BJ's Wholesale Club Holdings, Inc. (BJ) Earnings

Management highlights

- Core Membership Performance - Membership fee income has grown at an 8% compound annual growth rate over 25 years, with over 1 million net members added since the company's IEP, and 10% year-over-year growth in Q2 2026. - Automatic renewal rates reached an all-time high, and comp club membership grew 2-3% year-over-year, a major improvement from historical performance. - Higher-tier members have higher spending, higher renewal rates, and broader category engagement, contributing to long-term membership value. - The company has achieved 15 consecutive quarters of market share gains, with unit sales outperforming the broader market by 300 basis points in Q2. - Merchandising and Assortment Strategy - The company is systematically implementing category management process (CMP) to optimize assortment: CMP removes unnecessary SKU duplication, adds new innovative products and white space categories, with a goal of reducing total SKUs by ~20% over the next few years to reach 6,000-6,500 SKUs per legacy club (new clubs already open with ~6,000 SKUs, down from the current legacy average of ~7,500). - Early CMP implementations have delivered strong results in beverages, active nutrition, and renovated home categories, with positive member response. - Private label brands (led by Berkley Jensen) deliver high quality at steep discounts to national brands (e.g. 35% lower price for comparable paper towels), generate higher margins for the company, and have reached 65% unit share in key categories, supporting overall value positioning. - Digital and Convenience Investments - Digitally enabled comparable sales grew 30% year-over-year, with a 64% two-year stacked comp growth. All digital channels (buy online pick up in club, same-day delivery, Express Pay in-club checkout) see strong growth. - Members who engage with digital tools have higher spending and higher long-term loyalty; digital penetration now represents ~19% of total business, with a focus on growing Express Pay penetration. - Bev, the AI-powered shopping assistant, is now live and has had over 100,000 member conversations, supporting product search and club information. - Footprint Expansion - BJ's opened 3 new clubs in Texas (Waxahachie, Fort Worth, Grand Prairie) in Q2, bringing total Texas clubs to 4, plus a new gas station in Edison, New Jersey. 7 more club openings and 1 relocation are planned for the remainder of 2026, with a long-term target of 25-30 new clubs every two years. - Early Texas performance is very strong: total membership is 30% ahead of plan, all four Texas gas stations rank in the top 30% of the chain for gallon volume, with two in the top 10%, and member engagement and higher GM penetration aligns with expectations for successful new clubs. 22 of 23 clubs opened between 2022-2024 have comped above chain average, with the 2024 class of 7 clubs delivering double-digit comps last quarter, demonstrating consistent new club performance. - Capital Allocation - The company ended the quarter with a net leverage ratio of 0.5x, providing significant flexibility for long-term growth investments. In Q2, BJ's repurchased $124 million in shares, with $422 million remaining under the existing repurchase authorization. - Inventory per club is up 2% year-over-year, with in-stock levels flat year-over-year, reflecting disciplined inventory management. Adjusted free cash flow was $266 million, up significantly from $87 million in Q2 2025, driven by strong operating performance.

Guidance

- Full-year comparable club sales growth excluding gasoline guidance is maintained at 2% to 3%, with management noting the company is currently tracking near the middle of the range with expectations to finish towards the high end of the range. - Full-year adjusted EPS guidance was raised from the prior range to a new range of $4.60 to $4.80, with the upward revision driven primarily by better-than-expected performance in the fuel business. - Management expects membership fee income (MFI) growth to moderate to a 6% exit rate by the end of the full year as the impact of last year's membership fee increase normalizes, even with strong core membership growth in Q2.

Segment performance

For Q2 2026, BJ's Wholesale Club reported overall net sales of $6.1 billion, a 15.9% year-over-year increase. Total comparable club sales increased 11.9% year-over-year; excluding gasoline, merchandise comparable sales grew 3.1%, balanced between traffic and ticket growth with inflation of just under 1% for the quarter. - Perishable grocery and sundries: 2.8% comparable sales growth, led by the grocery category. This segment represents the core grocery offering that drives regular member traffic. - General merchandise and services: 5.3% comparable sales growth, driven by strength in consumer electronics and renovated home category assortments including housewares, textiles, and refrigeration. - Fuel: Comp gallons increased 10.5% year-over-year, while industry wide comp gallons declined ~5% during the same period. Fuel profit exceeded internal plans, supported by strong execution and favorable market conditions, and was a key driver of full-year EPS upside. - Membership fee income: Grew 9.9% year-over-year to $136 million, reaching a total of 8.5 million members overall. Higher-tier membership penetration reached an all-time high of 43% of total members.

Risks & headwinds

No explicit material risks or operational failures were discussed by management during the call. The only mentions of uncertainty were standard forward-looking statement disclosures noting that actual results could differ from forward-looking guidance due to unstated market and operational uncertainties.

Analyst Q&A

• Q: How does BJ's plan to fund ongoing price investments after tariff refunds are exhausted, and will this cause a sharp margin decline? /

  A: Management stated that margin will not decline sharply after tariff refunds end, as the company has identified other funding sources for continued price investments. These include additional margin contributions from supplier refunds, optimized assortment, retail media revenue, and reinvesting a portion of any quarterly gas profit upside. The company prioritizes growing total profit dollars over hitting a specific margin rate, and will continue to find ways to fund value investments for members.

• Q: What is the opportunity for CMP (SKU rationalization) at BJ's, and how is the current approach different from past efforts? /

  A: Past SKU reduction efforts only cut SKUs which reduced sales, but the new CMP strategy removes unnecessary duplicate SKUs (e.g. redundant body wash variants) to concentrate volume, then adds new innovative products and white space categories. The goal is to cut 20% of total SKUs over a couple years to reach 6,000-6,500 SKUs per legacy club, matching the lower SKU count of new clubs. Early results in beverages and active nutrition have been positive, with sales and margin both increasing.

• Q: What is BJ's view on accelerating new club openings given the strong early performance in Texas? /

  A: BJ's is currently committed to its existing pace of 25-30 new clubs every two years, which translates to ~12-15 openings per year. Management has challenged the team to evaluate accelerating the pace, which will take a couple years to build out into the development pipeline. Strong recent new club performance has increased available real estate opportunities and improved project economics via lower cap rates, making acceleration more feasible in the medium term.

• Q: What are the key drivers of stronger-than-expected membership fee income growth this quarter, even after last year's fee increase? /

  A: Strong MFI growth was driven by three core factors: strong new member acquisition, an all-time high automatic renewal rate, and all-time record higher-tier membership penetration now at 43% of total members. Comp clubs grew membership 2-3% year-over-year, a major improvement from historical performance. Management still expects MFI growth to moderate to a 6% exit rate for the full year as the prior year's fee increase laps, but expects continued strong core membership momentum.