BJ’s earnings tell the whole story of the US economy right now

BJ’s earnings tell the whole story of the US economy right now

BJ’s Wholesale (BJ) on Tuesday morning reported first-quarter results that were slightly below expectations, with earnings matching estimates while same-store sales were below estimates.

Same-store sales rose 5.7% in the first quarter, missing expectations of a 5.9% increase, according to estimates from S&P Capital IQ. Earnings per share of $0.85 were in line with expectations, while revenue of $4.72 billion was lower than forecast by $4.8 billion.

The stock fell nearly 5% early Tuesday after the company suggested second-quarter comps were below the 5.7% increase seen in the first three months of the year. Costco (COST) shares fell 1.4% in sympathy; Costco is expected to release its first quarter results Thursday afternoon.

But BJ’s management comments offered a broader picture for investors trying to make sense of the US economy at this time. And that, we believe, is the whole story of today’s economy in one place.

A story that continues to suggest that consumers are becoming increasingly cautious while the main factor driving this caution – inflation – continues to moderate.

During prepared remarks on the company’s earnings call, Chief Financial Officer Laura Felice said the company faces an “increasingly demanding consumer environment”.

In his own prepared remarks on Tuesday, CEO Bob Eddy added: “We recognize that in the current environment, consumers are staying alive in their buying behavior and members are more aware as they continue to work to stretch their dollar.”

Retail sales in April rose less than expected after a decline in March raised alarm bells over the health of the US consumer. Excluding automobiles and gasoline, sales rose 0.6% last month.

Economists at Oxford Economics said the report showed consumers ‘remain willing to spend although they are becoming more selective in their purchases’. A point of view consistent with the word of retail leaders.

Referencing the “trading down” theme that dominated big box earnings last week, Eddy noted, “Everyone wants to save money. Everyone feels that the economy is bumpy.

Shoppers leave a BJ store in Alexandria Virginia August 20, 2008. BJ's Wholesale Club Inc said on Wednesday quarterly profits rose as shoppers flocked to its stores in search of lower prices on food and fuel, and the No. 3 US warehouse club operator raised its full-year profit forecast.  REUTERS/Kevin Lamarque (UNITED STATES)

Shoppers leave a BJ’s store in Alexandria Virginia August 20, 2008. REUTERS/Kevin Lamarque

Later on the company’s call, however, both Felice and Eddy highlighted expectations that inflation will ease this year.

“We’ve definitely seen deflation or disinflation or whatever you call it,” Eddy said. “(Our) inflation in the fourth quarter was in double digits. It was significantly lower than the first quarter. And I expect that to continue.”

“I don’t know if we’ve changed our global inflation input type for the year,” Eddy added, “but I think it’s coming back a bit faster than in our model.”

The latest consumer price data showed headline inflation rose 5% year-on-year in April, the lowest annual increase in two years. On a “basic” basis, which excludes the cost of food and gasoline, prices rose 5.5%, with most of that increase coming from housing costs.

Prices rising less than expected – or perhaps falling in an outright decline as seen in some categories like gasoline and eggs – will increase real (read: inflation-adjusted) purchasing power in certain parts of the household budget.

Additionally, economists estimate that consumers are still sitting on up to $1 trillion in additional savings compared to pre-pandemic trends.

“As we sit here today, we see a consumer who continues to visit and spend in our stores,” Felice said Tuesday. “On the sidelines, while they’re spending more with us, they’re also being more discerning with their dollars and allocating those dollars toward necessities.”

The economic snapshot of the United States in the spring of 2023.

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