The retail industry has shown resilience, with October's U.S. retail sales surpassing expectations. Consumer spending continues to be robust, fueled by strong demand for motor vehicles, electronics, and groceries, setting a solid foundation for Q4 and keeping retail stocks on a solid trajectory. Despite persistent challenges like inflationary pressures, the outlook for the holiday shopping season remains positive as consumers flex their buying power.
Within the retail space, warehouse retailers like BJ's Wholesale Club Holdings, Inc. (BJ) have proven their mettle, combining affordability with convenience. BJ's is expanding, serving millions with a membership-based model capitalizing on competitive pricing and growing consumer demand.
This retailer, with a solid earnings report and a fresh $1 billion share buyback program, stands out as a promising player in this niche. BJ’s stock has already outpaced the broader market this year, yet it still trades at a discount to wholesale retail rivals like Costco (COST) and Walmart (WMT).
With strong growth ahead and Wall Street’s bullish endorsement, BJ's presents an enticing opportunity for investors looking to buy into a promising stock at a value price.
About BJ's Wholesale Stock
Massachusetts-based BJ's Wholesale Club Holdings, Inc. (BJ), founded in 1984, has become a go-to destination for value-conscious shoppers, especially in the eastern U.S. With 247 stores and 7.5 million paying members, BJ’s offers groceries, general merchandise, and gasoline, catering to everyday needs with smaller package options and generous savings through coupons and promotions.
Renamed from Beacon Holding Inc. in 2018, BJ’s blends affordability with convenience, cementing its place as a retail powerhouse driven by a commitment to customer satisfaction and innovative shopping solutions. Its market cap currently stands at $12.8 billion.
BJ’s Wholesale Club is showing remarkable growth, surging 46.5% over the past 52 weeks and 14.6% over the past month. That outpaces both the S&P 500 Index’s ($SPX) gains and the SPDR S&P Retail ETF’s (XRT) returns over the same time frame, underscoring BJ’s positive momentum. The stock reached an all-time high of $99.91 in Monday’s trading session.
However, the outperforming stock doesn’t look too expensive. From a valuation perspective, BJ stock is now trading at 24.84 times forward adjusted earnings and 0.64 times sales, which is much lower than warehouse rivals like COST and WMT.
BJ’s Beats Q3 Earnings Estimates
BJ’s Wholesale Club delivered strong Q3 earnings on Nov. 21, sending its stock up 8.3%. Total net sales climbed 3.5% year over year to $5.1 billion, aligning with Wall Street's estimates, while adjusted earnings soared 18% to $1.18 per share, crushing expectations by nearly 30%.
Comparable club sales rose 1.5%, or 3.8% excluding gasoline, driven by higher traffic. Digital sales stole the spotlight, leaping 30% annually. The retailer bolstered its presence with three new clubs and four gas stations, ending the quarter with $33.9 million in cash and generating $206.8 million in net operating cash flow. Adjusted free cash flow came in at $18.8 million.
Looking ahead, BJ’s announced its first membership fee hike in seven years, effective January 2025. Club memberships will rise by $5 to $60, while Club+ memberships will increase by $10 to $120. Sweetening the deal, Club+ members, including BJ’s One+ Mastercard holders, will enjoy two free same-day deliveries on eligible orders of $50 or more annually.
BJ’s Wholesale is closing the year with a sharper focus and upgraded outlook. For Q4, the retailer expects comparable club sales, excluding gasoline, to climb 2.5% to 3% year-over-year, setting the stage for a full-year growth range of 2.3% to 2.4%. Merchandise gross margin for fiscal 2024 is anticipated to hold steady with last year’s levels.
On the earnings front, BJ’s projects Q4 adjusted EPS between $0.78 and $0.88, which translates to full-year adjusted earnings of $3.90 to $4 per share. By the end of fiscal 2024, the company plans to operate over 250 clubs, expanding its footprint and cementing its position in the retail landscape.
Analysts predict the retailer’s EPS to rise to $3.97 in fiscal 2024, with the bottom line projected to surge 6.1% year over year to $4.21 per share in fiscal 2025.
BJ's Strategic Buyback Boosts Confidence
BJ’s Wholesale Club flexed its financial muscle in Q3, repurchasing 679,499 shares for $58.2 million under its ongoing buyback program. But the real spotlight came with the board’s approval of a bold new $1 billion stock repurchase plan on Nov. 18, set to run through January 2029.
Representing 8% of the company’s market cap, this massive buyback underscores BJ’s confidence in its growth trajectory. Buybacks like this often provide support for share prices, and can provide an alternate method of returning value to shareholders for stocks that don't pay dividends - one area where COST and WMT have the edge over BJ.
What Do Analysts Expect for BJ’s Wholesale Stock?
After the retailer’s stellar Q3 earnings report, multiple brokerage firms adjusted their target prices on BJ stock. TD Cowen raised BJ's price target to a Street-high $110 from $95, and maintained a "Buy" rating.
The firm cited robust margin expansion, a successful fee increase, and reinvestment into club growth as key drivers. Noting its attractive valuation compared to its peers along with the recent earnings beat, TD Cowen sees BJ as well-positioned to sustain momentum and capitalize on strategic initiatives.
Separately, UBS lifted BJ’s price target to $108 from $102, while reiterating a "Buy" rating. While a one-time legal settlement adds near-term EPS challenges, UBS analysts remain confident in BJ’s long-term growth trajectory, seeing fiscal 2025 goals as firmly attainable on an underlying basis.
BJ stock has a consensus “Moderate Buy” rating overall. Out of the 20 analysts in coverage, 11 suggest a “Strong Buy,” and nine analysts maintain a “Hold” rating.
BJ’s stock is now well above the mean price target of $95.53. The new Street-high target of $110 implies expected upside of more than 13% from Tuesday’s close.
