"BJ's Wholesale (BJ) has seen explosive growth in sales and membership acquisitions over the past year. Additionally, its stock has also had a great run, but can it continue? Is this a stock worth owning? read and see what we think!"
By: Allan R. Kirby
Overview of stock BJ's Wholesale (BJ)
Headquartered in Westborough, Massachusetts, BJ's Wholesale Club Holdings, Inc. is the third-largest wholesale price club in the USA, behind market leader Costco and Walmart’s wholesale unit, Sam’s Club. The company currently operates 221 clubs and 151 BJ's Gas locations in 17 states and has a membership of approximately 5.5 million.
BJ's sometimes does not get the attention it deserves because of the popularity of Costcos. But what we found when digging a little deeper into BJ's was a company that executed very well during the pandemic with membership growing 11.3% on a net basis relative to the prior year as well as incredible online sales growth. BJ's has been a steady retailer with growth potential and it could be a stock to add to your portfolio.
Latest results (Q4 2020) for BJ's?
Before we make a conclusion we first need to see how the company did in its most recent Quarterly results provided on March 04, 2021.
Comparable club sales, excluding gasoline sales, increased by 15.9%, including digitally enabled sales growth of 168%, for the fourth quarter of fiscal 2020.
Income from continuing operations increased 127.3% year-over-year to $95.9 million, for the fourth quarter of fiscal 2020.
Adjusted EBITDA increased 36.1% year-over-year to $204.5 million, for the fourth quarter of fiscal 2020.
Earnings per diluted share of $0.69 reflect 130.0% year-over-year growth.
Adjusted earnings per diluted share of $0.70 reflect 75.0% year-over-year growth.
Net cash provided by operating activities was $ 868.5 million and free cash flow was $ 676.1 million, for fiscal 2020.
Under BJ's share repurchase program, 0.3 million shares of common stock were purchased, totaling $11.6 million in the fourth quarter of fiscal 2020. For fiscal 2020, BJ's repurchased 2.6 million shares of common stock, totaling $99.7 million.
Great Quarterly Results
Overall, it was yet another good quarter for BJ's, with total net sales of $15.1 billion, this was up 17.1% from $12.89 billion in 2019, and Income from membership fees gained 10.2% to $333 million. We particularly liked the strong digitally enabled sales growth of 168%, incidentally, 3rd quarter digital-enabled sales increased 200%. Additionally, earnings per diluted share of $0.69 reflected 130.0% year-over-year growth and clearly shows BJ's has done exceptionally well during the pandemic.
The latest quarterly results were positive and there will be continued tailwinds. With stimulus checks in hand, consumers are ready to spend, and most retailers such as BJ's Wholesale should benefit from a surge in consumer spending as well as benefits from the Covid-19 vaccination rollout. However, it is interesting to see several analysts have reduced their price target for BJ's Wholesale over the last few months. This clearly highlights the skepticism analysts have of BJ's continued strong growth for the coming year. We however believe BJ's can continue to grow membership, take market share, and build out more warehouse stores. As highlighted in the Q4 2020 earnings call on March 04, Lee Delaney, President and Chief Executive Officer highlighted:
"We have strengthened our real estate pipeline considerably, enabling us to accelerate the pace of new club openings. After opening four clubs in 2020, we plan to open as many as six clubs in 2021. Even more exciting is that we can see a path to 10 more clubs in 2022. This progress is underpinned by the performance of our newest clubs, where we are gaining market share and driving membership growth."
"Several analyst have reduced their price target of BJ's Wholesale over the last few months, highlight skepticism of continued strong growth."
BJ's has taken other small steps to enhance their customers' experience such as Citizens bank (CFG) and BJ's forming a consumer credit partnership that will allow BJ's members to pay for large purchases with monthly payments through an approved line of credit.
“Consumers want affordable options to make large purchases responsibly with ease and simplicity,” said Andrew Rostami, President of Citizens Pay. “This partnership allows us to offer point-of-sale financing to the millions of BJ’s members to make both big-ticket and everyday purchases through a simple, transparent, and fully digital experience.” Source
Digital Success: Total app downloads exceeded five million compared to a little over two million last year, with roughly 30% of our membership regularly using the app compared to 12% last year. Source
Secondly, we find BJ's has added record numbers of members, kept retention rates at all-time highs, and best of all they appear to be attracting higher quality digitally engaged customers which again highlights their success with providing a good online experience to their members. As Lee Delaney President and Chief Executive Officer states: "This year, we attracted new members at record levels, including in the fourth quarter where we added approximately 80,000 net members relative to the third quarter. Our retention rate for tender members improved to an all-time high of 88%, and we made even greater gains with our first-year renewal rate. Higher tier penetration is at 31%, reflecting a 300-basis-point increase compared to the prior year. In total, our membership grew by 11.3% on a net basis relative to the prior year.
Is BJ's stock a buy?
BJ's Wholesale Club Holdings (NYSE: BJ) had a great 2020, with the stock outperforming peers like Costco (COST) and Walmart (WMT). The warehouse giant's outstanding sales growth has management targeting a much bigger store footprint, which might continue to help deliver impressive returns to investors even following last year's stock price surge.
But it's also possible that BJ's market share gains will slow as the COVID-19 threat fades and people begin to shop elsewhere. Additionally, earnings might be pressured by the need for many years of aggressive capital spending to build out new stores and improve their digital presence. Even with these possibilities playing out BJ's wholesale is still attractive for several reasons.
First, their current price to earnings of 15.26 is relative to other competitors such as Costco's at 36.90 and Walmart ower of Sams Club at 29.3. The lower multiple could be because investors are skeptical about BJ's success over the longer term, which we do not think is the case. We see other positives such as:
Repaying more than $500 million in debt.
Improved membership retention and increasing membership numbers.
Attracting younger and better quality members.
Solid digital growth.
Continued warehouse expansion over the coming years.
Look, 2020 was a unique year with the pandemic, and BJ's wholesale executed extremely well during this period of time. I understand skeptics worry that it will be difficult for BJ's to mimic last year's explosive growth.
We do agree growth could slow down but we also think BJ's will be able to hold on to the gains obtained through 2020. The long-term story of BJ's looks compelling and could this could be considered a potential retail investment. We like the stock but investors thinking of adding BJ's to their portfolio should take the time, do research, and see for themselves.
BJ's Wholesale does take ESG seriously, you can read more about what the company is doing to help reduce its carbon footprint. For example, BJ's has installed solar panels at 54 clubs, which represents a quarter of its clubs and produces a total of 35 million kWh annually, or 6% of the total electricity used at BJ’s.
Clean Harbors Partnership
In an ongoing effort to reduce our environmental footprint, BJ’s Wholesale Club partnered with Clean Harbors to help divert recyclable materials from waste streams. During the fiscal year 2019, BJ’s Wholesale Club reduced 66.68 tons of waste from entering landfills and recycled:
97,109 lbs of electronics
1,622 lbs. of batteries
1,122 lbs. of bulbs
13,314 lbs. of oil
20,200 lbs. of different solvents and fuel such as: propane, fuel filters, absorbent with diesel, ethanol, helium, carbon dioxide, and fire extinguishers
Other Stocks and ETFs to look at:
There are other stocks and ETFs to look at such as the 3 top ESG Diversity Focused ETFs to buy You can also look at Ford Motor co. (F) or three UK financial stocks that have great value, Lloyds Bank (LYG), Natwest (NWG), and Barclays (BCS).
Disclosure: mysmallbank.com nor the author received any compensation from any securities highlighted in this article. The article is our opinion only and is written to help readers learn more about the stocks mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.