Wednesday, October 28, 2020

A Small Cap Equity holding: BJ’s Wholesale Club Holdings, Inc. (BJ): “The Best Club to Hit Up During a Pandemic: BJ’s Wholesale Club” by: Elise Olwig, AIM Student at Marquette University

BJ’s Wholesale Club Holdings, Inc. (BJ): “The Best Club to Hit Up During a Pandemic: BJ’s Wholesale Club”

By: Elise Olwig, 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 membership-only warehouse club chain that provides fresh and packaged groceries, household products, cleaning products, small appliances, electronics, gasoline, seasonal goods, and apparel that operates on the East Coast of the United States as well as Ohio and Michigan. 

·      VIP Access: Membership fee income for BJ’s increased 6.8% in 2019, contributing an additional $19.3 million to fiscal year revenues. Membership renewal rate was 87%. 

·      New girl in town: BJ continues to expand both its brick-and-mortar locations and e-commerce presence, as well as its product offerings. 

·      Private club: In 2019, BJ increased their private label offerings, which represented over $2.0 billion of annual sales. 

·      Weathering the storm: Management reported that the pandemic has had positive impacts on their results of operations. 

Key Points : 

BJ is the leading club warehouse operator on the East Coast of the United States, and management has remained steadfast in its initiatives to gain and retain members and provide additional private label offerings. A key indication of success of a membership-only club warehouse is increased members and high retention rates, which alludes to customer satisfaction and loyalty. In 2019, membership fee income increased 6.8% from $282.9 million to $302.2 million. Additionally, membership renewal rate was a solid 87%. In 2019, BJ opened a total of three new clubs and six gas stations, which is on-target with its goals to average one club opening and three to five gas station openings per year. BJ’s private labels, Wellsley Farms and Berkley Jensen, yield higher margins than competing brands and drive customer loyalty. By increasing private label offerings in 2019, BJ was able to capitalize on these high margins to contribute to BJ’s total revenues of $13.2 billion. Looking to the future, BJ continues to forge positive relationships with suppliers and always looks to expand and diversify product offerings. For instance, Beyond Meat began selling its burgers at BJ’s earlier this year, which has allowed BJ to tap into the upward trending, $140 billion alternative-meat markets. 

The COVID-19 pandemic of 2020 has created immense challenges for businesses across the world, and BJ has proven that it is well-equipped to weather the storm. In fact, BJ is experiencing some of the highest sales growth on record (24.2%). Although merchandise and services demand has significantly declined, it is entirely offset by the increased demand for grocery products. In addition, BJ’s mobile app saw a huge usage surge (almost 300%), as more people sought alternative options to in-store shopping. Income from operations drastically increased to $106.7 million for Q2FY2020, which represents a 96.5% year-over-year increase. Management concluded that COVID-19 has positively impacted BJ’s operations due to heightened demands for their products. 

What had the stock done lately?: Since BJ released its annual report in March 2019, stock price has steadily increased from $30.13 to $39.05. The stock price jumped to $47.11 in August after solid earnings showed that BJ operations were benefiting from the pandemic. This month, BJ stock price hit a high of $41.62 and a low of $39.07. 

Past Year Performance: YTD, BJ outperformed the Russel 2000 immensely. BJ experienced a YTM change of a whopping 73.88% compared to the Russel’s -3.79% change. BJ continued to reap the benefits of the high consumer demand for groceries and other related products due to the unpredictive nature of a world amid a global pandemic. 

One-year stock chart vs. Russel 2000 (Source: FactSet)

My Takeawa: BJ was added to the AIM portfolio with a price target of 35.22, which its current price of $39.05 surpasses. Management has continually delivered on its goals to increase membership and membership retention rates and has proved capable of weathering huge economic downturns such as that from the COVID-19 pandemic. Thus, I would expect to see continued growth in the future, and I recommend that AIM buys more shares of BJ. 

One-month stock chart vs. Russel 2000 (Source: FactSet)