BJ’s Wholesale Club Pops, Will Costco Be Next?

BJ’s (NYSE: BJ) Wholesale Club Q2 results echo the strength seen in Sam’s Club segment at Walmart (NYSE: WMT). The two membership clubs posted record results driven by rising member counts that are underpinning a robust outlook for the year. Assuming these trends are true across the discount/membership club universe Costco (NYSE: COST) should put in a very solid quarter as well. The caveat is that Costco won’t report until next month so the news could be priced into the market before then. For now, shares of BJ’s are rocketing higher on the news and breaking out to new highs. 

Within the realm of wholesale clubs, BJs is the fastest growing growth story and a value compared to its peers. The stock is trading at only 20X it earnings compared to 24X for Walmart and 42X for Costco. It is a given that both Costco and Walmart are better-established and much larger companies, and both pay a dividend although Costco is far below the market average, BJ’s Wholesale Club is reinvesting in growth and delivering in ways neither of its larger competitors can match. While Walmart was able to improve its guidance the new outlook is only in-line with the consensus while BJs outperformed and raised to a level well above the consensus. 

BJ’s Wholesale Club, Growing Growing Growing

BJ’s Wholesale Club had a fantastic quarter producing a record $5.1 billion in net revenue. The revenue is up 22% over last year driven by a 19.8% comp that is driven by both fuel and in-store gains. The revenue also beat the Marketbeat.com consensus figure by $0.470 billion or 1000 basis points which beat out the tepid 170 bps of outperformance put in by Walmart as a whole. On an x-gasoline basis, comps are up a slighter 7.6% but still outperforming expectations by a wide margin. In regard to membership, BJ’s membership revenue increased by 11.3% which trailed Sam’s Club by less than 100 bps but should reaccelerate with the opening of new stores later in the year.

Moving on to the margin and earnings, the company was able to improve its operating margin on a YOY basis and grow earnings faster than revenue. The operating income increased by 23.9% and net income from continuing operating is up 27% compared to the 22% increase in revenue and margins are expected to widen in the back half of the year. On the bottom line, the GAAP of $1.03 is up 28% versus last year while the adjusted $1.06 is up $.26 from last year and beat by $0.25 and the guidance is just as rosy. 

BJ’s Wholesale Club raised its guidance for the full year because of the 2nd quarter strength and the outlook includes ongoing improvement in the back half of the year. The revenue range was upped to 4% to 5% versus the 1% to 3% first put forth and margins are expected to widen. The company is now expecting adjusted EPS in the range of $3.50 to $3.60 versus the consensus of $3.25 which should spark a round of positive chatter if not price target increases and upgrades from the analysts. 

The Technical Outlook: BJ’s Breaks Out 

BJ’s shares popped about 10% at the open following the Q2 release and broke out to a new high. Assuming the bulls follow through on this move the break-out is a very bullish indication of higher prices. The near-term outlook has the stock moving up to the $85 to $90 range with the possibility of even higher prices down the road. If the market can not maintain these levels, however, BJ’s will likely remain range bound in the $60 to $75 region.