New BJ's CEO Faces Up to Coming Comp Challenges

In his first remarks since his sudden ascension as president and CEO of BJ’s Wholesale Club, Bob Eddy delivered a difficult if somewhat inevitable message: Comp-store sales aren’t going to look very good this year.

Eddy said it was likely comps would decline by about 10% this year as the club merchant laps the COVID boom in food consumed at home that sent BJ’s sales flying high last year. Ex-gas comps in the fiscal first quarter, which the company reviewed in a conference call this week, were down by 5%, with groceries down by around 10%.

In context, Eddy emphasized, it’s not all bad. Two-year stacked trends indicate sales are headed in a positive direction for BJ’s, and ongoing investments in new stores, digital capabilities and member retention—and the notion that a “new normal” would reset food-at-home at a higher level than before the pandemic—in his view are tailwinds for the longer term. In the near term, “It’s just going to be weird over the next couple of quarters,” Eddy remarked.

“We took tremendous sales gains last year as a result of Americans eating more food at home. I would think that as the world opens up again, people get back into their offices, they go back into restaurants, that means that food-at-home retracts,” he said, according to a Sentieo transcript.  “I don’t think it retracts all the way to where it was pre-pandemic because people have gotten used to eating a ton at home. But I do think that causes a headwind as we go through the year. You have the stimulus rolling off. You have some of the pantry de-loading we saw in our sundries business in the first quarter. You’ve got some meaningful headwinds to think about.”

BJ’s financial performance for the first quarter was a bit better than analysts had expected, but as complicated as officials had indicated it might be. In the 13-week period, which ended May 1, net sales of $3.8 billion improved by 1.7%, and membership income climbed by 8.6%. Net income was down 14.8% to $81.6 million and earnings per share of 59 cents was down from 69 cents a year ago but EPS beat consensus estimates by 2 cents.

What appeared to worry investors was the company’s eschewing financial guidance for the periods ahead—beyond the estimated comp figures—based on market uncertainty, along with the expectation that improved margins in the first quarter would not recur as comps dip and expected inflation will pressure the company to invest in price to maintain its value proposition. BJ’s stock was down by nearly 5% following the earnings announcement.

Same Strategy, Only Faster?

Eddy, a longtime executive of BJ’s who most recently was its chief financial officer, was appointed CEO April 19 following the unexpected passing of Lee Delaney on April 8. Laura Felice was appointed CFO, among other executive changes.

Eddy began his discussion of BJ’s financial reports with words of praise for Delaney, pledging not to interfere with the strategic direction and momentum that Delaney had led over the last year.

“He was fascinating and fun and will be deeply missed by our team,” Eddy said. “His legacy and vision remain ingrained in our culture and in how we will run our business for the future. Personally, I’ve been inspired by, and grateful for, the outpouring of love and support from our team and from all corners of the business world, including the investment community.”

He added: “I’ve been asked many times lately whether I will change our strategy. And it is important for you to know that I developed the strategy in partnership with [former CEO] Chris [Baldwin] and Lee. We worked hand-in-hand together for the past five years. While I may choose to alter the speed of certain actions, you will not see me alter our general course at this point. We have a sound strategy that should enable our continued growth.”

For BJ’s that means emphasizing “pillars” around growing and retaining paid members; delivering value with merchandising and marketing—including on ongoing strategy to simplify assortments and gain more traction behind service offerings—improving its digital offering, and expanding its store footprint.

Eddy confirmed six new stores would open before the end of the fiscal year—including two in a new market of Pittsburgh—and nine gas stations would be added to the fleet. Next year, Eddy pledged 10 new units would arrive.

New stores are helping to contribute to membership growth, Eddy said, noting BJ’s recent expansion to places such as Metro Detroit and Pensacola, Fla., are retaining members at better rates than ever.

“This year, in a way like no other year, renewal is acquisition,” he said. “Renewing members is far more valuable as they have higher MFI (membership fee income) vs. newly acquired members that typically join through a discounted offer.”

Regarding his remarks to “alter the speed” of strategies, Eddy said that was largely a function of flexing elements of the strategy as changing circumstances dictate. Price inflation, for example, “might cause me to press the accelerator on our assortment changes a little bit, and rationalize some SKUs that might be inflating a little bit more than we think they should.”

A step-up in the speed at which BJ’s builds new units is another example. BJ’s officials, including Delaney, had frequently expressed a cautious desire to grow faster; Eddy appears more enthusiastic on that front. The recent appointment of Bill Werner as EVP of strategy and development will also help, he said.

The new stores this year are set for Seabrook, N.H., Port Charlotte, Fla., Commack, N.Y., South Fayette, Pa., Ross Township, Pa., and Lansing, Mich. The locations in the greater Pittsburgh area and in Lansing represent new markets for the retailer.