BJ’s Wholesale Club drives changes after lackluster Q4, fiscal year sales

BJ’s Wholesale Club saw slight gains in net and comparable sales for its 2019 fourth quarter and fiscal year, with earnings in line with financial analysts’ expectations.

For the quarter ended Feb. 1, net sales rose 1.5% to $3.39 billion from $3.34 billion a year earlier, BJ’s said Thursday. Including a 6.2% increase in membership fee income, total revenue was up 1.6% to $3.47 billion.

Comparable-club sales inched up 0.5% year over year for the fourth quarter. Backing out fuel sales, the comp-sales gain was 0.3%, according to Westborough, Mass.-based BJ’s.

Chief Financial Officer Robert Eddy said a timing change in government assistance benefits shaved comp sales in the quarter by 80 basis points, while 2019’s shorter holiday shopping season also had a negative impact. BJ’s two-year stack for the period showed 3.2% growth, he reported.

“Our perishables and edible grocery divisions were impacted by the EBT headwind, as well as by the compressed holiday season,” Eddy told analysts in a conference call on Thursday. “The calendar’s fewer shopping days led to fewer trips and less shopping for holiday party essentials and related goods. These two factors resulted in comps in our edible grocery and perishables divisions of negative 2% and negative 1%, respectively. In addition, our nonedible grocery division comps grew by 1%, in spite of a slight EBT headwind.”

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Fiscal 2019 net sales grew 1.3% to $12.89 billion from $12.72 billion in 2018. Membership fee income climbed 6.8% for the year, contributing to a 1.4% gain in overall revenue to $13.19 billion.

Growth in comparable-club sales was a bit higher for the full year than in the final quarter, up 0.7%. The increase excluding fuel was 1.3%.

“We have made significant progress in transforming our company and continue to believe in the fundamentals of our business model,” President and CEO Lee Delaney said in the call. “The investments we made and the capabilities we built over the past four years enabled us to deliver consistent, positive comps with margin growth. However, our results fell short of expectations in the back half of the year.

Lee Delaney (left) succeeded Christopher Baldwin as BJ's president and CEO, with Baldwin becoming executive chairman. (Photo courtesy of BJ's)

“Our priority is clear: We must grow faster,” said Delaney, making his first earnings report since taking the helm as BJ’s CEO on Feb. 2. “We’ll do this by investing more aggressively into growth opportunities and accelerating those areas of our transformation that are delivering results.”

Related:Lee Delaney to become CEO of BJ’s Wholesale Club

To that end, in the fourth quarter, BJ’s launched Project Momentum, a cost reduction program to drive $100 million savings over the next two years that could be funneled toward growth efforts. Pillars of the plan include acquiring and retaining members, delivering value to keep members engaged, making shopping more convenient and expanding BJ’s reach.

“This work included a realignment of our organization to support our strategic initiatives and to remove duplicative work,” Delaney said. “We made these decisions from a position of strength, and the savings will enable us to invest more aggressively behind growth opportunities.”

For example, to raise the value quotient for a BJ’s membership, the warehouse club chain is sharpening its focus on curating the best offerings, according to Delaney.

“We have a tremendous opportunity to enter new product and service categories, where we can offer great member value and deliver growth. For example, we're underassorted in key growth segments like healthy and organic products, plant-based foods, active nutrition and multicultural items. We also offer considerably less assortment in general merchandise categories, included connected home electronics, DIY products, camping supplies and sporting goods. We also lack a full range of services. We will be adding things like cellular phones, home improvement, and financial and business services,” he said in the call.

“The key question is, how do we find space to carry all these exciting new products and services? The good news is we offer way more choice in center-store grocery categories than our members need,” Delaney said, noting that BJ’s carries 4.5 times the pasta and sauce and four times the deodorant of warehouse competitors. “We're reflooring space to achieve a more consistent club experience, optimize productivity and allocate space based on demand. We are piloting these changes and will begin in a measured way, but at a faster pace. Importantly, we expect this work to drive growth with minimal disruption. Our assortment work will enable us to accelerate our own brands' penetration, which currently stands at a little over 20%.”

BJ’s didn’t report digital sales figures, but Delaney said the company’s omnichannel business “will be one of our highest priorities,” as members value the convenience of pickup and delivery service.

“This business grew nicely last year and in the fourth quarter particularly. We are investing in omnichannel for the long-term and believe our capabilities in buy online, pick up in-club [BOPIC] and same-day delivery offer the potential for considerable growth,” he explained. “Members who leverage these capabilities skew younger and spend more. Importantly, we have an economic advantage here compared to others. We operate at a limited-SKU warehouse environment with significantly average tickets. BOPIC sales tend to skew towards higher-ticket items, and about half of our BOPIC shoppers make additional purchases once they are in the club.”

More omnichannel-focused services are on the way, added Delaney. “We expect our continued omni-investments to attract new, higher-quality members, improve member engagement, drive trips and fuel our top line,” he said.

At the bottom line, BJ’s had 2019 fourth-quarter net earnings of $41.8 million (30 cents per diluted share), compared with $64.3 million (46 cents per diluted share) in the prior-year period. Excluding club closing and impairment charges, charges and write-offs from debt refinancing and payment, and severance charges, partially offset by a sale-leaseback transaction gain and tax benefit, adjusted net income was $55.1 million (40 cents per diluted share) versus $62.1 million (44 cents per diluted share) a year ago.

Analysts, on average, had projected adjusted earnings per share (EPS) of 40 cents, with estimates running from a low of 37 cents to a high of 43 cents, according to Refinitiv/Thomson Reuters.

Full-year 2019 net income totaled $187.2 million ($1.35 per diluted share), up from $127.3 million ($1.05 per diluted share) in fiscal 2018. On an adjusted basis, net earnings were $203.4 million ($1.46 per diluted share), compared with $186.2 million ($1.33 per diluted share) for 2018. That met analysts’ consensus 2019 adjusted EPS estimate of $1.46, with projections ranging from $1.44 to $1.49.

“Fiscal 2019 was a solid year, anchored by foundational work to expand our omni capabilities and to enhance the quality of our membership, which will enable us to deliver growth and continue to transform the company,” Executive Chairman Christopher Baldwin said in a statement. "As we look ahead, we are well-positioned to build on this foundation and remain confident in the fundamentals of our business and our long-term prospects.”

BJ’s finished fiscal 2019 with 217 clubs and 145 BJ's Gas locations in 17 states, up from 216 clubs and 138 fuel stations at the end of fiscal 2018. Plans call for two new clubs to open in the first half of 2020, including in Pensacola, Fla., and Chesterfield, Mich.