BJ's Wholesale Club (BJ -2.62%) reported fiscal second-quarter 2019 earnings on Thursday before the markets opened, and judging from shareholders' reaction, one might have assumed that it delivered earth-shattering results: Shares rose more than 15% in early-morning trading.

Actually, the company's quarterly scorecard indicated modest progress on its top and bottom lines within the framework of its full-year outlook. But this counts for much in a difficult retail environment, and BJ's ability to simply reaffirm its full-year guidance pleased its investors. Below, I'll walk through headline numbers and essential details from the reporting period; note that all comparable numbers that follow refer to those of the prior-year quarter.

BJ's Wholesale Club: The raw numbers

Metric Q2 2019 Q2 2018 Change
Revenue $3.35 billion $3.31 billion 1.2%
Net income $54.5 million ($5.6 million) N/A
Diluted EPS $0.40 ($0.05) 30%

Data source: BJ's Wholesale Club. EPS = earnings per share. N/A = not applicable; difference too great to be meaningful.

What happened with BJ's Wholesale Club this quarter?

  • Excluding gasoline sales, comparable-club sales improved by 1.6%.
  • Membership fee income rose 6% to $74.7 million. Membership fee income has improved by 7% in the first half of 2019, to $148 million, easily outpacing overall revenue expansion of 1.2% in the first two quarters.
  • Gross margin rose by 50 basis points to 18.3%. Adjusting for fuel expenses and membership fees, gross margin edged up by 30 basis points. Management attributed the slightly higher margin to the company's "category profitability improvement" program.
  • After adjusting for costs associated with BJ's June 2018 IPO, as well as club asset impairment costs and management fees, SG&A (selling, general, and administrative expense) crept higher by 2.5% to $511.2 million.
  • Interest expense decreased to $26.8 million against $54.6 million in the prior-year quarter. The company incurred several one-time interest expense charges in the second quarter of 2018 related to debt retirement and new debt financing. After accounting for these items, comparable second-quarter 2018 interest expense was $30.9 million, which still represents a current-year expense reduction due to lower debt levels on BJ's balance sheet.
  • BJ's is continuing to generate healthy cash flow this year. Through the first two quarters of 2019, the company has notched $215.1 million in operating cash flow, against $203.2 million in the comparable prior-year period.
  • The organization used some of its cash flow to buy back shares this quarter, repurchasing $67 million worth of its stock on the open market.
A woman shops in a big-box-club warehouse.

Image source: Getty Images.

What management had to say

BJ's investment thesis since its IPO has centered around steady earnings growth propelled by higher membership fee revenue and store unit expansion, as well as gradually rising margins. Roughly four quarters since its public debut, shareholders appear to appreciate that the company is delivering on these fundamental objectives. In today's earnings press release, CEO Chris Baldwin expressed management's belief that it will continue to execute in the second half of fiscal 2019:

Second quarter results for sales and earnings were in line with our expectations. We delivered improved margins and continued to grow earnings as we executed against our strategic priorities. Our sales were particularly strong in the second half of the quarter as weather improved, and we ended with strong momentum. We are confident that we will deliver on our full-year expectations as we continue to transform BJ's Wholesale Club.

Looking forward

As mentioned above, BJ's reaffirmed its full-year outlook alongside earnings on Thursday. To review management's targets, fiscal 2019 revenue of $12.9 million to $13.2 million is expected to be flat against the prior year. Comparable-club sales growth is pegged to land between 1.5% and 2.5%. Adjusted EBITDA is slated to fall in the range of $590 million to $600 million, while diluted EPS is chalked in at $1.42 to $1.50. Given BJ's high probability of meeting these full-year targets, any positive momentum in comparable sales may set the stage for an earnings surprise in the third or fourth quarter.