BJ’s Stock Slides After Q2 Beat: A Buy-the-Dip Opportunity?

Key Points

• BJ’s Wholesale is a members-only warehouse club on the East Coast that offers groceries, electronics, household essentials, tires, and gasoline.
• BJ’s Wholesale stock took a 6% hit on the release of its Q2 2024 earnings report despite posting its largest EPS beat in five quarters due to its soft guidance.
• BJ's real estate pipeline is exploding at the fastest pace in years, opening 11 new clubs this year, which traditionally generate 3x comparable sales compared to existing stores. Still, short-term EPS may be driven lower in the meantime.

BJ’s Wholesale Club Holdings Inc. NYSE: BJ is an East Coast membership-only warehouse club. Members can shop in bulk for groceries, electronics, household products, tires, and gasoline. They also provide services like home improvement, travel deals, installation and assembly, eye exams, and mortgage and home services. In a time when consumers are trying to maximize their dollars, warehouse clubs are the obvious benefactors. BJ's stock hit all-time highs at $92.37 on July 11, 2024. However, shares took a 6% hit on its second-quarter earnings results, providing long-term investors with a buy-the-dip opportunity.

BJ’s Wholesale operates in the consumer discretionary sector, competing with warehouse clubs like Costco Wholesale Co. NASDAQ: COST, Walmart Inc. NYSE: WMT, and Target Co. NYSE: TGT.

BJ's Competitive Advantage and Value Proposition Over Costco

Membership clubs continue to gain popularity, especially for growing families. BJ's differentiates itself from larger clubs like Costco. Costco is much larger, busier, and crowded than BJ's. The average BJ’s warehouse is around 113,000 square feet compared to 146,000 square feet for Costco. BJ’s Market is a smaller version that operates at 43,000 square feet. Costco has around a 62% market share of the warehouse club segment compared to 7% for BJ’s. BJ’s operates 244 warehouses in the United States compared to more than 800 worldwide for Costco. BJ’s also operates 178 BJ’s Gas locations in 20 states.

BJ’s has several advantages:

• Lower membership fees: BJ's membership costs $55 versus $60 for Costco's basic membership. BJ's often has promotions offering a 1-year membership for $20 and the upgrade to The Club+ Card for an additional $45, which includes a 2% back in rewards for qualifying purchases.  
• Accepts Manufacturer’s Coupons: BJ's accepts manufacturer's coupons, but Costco does not.
• Focus on Fresh Food and Perishables: BJ’s places a heavy emphasis on having a wider selection of locally sourced farm-fresh organic produce and meats as well as baked items.
• Smaller and Less Crowded Stores: The smaller stores are also less crowded, which makes for easier navigation and quicker in and out times without having to wait in long lines like Costco. This makes convenience a key advantage, especially with BJ's Market stores, which are even smaller and easier to get in and out of.

Here's Why Pain Now Equals Big Gains in the Future for BJ's

Its real estate strategy is robust, as they are on track to deliver 11 new clubs in the back half of the fiscal year. Since its IPO, the opening of new clubs has delivered comp sales growth of more than 3x the average for the second quarter.

Therefore, opening new clubs enables more accelerated growth. Spending per shopper remains "very healthy" at higher income levels but continues to improve at the lower end.

BJ Stock Forms an Inverted Cup Pattern

The daily candlestick chart for BJ illustrates an inverted cup pattern. The cup lip line formed at $80.13 as shares rallied up to a high of $92.37. Shares fell to retest the lip line following its Q2 2024 earnings release. The cup lip line is the support and breakdown level that bulls need to hold. The daily relative strength index (RSI) is attempting to bounce at the 41-band. Gap fills are at $83.49 and 87.18. Pullback support levels are at $80.13, $77.10, $74.44, and $71.81.

BJs Continues to Beat Top and Bottom Lines

BJ's reported Q2 2024 EPS of $1.09, beating consensus estimates by 8 cents. Gross profit rose to $956.6 million, up from $896.8 million in the year-ago period. Merchandise gross margin rate rose 10 bps over last year. Net income rose to $145 million, up from $131.3 million in the year-ago period. Adjusted EBITDA rose 4.9% to $281.3 compared to $268.1 million in Q2 2023.

Revenues rose 5% YoY to $5.21 billion, beating $5.15 billion consensus estimates. Membership fees grew 9.1% YoY to $113.1 million. Comparable club sales rose 3.1% YoY and 2.4% excluding gasoline. The company grew market share and accelerated traffic and unit growth.  

BJ’s Reaffirms Guidance

The company sees full-year 2024 EPS of $3.75 to $4.00 versus $3.95 consensus estimates. Comparable club sales are expected to increase 1% to 2% YoY with traffic and unit growth, and strong perishables business will drive the higher end of the range. BJ’s digital business went from non-existent five years ago to 12% of merchandise sales today. Digitally enabled comps grew 22% YoY. BJ’s expects to grow its membership to 7.5 million by the end of the year.

BJ’s Wholesale CEO Bob Eddy stated, “Critically, in the quarter, we drove greater trip frequency and overall spend growth across high, mid, and low-income levels. This continues to illustrate that our strong value prop is resonating with our entire member base, regardless of their financial standing. We are pleased with how our members are engaging with us today, but we also recognize the building uncertainty and macroeconomic and geopolitical factors in the near term.”

BJ's Wholesale Club analyst ratings and price targets are at MarketBeat. There are 15 analyst ratings on BJ stock, comprised of eight Buys, six Holds, and one Sell. Consensus analyst price targets point to $85.93.