BJ's Wholesale Club is Tuesday's IBD Stock Of The Day as the warehouse club retailer seems built to handle an economic slowdown. BJ stock, rated No. 1 by IBD Stock Checkup in the Retail-Discount & Variety industry group, is near a buy point.
90% Membership Renewal Rate
A few key stats get to the heart of BJ's strengths. The renewal rate for club members reached a record 90% last year. The wholesale club model offers a relatively limited selection of goods, giving BJ's more bargaining power with suppliers, and depends on less labor. That adds up to a 25% discount relative to grocery competitors, BJ's says.
BJ's figures that members get benefits equal to 10 times their membership fee via lower prices, coupons and rewards. Yet BJ's hasn't hiked membership fees since 2018. Actually, BJ's keeps making the perks more generous, recently boosting gas savings by 5 cents a gallon for those using its co-branded credit card.
BJ's takes every bit of efficiency and "reinvests it back into member value," CEO Bob Eddy said in the Q4 earnings call on March 9.
The math works for BJ's because members seize on the good deals by upgrading to a premium membership and spending more per trip.
In Q4, membership fee income rose 8%, topping $100 million for the first time.
Meanwhile, BJ's earnings grew by 25% and revenue by 13%, both accelerating from the prior quarter.
BJ's Growth Spurt Has Room To Run
BJ's, based in Marlborough, Mass., was in slow-growth mode when it had its IPO in 2018, but the bargain retailer has been on a mission since the pandemic hit.
"Five years ago, we were opening one new club per year, and now we are doing around 10," Eddy said.
Thanks to the efficiency of the model, warehouse clubs, including Costco and Walmart's Sam's Club, have outpaced the industry. Sales have grown at an 11% rate over the past five years vs. 6% for grocery.
"The industry is still less than 5% of total retail, so we believe there is much more growth to come."
BJ Stock
BJ stock fell 1.1% to 77.24 in Tuesday's stock market action. But BJ stock has been exhibiting relative strength the past two weeks. After slipping just below its 50-day moving average in mid-April, BJ stock saw solid buying, lifting it back above the key technical level.
BJ stock is just shy of a 78.98 buy point from a seven-week flat base.
BJ's larger rival, Costco Wholesale, retreated 1.6% to 503.17 on Wednesday but is holding above key moving averages. COST stock is not far from a six-month down-sloping trendline, but it has been lagging BJ stock in recent months.
Walmart, which owns the Sam's Club chain, slipped 0.8% to 151.57, above a 151.22 cup-with-handle buy point.
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