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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 a bit 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 an increase of 5.9%, according to estimates from S&P Capital IQ. Earnings per share of $0.85 matched expectations, while revenue of $4.72 billion was below forecasts for $4.8 billion.

The stock was down nearly 5% early Tuesday after the company suggested second quarter comps are tracking below the 5.7% increase seen in the year's first three months. Costco (COST) shares were down 1.4% in sympathy; Costco is set to report its first quarter results Thursday afternoon.

But commentary from BJ's leadership offered something bigger picture for investors trying to make sense of the US economy right now. And that, we think, is the whole story of today's economy in one place.

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A story that continues to suggest consumers growing more cautious while the primary factor driving that caution — inflation — continues to moderate.

During prepared remarks on the company's earnings call, 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 live in their shopping behavior and members are more conscious as they continue to work to stretch their 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 autos and gas, sales rose 0.6% last month.

Economists at Oxford Economics said this report showed consumers "remain inclined to spend though they are becoming more selective in their purchases." A view consistent with the word out from retail execs.

Referencing the theme of "trading down" which dominated big box earnings last week, Eddy noted, "Everybody wants to save money. Everybody feels like it's a bumpy economy out there."

Shoppers leave a BJ's store in Alexandria Virginia August 20, 2008. BJ's Wholesale Club Inc said on Wednesday quarterly profit rose as shoppers headed to its stores in search of low prices on food and fuel, and the No. 3 U.S. 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 (Kevin Lamarque / reuters)

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

"We've certainly seen some deflation or disinflation or whatever you like to call it," Eddy said. "[Our] inflation in Q4 was double digits. It was meaningfully lower than that in the first quarter. And I expect that will continue."

"I don't know that we've changed our sort of global inflation input for the year," Eddy added, "but I do think it's receding a little faster than we had in our model."

The latest data on consumer prices showed headline inflation rose 5% over last year in April, the slowest 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 that increase coming from housing costs.

Prices rising less than expected — or perhaps falling into an outright decline as seen in some categories like gas and eggs — will boost real (read: inflation-adjusted) spending power in some parts of household budgets.

Moreover, economists estimate 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 that is continuing to visit and spend in our stores," Felice said Tuesday. "On the margin, while they are spending more with us, they are also being more choosy with their dollars and allocating those dollars in favor of necessities."

The US economic snapshot in the spring of 2023.

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