BJ’s Wholesale Club Holdings, Inc. — Form 10-Q Summary
Period note: The request metadata says “2021 Q1,” but this filing reports the thirteen weeks ended April 30, 2022, identified in the filing as the first quarter of fiscal 2022. Comparisons are with the thirteen weeks ended May 1, 2021.
Business context
BJ’s operates membership warehouse clubs, primarily on the U.S. East Coast. At April 30, 2022, it operated 227 clubs and 159 gas stations in 17 states, with approximately 6.5 million paying members. Club retail operations are its only reportable segment.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change / context |
|---|---|---|---|
| Net sales | $4,399.8 million | $3,781.8 million | Up 16.3% |
| Total revenues | $4,496.4 million | $3,868.2 million | Includes membership fee income |
| Membership fee income | $96.6 million | $86.4 million | Up 11.9% |
| Operating income | $150.3 million | $126.3 million | |
| Net income | $112.5 million | $81.6 million | |
| Diluted EPS | $0.82 | $0.59 | |
| Adjusted EBITDA | $220.8 million | $202.4 million | 5.0% vs. 5.4% of net sales |
| Operating cash flow | $44.3 million | $249.0 million | |
| Free cash flow | $(46.2) million | $190.9 million |
Cost of sales was 84.2% of net sales, versus 83.1% a year earlier. Merchandise gross margin declined 30 basis points, reflecting higher freight costs and investments to preserve value amid inflation. Comparable club sales rose 14.4%, including a 10.3% contribution from gasoline; merchandise comparable sales increased 4.1%.
Liquidity, debt, and capital allocation
Cash and cash equivalents were $38.0 million at April 30, 2022. Gross debt was approximately $831.9 million, comprising $130.0 million outstanding under the ABL Facility and $701.9 million under the First Lien Term Loan. Unused ABL capacity was $859.1 million, with $10.9 million of letters of credit outstanding. The filing says existing resources, expected operating cash flows, and ABL borrowing capacity should fund operations for at least the next twelve months.
Operating cash flow fell substantially year over year, principally because of inventory purchases and higher procurement costs, as well as changes in incentive compensation and other accruals. Capital expenditures were $90.5 million, compared with $74.7 million. The company repurchased 570,506 shares under its program for $35.8 million during the quarter; $435.4 million remained authorized.
Material changes, outlook, and risks
- Sales growth was driven by comparable sales and higher gasoline sales; grocery comparable sales increased 7.0%, while general merchandise and services declined approximately 10.3% amid softer discretionary demand and unseasonable Northeast weather.
- Management reported continued commodity inflation, wage inflation, supply-chain constraints, and labor and procurement challenges. It noted that higher costs may pressure margins and that product availability may not match demand.
- On May 2, 2022, after quarter-end, BJ’s completed its acquisition of four Burris Logistics distribution centers and the related private fleet for approximately $377 million, including about $90 million of inventory and working-capital adjustments. The purchase was funded with cash and ABL borrowings. The quarter included $7.9 million of related transaction costs.
- No specific full-year financial guidance is provided in the supplied filing text. Management expects infrastructure investments, including the Burris acquisition, to support the operating model and growth, while noting that quarterly results are seasonal and are not necessarily indicative of full-year results.
- Other stated risks include gasoline-price volatility, changing consumer spending, competition, membership retention, vendor dependence, interest-rate exposure, cybersecurity, and the continuing effects of COVID-19. Management reported no material changes to previously disclosed risk factors and no expected material loss from current legal proceedings.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q1 fiscal 2022, not Q1 2021.
- Assess whether comparable-sales growth and membership-fee growth can continue as pandemic-related demand moderates and discretionary categories remain weak.
- Track merchandise margins, inflation, freight and wage costs, and the impact of gasoline prices on reported sales and margins.
- Monitor inventory-related cash use, capital spending, and free cash flow, which was negative in the quarter.
- Evaluate the Burris acquisition’s final purchase adjustments, financing, integration costs, and expected operating benefits.
- Review variable-rate debt exposure and ABL availability; substantially all borrowings carry variable interest rates.