Monday, December 13, 2021

A Small Cap Equity holding: BJ’s Wholesale Club Holdings, Inc. (BJ, $61.33) By: Grace McCrea, AIM Student at Marquette University

 BJ’s Wholesale Club Holdings, Inc. (BJ, $61.33)

By: Grace McCrea, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


  • BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is a member-only specialty retail store that carries products in departments such as food, home, children’s, personal care, outdoor, furniture/appliances, technology, and gasoline for customers within the United States.
  • In order to maintain customer loyalty and provide convenience for their members, BJ’s has bettered their management team and introduced new operational strategies, in the last five years specifically.
  • Last month, BJs hired Rachael Vegas as the new Executive Vice President and Chief Merchandising Officer. Her role will be crucial for BJs to continue to see success with their operational strategies.
  • In addition to BJ’s behind-the-scenes business strategy created to accommodate their customers, they have made certain that the membership basically pays for itself when utilized by customers appropriately.

Key Points: Since 2016, BJ’s has prioritized hiring more people in the senior management department, as well as making changes to their operations, specifically by adding consulting agents to their team and creating a consumer-packaged goods branch of the business. Not only have these changes shifted their business model, but also improved the company culture at BJs. Overall, the changes were made to benefit their members and have shown growth of 124% in income from continuing operations at BJs.

Rachael Vegas’ main role will be to create and develop strong leadership at BJ’s. This will most likely pose challenges, as she must continue to implement the strategies from the past five years, as well as build on them to boost success and further develop BJs.

BJ’s has certainly prioritized their customers on the internal business side. On the consumer behavior side of the business, BJ’s wants their devoted members to receive benefits equivalent to their use of the membership (in shopping). Members have the choice to be an Inner Circle Member ($55 annual fee for a basic membership) or a BJ’s Perks Rewards Member ($110 annual fee for a basic membership plus extra perks). In either case, so long as members utilize the membership by shopping at BJs, they will see a return which makes up for the membership fee.

What has the stock done lately?

Since BJ’s IPO in June of 2018 at $23.56, their stock price has increased about 165%. Their recent implementation of new strategies has certainly served their business and their members well. Now it might be time for BJs to begin considering issuing a dividend, which has actually been projected, of about $0.24/share for FY22E. This has potential for BJs to further promote member loyalty and provide further returns to those dedicated customers.

Past Year Performance: BJ’s current stock price of $61.33 is very close to its 52-week high of $63.10. This has the potential to represent growth, but it can also signal risk to investors who fear a price crash, especially with this kind price of growth in less than 4 years. In addition, BJ’s 2021 Return on Equity (ROE) is nearly 318%, which is about ten times that of each of their competitors. This is normally a sign that the company is borrowing excessively, which true, based on their Debt/Equity Ratio of 153%. With time, as BJs grows to a level like their more established competitors, it will be crucial for BJs to reevaluate their capital structure. By handling their debt in whichever way they see fit, they will likewise reduce their ROE to a realistic percentage. This will allow an appropriate relative valuation to be conducted.

Source: Factset


My Takeaway

It is obvious that BJ’s maintains a reliable customer segment by simply prioritizing their members. BJ’s continues to promote their private label brands: Berkley Jensen and Wellsley Farms, as these brands are a large reason for member loyalty. The private label brands contribute more to sales than any other brand sold at BJs. In fact, sales from these brands have increased from 10% of total sales in 2012 to 21% of total sales in 2021. Their devotion to members is extremely attractive to prospective customers and should continue to yield promising results.

Source: Factset