BJ's Wholesale Club Inc.BJ

Morningstar Rating

Stock Research and Analysis

by R. J. Hottovy, CFA

We view BJ's Wholesale Club as an increasingly more relevant retail concept for consumers in light of economic woes. By offering a number of leading brand-name products at prices below traditional channels, BJ's is poised to attract new members and Read more

Bulls Say

Given the prevailing economic head winds, consumers may consolidate shopping trips and increase purchasing in bulk. According to retail industry surveys, consumers' willingness to join warehouse clubs has greatly increased during the last several months.

A heavily concentrated club base in the eastern U.S. provides some distribution and marketing scale advantages. Management will prioritize club openings in existing markets over expansion into new markets in the foreseeable future.

A diverse private-label offering complements BJ's branded assortment nicely. With price points 20% below their branded counterparts, private-label products could become more relevant amid a challenging consumer environment.

The development of a membership database should assist the firm in identifying its most popular merchandise, fine-tuning marketing efforts, and refining its real estate strategy.

BJ's could attract interest from strategic or financial buyers. The firm has a relatively small market capitalization, possesses a negligible debt burden, generates healthy free cash flow, and owns more than 25% of its warehouse clubs. Read more

Bears Say

BJ's carries 3,000 more products than Costco (7,300 versus 4,000) and operates locations that are 25% larger. As a result, BJ's possesses less purchasing power than Costco and turns inventory 30% slower.

Given its concentration in the northeast U.S., operating results are more exposed to regional economy fluctuations than competitors with a national footprint.

Declining gasoline prices could have an adverse impact on comparable-store sales during 2009.

Despite modest improvement during 2008, BJ's membership renewal rates for both individuals and small business customers continue to trail competing warehouse club operators'.

Operating margins lag other warehouse club operators'. BJ's reported operating margins of 2.2% during 2008, compared with 2.5% and 3.6% for Costco and Sam's Club, respectively. Read more

Strategy

BJ's remains focused on taking market share from competing retail channels, such as supermarkets and mass merchants. To accomplish this goal, the firm must attract and retain members while delivering Read more

Management

President and COO Laura Sen assumed CEO responsibilities, effective Feb. 1, 2009. Sen served as the executive vice president of merchandising and logistics from 1997 to 2003, and rejoined the firm in the same role in 2007. Herbert Zarkin, who has served Read more

Profile

BJ's Wholesale Club is the third-largest domestic warehouse club operator with 180 clubs across the eastern U.S. Full-size clubs average 113,000 square feet, but the firm Read more

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