BJ’s Wholesale Club Holdings, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended October 28, 2023 (fiscal 2023 third quarter) and the 39 weeks ended that date, compared with the corresponding 2022 periods. This differs from the request metadata’s “2022 Q3.” Unless otherwise noted, figures below are in U.S. dollars.
Business context
BJ’s operates membership warehouse clubs concentrated in the eastern United States, with gasoline stations and online, pickup, and delivery services. At October 28, 2023, it reported 238 clubs and 169 gas stations in 20 states; the MD&A also refers to 239 clubs as of the filing date. The company reported approximately 7.1 million members. Grocery, general merchandise and services, and gasoline and other represented 70%, 10%, and 20% of third-quarter net sales, respectively.
Financial results and liquidity
| Metric | 13 weeks ended Oct. 28, 2023 | Prior-year period | 39 weeks ended Oct. 28, 2023 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $4.925 billion | $4.785 billion | $14.611 billion | $14.386 billion |
| Net sales | $4.819 billion | $4.686 billion | $14.299 billion | $14.091 billion |
| Operating income | $199.4 million | $192.0 million | $586.4 million | $545.2 million |
| Net income | $130.5 million | $129.9 million | $377.9 million | $383.4 million |
| Diluted EPS | $0.97 | $0.95 | $2.79 | $2.81 |
| Adjusted EBITDA | $274.9 million | $272.3 million | $800.7 million | $766.8 million |
| Free cash flow | $47.6 million | $75.4 million | $108.9 million | $329.6 million |
Third-quarter total revenue rose 2.9%, while net income was nearly flat. For the first 39 weeks, revenue increased 1.6%, but net income declined 1.4%. Adjusted EBITDA was 5.7% of net sales in the quarter (5.8% prior year) and 5.6% for the 39 weeks (5.4% prior year). Merchandise gross margin rate improved 30 basis points in the quarter and 70 basis points year to date. Cost of sales was 83.5% of net sales in the quarter versus 83.4% previously; year-to-date it was 83.4% versus 84.1%.
Operating cash flow for the 39 weeks was $444.5 million, down from $612.9 million. Capital expenditures, net of disposals, were $348.0 million, compared with $294.3 million; sale-leaseback proceeds were $12.3 million. The company attributed weaker operating cash flow and free cash flow principally to working-capital movements, especially inventories and accounts payable, and increased capital spending. Cash and cash equivalents were $33.6 million at October 28, 2023.
Gross debt was $834.0 million: $434.0 million drawn under the ABL revolving facility and $400.0 million under the First Lien Term Loan. ABL unused capacity was $753.7 million, with $12.3 million of letters of credit outstanding; its stated interest rate was 6.43%. The term loan rate was 7.35%. The balance sheet also reported substantial operating lease liabilities. Current assets were $2.000 billion and current liabilities were $2.739 billion.
Material changes and management commentary
- Quarterly comparable club sales increased 0.3%, while merchandise comparable club sales declined 0.1%. For the 39 weeks, comparable club sales declined 1.2%, although merchandise comparable sales rose 2.1%.
- Management attributed quarterly sales growth mainly to traffic and market-share gains, particularly in grocery, and higher comparable gasoline gallons. Grocery sales increased 1.6% in the quarter; general merchandise and services declined approximately 10.9%, reflecting weaker demand for electronics, home, and seasonal items.
- Membership fee income rose 6.6% in the quarter and 5.9% year to date, driven by renewals, new members, and greater penetration of higher-tier memberships.
- SG&A increased 3.4% in the quarter and 6.1% year to date, primarily due to labor and occupancy costs associated with openings and continuing investments. Pre-opening expenses declined year over year due to timing.
- Net interest expense increased to $18.0 million in the quarter and $49.0 million year to date, mainly reflecting higher interest rates and debt-related charges. The effective tax rate also increased, primarily because of lower stock-based compensation tax benefits.
Outlook, risks, and unusual items
The filing provides no specific numerical earnings or sales guidance. Management stated that cash, expected operating cash flows, and ABL borrowing capacity should fund operations for at least the next 12 months. The fiscal year ends February 3, 2024 and includes 53 weeks; the filing cautions that interim results are not necessarily indicative of full-year results.
On October 12, 2023, BJ’s amended its term loan, extending maturity from February 2027 to February 2029 and reducing the applicable spread from SOFR plus 2.75% to SOFR plus 2.00%. The company reported no required excess-cash-flow principal payment because its net leverage ratio did not exceed 3.50 to 1.00. Refinancing-related charges included $1.4 million of previously capitalized costs and discount and $0.4 million of new third-party fees.
Key disclosed risks include consumer spending and economic conditions, inflation and interest-rate volatility, sourcing and supply-chain constraints, gasoline-price fluctuations, competition, membership retention, cybersecurity, labor availability, and execution of club-opening and omnichannel plans. Substantially all borrowings carry variable rates, exposing interest expense and cash flows to rate changes. BJ’s described ordinary-course legal matters as not expected to have a material adverse effect. It reported no material changes to the risk factors in its fiscal 2022 Form 10-K and no material changes to disclosure controls; management concluded controls were effective at the reasonable-assurance level.
During the 39 weeks, BJ’s repurchased 1.16 million shares for $77.0 million under its $500 million repurchase program; $241.9 million remained available at October 28. After quarter-end, the compensation committee adopted a non-qualified deferred compensation plan effective January 1, 2024. The plan is unfunded, and participant claims are general unsecured obligations.
Important facts for investors to verify
- Confirm the club count: the filing reports 238 clubs at quarter-end but 239 in the MD&A’s description as of the filing date.
- Assess comparable-sales trends, especially the contrast between grocery growth and continued weakness in general merchandise.
- Monitor operating cash flow, inventory levels, capital expenditures, and free cash flow, which fell substantially year over year for the 39 weeks.
- Review variable-rate debt exposure, ABL availability, and the effect of the term-loan refinancing and higher interest costs.
- Check subsequent filings for updated full-year results and outlook; this 10-Q does not provide quantified guidance.