Retail stocks are still reeling after Walmart slashed its profit outlook and announced it's cutting prices to free up inventory. BJ's Wholesale Club is holding up better than its industry peers and is the IBD Stock Of The Day. BJ stock is finding support and trading just below a potential buy point. But the current market woes and a late-stage base mean investors should be cautious.
Walmart cut its full-year guidance by 11% to 13% on Monday, which sent shock waves through the retail sector. The big-box chain says customers are feeling the effects of inflation and shifting their spending to cover higher food costs. Walmart expects lower general merchandise sales for the year and is cutting prices to clear up shelf space.
WMT stock fell nearly 8%. Target traded down nearly 4% and Dollar Tree dropped more than 6%.
Wholesalers, on the other hand, haven't fallen as hard. BJ stock faded less than 2%. Costco slumped 3.4%.
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BJ's started the year off strong and hit 6.5 million members. The membership-only warehouse retailer reported 20% earnings growth to 87 cents per share for the first quarter. Revenue jumped 16.3% to $4.39 billion.
The company has worked on expanding its e-commerce offerings to compete in the push to online sales. Those investments are starting to pay off. BJ's digital sales jumped 26% in the first quarter.
BJ's also sells food and gasoline, which aren't expected to see declines even as consumers cut back on spending in other areas.
"Our business model remains more relevant than ever in the current inflationary environment," said CEO Bob Eddy. "We also continued to build on the transformational gains we have driven over the last two years."
BJ's has beaten quarterly earnings expectations since Q2 2018 and has averaged a surprise of 20.8% over the past two years. The company has posted sales growth for five straight quarters, which Wall Street expects to continue when BJ's reports results in August. For the upcoming quarter, analysts predict earnings of 77 cents per share on $4.58 billion in revenue.
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BJ Stock Analysis
BJ's ranks first in terms of group leadership for IBD's Retail-Discount & Variety Group. BJ stock has a near-perfect 98 Composite Rating. The Composite Rating combines a number of key technical indicators into an easy-to-use score that tops at 99. BJ's Wholesale has a Relative Strength Rating of 94, which indicates strong performance against its peers in the S&P 500 over the past year. BJ stock has posted solid earnings growth. It boasts a three-year EPS growth rate of 41% and a 95 EPS Rating.
BJ stock is consolidating just below the 71 buy point shown in MarketSmith. The stock is finding support around the short-term 21-day moving average. However, the double-bottom base is a fourth-stage pattern. Bases of third stage or later are considered late-stage bases. Late-stage bases carry more risk than earlier-stage bases.
BJ stock has a 12-month gain of 35.5%.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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