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Why BJ's Wholesale Club Stock Was Surging Today

By Jon Quast – May 21, 2020 at 12:23PM

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Triple-digit growth in profitability is always celebrated on Wall Street.

What happened

Shares of BJ's Wholesale Club (BJ -2.23%) were surging higher in early trading on Thursday, after the company reported record first-quarter earnings for 2020. As of 11:00 a.m. EDT today, the stock was trading 13% higher and still climbing.

Among the numbers dazzling investors is BJ's astounding comparable-store sales growth of 20%, as the COVID-19 pandemic motivated shoppers to pack their pantries. 

BJ Chart

BJ data by YCharts.

So what

BJ's also sells gas, and the price per gallon has fallen, hurting the company's sales. Excluding gas sales, comps grew 27%. Overall, quarterly revenue was up 21% year over year to $3.8 billion. Strong sales drove operating leverage, leading to a massive increase in profits. Net income came in at $96 million, up 167%. And earnings per share were $0.69, an increase of 176% from last year.

Wall Street isn't used to those kind of numbers from a consumer-staple retailer like BJ's Wholesale Club. While investors surely expected a strong report, this surpassed expectations, which explains today's stock gains.

Inside a BJ's Wholesale Club location, with a sign inviting new members to join.

BJ's membership fee income grew in Q1. Image source: BJ's Wholesale Club.

Now what

While investors should cheer BJ's strong quarterly results, it's likely this coronavirus bump is temporary and won't be sustained in subsequent quarters. Furthermore, it's entirely possible that future sales were pulled forward into Q1. If shoppers stockpiled, sales in coming quarters might dip as consumers use up what they have at home.

Of more interest to those focused on the long term is BJ's membership fee income. While it's a small percentage of overall revenue, it's a good measuring stick for the continued engagement of the company's customer base. In Q1, membership fee income grew a healthy 8.4%. That's in line with the 8% gain in the first quarter of 2019, and ahead of the 6.8% increase last quarter. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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