell 3.4%; gasoline sales rose 91.1% year over year. In the first half, comparable club sales rose 2.2%, but merchandise comparable sales declined 4.2%, while gasoline sales increased 77.5%. Membership fee income grew 7.6% in Q2 and 8.1% in the first half, mainly from renewals and greater uptake of higher-tier memberships.
Cost of sales rose to 83.5% of net sales in Q2 from 82.6%, and to 83.3% in the first half from 82.5%. Management attributed the pressure largely to higher gasoline sales at higher cost per gallon; improved merchandise margins from sales mix and private-label penetration partly offset it. SG&A increased 1.2% in Q2 and 1.4% in the first half. Q2 operating income was nearly flat year over year; first-half operating income and net income declined.
Cash flow, debt and liquidity
- First-half operating cash flow was $559.3 million, down from $733.7 million, which management attributed primarily to less favorable working-capital comparisons with pandemic-related sales in the prior year.
- First-half capital expenditures, net of disposals, were $147.8 million; sale-leaseback proceeds were $19.1 million. Disclosed free cash flow was $430.6 million, versus $654.8 million.
- Cash and cash equivalents were $42.4 million at July 31, 2021. Total debt carrying amount was $751.9 million, versus $1.112 billion at January 30, 2021. The company reported $768.2 million of unused ABL revolving capacity.
- First-half financing included $100 million of First Lien Term Loan repayments, ABL repayments, and $63.5 million of share repurchases under the program. The ABL Facility matures August 2023; the First Lien Term Loan matures February 2024.
- Operating lease liabilities totaled approximately $2.204 billion, including current and long-term portions.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management said available liquidity should be adequate to fund operations, debt obligations, investment and expansion for the foreseeable future.
- Management reported ongoing global supply-chain challenges, which could constrain merchandise availability. It also cited uncertainty around COVID-19’s effects on demand, consumer behavior, labor and sourcing; inflation and commodity costs; gasoline-price volatility; and dependence on membership renewals.
- First-half stock-based compensation included $17.5 million related to modification of awards following the former CEO’s death; severance charges were $2.3 million. Q2 SG&A also reflected an $8.0 million team-member recognition bonus.
- Debt repayment accelerated recognition of losses on ineffective interest-rate hedges: $3.2 million in Q2 and $8.0 million in the first half, partly offsetting lower interest costs from reduced debt balances and rates.
- The company revised a supplemental cash-flow disclosure for the prior-year Q2 filing: property additions included in accrued expenses had been overstated by $63.1 million. Management concluded the error was not material to that prior filing but corrected the comparative disclosure here.
- Management concluded disclosure controls were effective as of July 31, 2021. It reported no material changes to risk factors and did not expect current legal proceedings to result in a material loss.
Key facts for investors to verify
- Whether comparable merchandise sales stabilize as pandemic-era demand normalizes, and how much reported sales growth continues to depend on gasoline.
- Whether higher merchandise, freight, labor and other costs pressure gross margins or are offset by pricing, mix and private-label sales.
- Membership renewal trends and the durability of membership-fee growth.
- Cash conversion and capital spending trends, given lower year-over-year operating cash flow and higher first-half capital expenditures.
- Debt repayment, interest-rate exposure and future hedge-related charges; also confirm ABL availability and facility terms.
- The impact of supply-chain constraints, inflation, COVID-19 developments and ongoing share repurchases on operating results and liquidity.
- The corrected prior-period supplemental cash-flow disclosure and the company’s related control remediation, if any.