Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong growth in membership fees and market share.
- Continued growth in comparable club sales excluding gas sales, with a 0.6% increase in the first quarter.
- Successful Fresh 2.0 initiative leading to 8% comp unit growth in fresh produce.
- Digital sales up 21% year-over-year, driven by conveniences like buy online, pickup in club, and same-day delivery.
- Expansion plans with 11 new clubs expected to open in the back half of the fiscal year, including new markets.
Negative Points
- General merchandise business delivered a slightly negative comp in the first quarter due to weather-sensitive categories.
- Merchandise gross margin rate decreased by approximately 50 basis points year-over-year.
- Gasoline business faced margin headwinds, resulting in profits below expectations.
- SG&A expenses increased year-over-year due to new unit growth and other investments.
- Lower-income members remain under pressure, particularly due to waning government aid.
Q & A Highlights
Q: First, just on the MFI growth. Obviously, very impressive there. I recognize it is 8.6%. It's probably the fastest growth rate. But as we look out through the balance of the year, just any reason why the dollar number would step down sequentially? Or should we expect it to continue to grow a little bit? And curious kind of how the robust performance influences you're willing to consider a fee increase at some place this year? That's my first question.
A: Thanks, Pete. Morning, took the first question to get to the fee increase. Look, I think we had a great quarter from a membership perspective. The team is doing pretty impressive things, signing up new members and renewing members, getting them up through the premium to our field folks have been doing a fantastic job of interacting with our members. We're engaging them nicely as well. So I think we've got a lot to be proud of there. As we said in the prepared remarks, 8.6% was pretty high, and we don't expect that to recur, most of that increment over our previous trend was just the way the spacing of the clubs last year fell and how that falls into this year. But with that said, we are slightly ahead of last year's trend ex that and slightly ahead of our own plans. So we're pretty pleased with what we're doing and where we're going from a membership fee perspective. As to the fee increase, we haven't really given a whole bunch of thought to it at this point. And so when there's news to share, we'll definitely share it.
Q: My follow-up is on kind of on inventory and merch margins, inventory looked really clean. Just curious kind of your progress there, what you've done to kind of get that in line? And what does that mean for kind of the merch margin path from here, down 50 basis points in the first quarter, your sales 20% for the year. Maybe just help us understand maybe the cadence in 2Q and then versus the second half.
A: Sure. Yes. Look, we're pretty happy with where our inventories are at this point. The team has been doing a bunch of work. We frankly weren't happy with our inventory levels last year, particularly from an in-stock perspective. And so the team has done a bunch of work to raise our in-stocks which are significantly higher today than they were a year ago today and to find ways to offset those increases in inventory levels by reducing inventory that frankly, we don't need. Not inventory that's going to go bad, but just a more efficient way to present and move inventory around. So I think we've got continued upside there. We should be able to raise the in-stocks even further and continue to rationalize the inventory base as well. Obviously, we've got new clubs coming into the portfolio that drives inventory up a little bit. So we're pretty pleased with where we landed for the end of the quarter. And maybe I'll let Laura tackle the margin question.
Laura L. Felice: Yes. On merch margins, it is as we expected when we guided for Q1 when we gave a little bit of color on it, largely what happened in Q1 was the transition of our co-brand portfolio last year and lapping that. So we continue to expect that, that was a Q1 event only and will not drive margins down as we progress through the remainder of the year.
Q: Last quarter, we had asked you about the promotional environment and pricing. And I think the answer at the time was maybe the environment was a little bit more promotional. But how are you thinking about it now, especially in the context of pricing actions taken by a competitor and rollbacks from another? I know you have your competitive price gap, but how are you thinking about that right now?
A: Kate, thanks for the question. Certainly a relevant one. And I guess what I would say is others are searching for value, and that's what we and the club channel provide every day of the week. So there's a lot of space between us and some of our competitors out there. So I'm not sure that we spend a lot of time thinking about what's been in the news (inaudible). We spend a lot of time, obviously, thinking about how we can provide better value to our members every single day, whether that's through pricing or whether it's through promotions, whether it's through the co-brand credit card. All sorts of different things rolling into I think, a pretty fantastic value proposition for our members. And so we'll just keep sticking to our knitting and making sure we're providing the right day-to-day shelf value and promotional values as we go.
Q: I want to follow up on the MFI. The spread in MFI growth versus club growth, I think it's been the highest in quite some time. So can you talk about why it was so good in the quarter? And then why should it step down from here? And I guess you'll be opening more clubs, I guess, throughout the year. So just thinking about the timing and why that was so strong?
A: Simeon, thanks for the question. It really has to do with the fact that we opened several clubs right around the end of the fiscal year. And so we didn't -- we had signed up a bunch of members in those clubs and didn't recognize any membership fees really until the first quarter here. And so there is an artificial bump. You're absolutely right that as we open more clubs in the end of this year, we've got a bunch in Q3 and a lot in Q4, that should serve as an upward for us on membership fees. But really, the Q1 number should be the highest. As I said earlier, we're very proud of what we're doing. We are definitely ahead of our plans. But as we sit here and look at the rest of the year, our plan doesn't start with an 8, put it that way. And it's sort of slightly ahead of where we ended last year from a full-year MFI perspective. But with all that said, we're very pleased. Members continue to come in. Prospective members continue to come in, they're reacting to our communications and promotions for membership and team is doing a fantastic job engaging them when they do interact with us and selling them the appropriate membership for them and turning them into good members over time. So we're very, very pleased with the progress we're making there.
Q: Can you share any insight if you take new members that had never been to BJ's before, and look across the spend, what they're spending on across categories and you compare it to an existing member. Are you able to see the traction you're making in some of, I guess, the nonfood items in that spend? Or do they typically start with the grocery, food and then you get them into the other categories?
A: Look, I think there are two different trip missions when you come to BJ's, one is in grocery trip and one is a general merchandise trip, and we've talked a lot about the fact
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
