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- A Wholesale Club in Demand
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While Costco and Sam’s Club are the big players in the warehouse club space, BJ’s Wholesale has made a name for itself in the northeast and has now expanded to 21 states with a decent runway ahead. Some of BJ’s business highlights are:
As of February 1, 2025, it operates 250 clubs, ranging in size from 44,000 to 177,000 square feet.
It provides 25% savings on a representative basket of manufacturer-branded groceries compared to traditional supermarket competitors.
Club Card members who pay a $60 per year membership fee save ten times their membership fee versus what they would otherwise pay at traditional supermarket competitors when they spend @2,500 or more per year on manufacturer-branded groceries.
BJ’s is mainly known for its perishables and grocery offerings, which account for 71% of its revenues. General merchandise and services account for 11%, and gasoline accounts for 18%.
BJ’s also offers a Club+ membership for $120 per year, which offers cashback and discounts on gasoline.
BJ’s has 7.5 million subscribers. Its membership fee income was $456.5 million for fiscal year 2024.
BJ’s operating efficiency emanates from its ability to receive large shipments from its company-operated distribution centers and ship the merchandise to individual clubs within 24 hours.
BJ’s creates further efficiencies by carrying only 7,000 core active stock-keeping units (SKUs) compared to 40,000 SKUs carried by competitors, and supercenters may stock 100,000 SKUs or more.
BJ’s in-house brands comprised 26% of sales in fiscal 2024, which helped maintain its gross margin, and it is on track to achieve its 30% goal soon.
90% of BJ’s digital sales are fulfilled by its clubs, further driving efficiency.
As inflation has taken its toll on consumers, they have tended to gravitate towards lower-priced options and have been looking for bargains across the board. This has given a fillip to the likes of BJ’s.
... the whole club industry is gaining share, and that's really because consumers are tired of paying high grocery store prices ...
BJ’s has benefited from this trend. Its core perishables, grocery, and sundries division has helped grow foot traffic, which has helped propel sales in its general merchandise and services division.
Our perishables, grocery, and sundries division delivered over 4% comp growth in the fourth quarter with perishables leading the way. Our strength in perishables has been a recurring theme all year. As more members make us their weekly destination for quality essentials, such as produce, dairy, and meat.
Our general merchandise and services division comps grew by more than 5% in the fourth quarter, outpacing our consumables business for the first time since the pandemic.
Cash Flow Statement Highlights
BJ’s Cash Flow Statement Highlights
While net income growth has slowed, cash from operations and free cash flow have shown a marked improvement in fiscal 2024. The higher CAPEX over the last few years has certainly paid dividends in fiscal 2024 as BJ expanded into Tennessee, Alabama, and Kentucky.
Over the next two years, BJ plans to open 25 to 30 new clubs. In 2026, BJ plans to enter Texas in the Dallas-Fort Worth region. That would be a big market for BJ and a driver of future growth.
Income Statement Highlights
BJ’s Income Statement Highlights
This is pretty straightforward and self-explanatory. Growth has slowed down, and SG&A has grown faster than revenue growth. That would be a cause for concern for this fiscal year as BJ might end up missing on EPS due to the higher SG&A and a higher tax rate of 27%, as guided by the management.
The bright spot is that BJ has been able to maintain its gross margin, and it is certainly growing at a faster rate than revenue. However, the question arises whether it deserves a ~28+ P/E ratio.
Valuation
BJ’s stock has been a great performer in 2024 and for most of 2025, as it improved its Cash from Operations and was generally viewed as a beneficiary in an inflationary tariff regime.
BJ’s Weekly Chart
... let me talk about our exposure to China, in particular ... It's a few percent of our business, right?
Most of our business obviously is our grocery segment, and then about 15%, 16% of our business is general merchandise.
... the exposure to Canada and Mexico is greater, given the variety of products that they bring in, and it does touch our grocery business, for sure. We don't believe we're differentially affected negatively by any exposure in Canada or Mexico at this point ...
... And hopefully, we're able to earn our way through those tariffs as well. We'll use that same muscle that I talked about in negotiating with our suppliers moving things around ...
Now that we have started seeing the first signs of trade deals coming through, the premium the market is giving BJ is no longer valid. Also, we have seen a marked slowdown in growth. Hence, we would assume BJ has reached a stable growth rate period, hence, we can assume a growth rate of 2.6%, as has been the case over the last two years.
Thus, Reinvestment Rate = growth rate / ROC = 2.6% / 9.6% = 27.08%
Hence, Terminal Value = [Net Income (1+growth rate)(1-Reinvestment Rate)] / (Cost of Capital - growth rate) OR,
Terminal Value = [534.4 (1.026) (0.7292)] / (0.085 - 0.026) = 7,026.6 million
Add BJ’s current cash holdings, subtract its debt, and divide by the number of shares outstanding, and we get:
Value per Share = (7,026.6 + 28.3 - 398.8) / 133.6 = $49.8 per share
BJ’s is currently trading at $114.63, making it grossly overvalued. Hence, even though BJ’s has a great runway ahead of itself, it is an avoid at this time. This view will need to be reevaluated if BJ’s can push efficiencies further and reignite its growth rate.
One can change the assumed growth rate and reevaluate their view, if there is evidence to support such a fact. If BJ were to correct meaningfully, it would certainly be a good stock to have in the portfolio.
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