Investors weren't thrilled with the latest operating update from BJ's Wholesale Club Holdings (BJ -0.08%). While sales and profits rose in the first quarter, the retailer didn't capture big chunks of market share, as it has in recent quarters. And rising costs ate into profitability.

But management sounded an optimistic tone about BJ's growth potential, even if the next few quarters might feature rocky results.

Let's take a closer look.

BJ's sales declined

BJ's posted a 2% sales uptick on top of a 21% spike a year ago when consumers were in the stock-up phase of the pandemic. That equates to a two-year boost of 22% for comparable-store sales, management said -– including 381% higher e-commerce sales.

An employee restocks produce.

Image source: Getty Images.

However, comps fell 5% this quarter compared to last year's 21% increase. Executives described a tough selling environment that included stocking challenges, price inflation, and shipping bottlenecks. BJ's executed well through these issues, CEO Bob Eddy said in a press release, but the company barely held market share against peers like Walmart's (WMT -0.15%) Sam's Club and Costco Wholesale (COST -1.64%). "We are pleased to start the year with strong first-quarter results," Eddy said, "market share retention, and a continuation of elevated consumer spending."

Profits and membership

BJ's continued to benefit from a tilt in demand toward discretionary products like consumer electronics and home furnishings. But extra performance bonus payments plus some one-time charges offset that positive trend. Overall, operating income fell to $126 million, or 3.3% of sales, from $144 million, or 3.8% of sales, a year ago.

On the bright side, BJ's enjoyed a 9% increase in membership fee income thanks to its growing shopper base and strong demand for higher-tier membership plans. That's great news for the business since most of this income flows directly into earnings.

And the retailer's latest class of subscribers are among the most engaged it has ever attracted, executives said in a conference call with Wall Street analysts. They renewed their memberships at record rates in the first quarter, which might help BJ's improve on its current 88% renewal rate. Costco shoppers, by comparison, renew at an industry-leading 91% rate.

Looking ahead

That engaged shopper base wasn't enough to convince management to venture a detailed outlook for the full 2021 year. There are still huge question marks around how shopper demand will adjust to changing virus dynamics after last year's volatile spikes. There's also plenty of competition from national chains like Sam's Club and Costco to worry about. "We will continue to refrain from offering formal detailed guidance," CFO Laura Felice said.

But the good news is that BJ's is entering this battle with plenty of resources it accumulated through spiking earnings in the past 15 months. The chain announced plans to put some of this cash haul to work by launching six new clubs in 2021, compared to four launches last year. Two of these warehouses will establish new markets for the retailer.

Success in these cities will be a good test of BJ's ambitious hopes to break out of its current regional store footprint. This week's earnings report doesn't settle that key growth question, one way or the other. So investors will just have to keep watching for signs that BJ's can compete with its national retailing peers.