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

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

Comparable-store sales rose 5.7% in the first quarter, missing expectations for a 5.9% increase, according to estimates from S&P Capital IQ. Earnings per share of $0.85 met expectations, while revenue of $4.72 billion was below forecasts of $4.8 billion.

The stock fell nearly 5% early Tuesday after the company indicated that second-quarter securities trailed below the 5.7% increase seen in the first three months of the year. Costco (COST) shares were down 1[ads1].4% in sympathy; Costco is due to report results for the first quarter on Thursday afternoon.

But comments from BJ’s management provided somewhat of a bigger picture for investors trying to understand the U.S. economy right now. 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 more cautious while the primary factor driving that caution – inflation – continues to moderate.

During prepared remarks about the company’s earnings, CFO Laura Felice said the company is dealing with an “increasingly discerning consumer environment.”

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

Retail sales in April rose less than expected after a drop in March set off alarm bells about the health of the US consumer. Excluding cars and gas, sales rose 0.6% last month.

Economists at Oxford Economics said this report showed that consumers “remain inclined to spend even as they become more selective in their purchases.” A view that matches the word from retail executives.

Referring to the “trading down” theme that dominated big-box earnings last week, Eddy noted, “Everybody wants to save money. Everybody feels like it’s a bumpy economy out there.”

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

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

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

“We’ve certainly seen some deflation or disinflation or whatever you like to call it,” Eddy said. “[Our] inflation in the 4th quarter was in double digits. It was significantly lower than in the first quarter. And I expect that to continue.”

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

The latest data on consumer prices showed headline inflation rose 5% year-on-year in April, the lowest annual increase in two years. On a “core” basis, which strips out the cost of food and gas, prices rose 5.5%, with the bulk of the increase coming from housing costs.

Prices that rise less than expected – or perhaps fall into an outright decline as seen in certain categories such as gas and eggs – will increase real (read: inflation-adjusted) purchasing power in certain parts of household budgets.

Also, economists estimate that consumers are still sitting on as much as $1 trillion in additional savings relative 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. “At the margin, while they’re spending more with us, they’re also being more discerning with their dollars and allocating those dollars toward necessities.”

US Economic Snapshot Spring 2023.

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