BJ’s Wholesale Club Gains: Accelerating Growth

There’s no end in sight yet for BJ Wholesale Club‘s (NYSE: BJ) peak growth. In a earnings report released Thursday, the warehouse retailer announced accelerating expansion trends that have kept it near the top of a competitive industry niche.

And although management has declined to release a detailed outlook for the holiday season or the coming fiscal year 2022, investors have many reasons to expect strong returns from this business.

Let’s dive into it.

Image source: Getty Images.

Sales explode

The economic growth cycle continued to boost activity, with buyers spending freely and inflation pushing prices up. But BJ’s Wholesale has capitalized on this positive sales environment in a way that sets it apart from its peers.

Same-store sales gains accelerated at a rate of 24% over two years, compared to 21% in the previous quarter. This result was better than the latest figures put forward by Walmart‘s Sam’s Club and Wholesale Costco.

It reflects the growth in market share in key categories like the online niche. “Our growth wheel is spinning faster than it has in a long time,” CEO Bob Eddy said in a press release.

Money is flowing

Profit before tax fell, year over year, to $ 158 million from $ 164 million. This key profit figure is also down since the start of the year as BJ’s Wholesale invests more money in the business and on employee salaries.

The underlying earnings trends are strong, however. The channel has seen a strong increase in its tariff revenues thanks to its expanding subscriber base. These members are also renewing at near record rates.

Meanwhile, supply chain challenges didn’t weigh heavily on profits. The gross profit margin fell only 0.2 percentage point despite higher transport and freight costs. BJ’s Wholesale has offset this collapse and inflation pressure by selling more high-margin products like consumer electronics.

Overall earnings per share rose 5% to $ 0.92. This result exceeded most investors’ expectations of about $ 0.10 per share.

Short-term outlook

Eddy and his team declined to release an outlook for the upcoming holiday season, but investors should see a record buying period underway. Aside from the upward trends in customer traffic through the end of October, the best indicator of this coming growth is improving retailer renewal rates.

Ending 2021 on a high note is just the start for this company, which has yet to establish the kind of national footprint for peers like Costco to maintain their pricing leadership.

Management hopes to use the growing cash production to launch new warehouses to build on the existing 222 stores in just 17 states. Costco has more than double that number in the United States, with many of those stores having built a loyal following over decades.

It will be a huge challenge for BJ’s Wholesale to replicate some of this success. But its market share gains in 2020 and 2021 mean there’s room for a bigger platform, even in this highly competitive retail space.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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