Business Overview

BJ's Wholesale Club Holdings, Inc. (BJ) is a leading operator of membership warehouse clubs concentrated primarily in the eastern half of the United States. The company has transformed itself over the years, investing in talent and executing on strategic priorities to deliver increasing value and convenience to its growing member base.

BJ's Wholesale Club was founded in 1984 and pioneered the warehouse club model in New England. The company has since grown its footprint to 247 large-format, high-volume warehouse clubs and 182 gas stations spanning 20 states as of the end of fiscal year 2024. In its core New England market, BJ's operates more than three times the number of clubs compared to the next largest warehouse club competitor.

The company has expanded into adjacent geographies over the years, including entering Tennessee, Alabama and Kentucky in the past two years. BJ's business model is centered around a membership program, which provides customers access to savings on a curated assortment of groceries, fresh foods, general merchandise, gasoline, and other ancillary services.

Throughout its history, BJ's has faced challenges, including managing through macroeconomic trends and their impact on consumer spending patterns. However, the company has proven the resilience of its value-focused business model, as customers have continued to rely on BJ's as a destination for essential goods, particularly during periods of economic uncertainty. The company has also successfully navigated supply chain disruptions and inflationary pressures through disciplined cost management and merchandising strategies.

In addition to the in-club shopping experience, members can also shop through the company's website, bjs.com, and mobile app, which offer conveniences like buy-online-pickup-in-club (BOPIC), curbside delivery, same-day home delivery, and traditional ship-to-home service. These digital offerings have fueled double-digit, digitally-enabled comparable sales growth each year for the past four years.

BJ's membership model is a critical element of the business, with over 7.5 million members paying annual fees to access savings on groceries, general merchandise, services, and gasoline. The company has grown its membership fee income for over 25 consecutive years, demonstrating the loyalty and engagement of its member base. In fiscal year 2024, membership fee income increased 8.5% year-over-year.

Financials and Valuation

Financials

For fiscal year 2024, BJ's reported net sales of $19.97 billion, a 3.4% increase from the prior year. Comparable club sales, excluding gasoline, grew 2.3% during the year. The company's adjusted EBITDA was $1.05 billion, representing a healthy 5.3% EBITDA margin.

BJ's net income for fiscal 2024 was $523.74 million, or $3.88 per diluted share. The company generated $718.88 million in operating cash flow and $251.81 million in free cash flow during the year.

In the fourth quarter of fiscal 2024, BJ's reported revenue of $5.1 billion, a 5.4% increase year-over-year. Net income for the quarter was $155.75 million. Comparable club sales, excluding gas, increased 4.6% in Q4 2024, driven by strong traffic and unit growth, particularly in the perishables, grocery, and sundries division.

BJ's operates in a single reportable segment - club retail operations. The company's net sales are divided into three main categories:

1. Grocery: Accounting for 71% of total net sales in both the thirteen and thirty-nine weeks ended November 2, 2024. This division includes categories such as fresh produce, dairy, fresh meat and poultry, beverages, candy, snacks, nutrition, and packaged goods.

2. General Merchandise and Services: Representing 10% of total net sales in the same periods. This segment includes categories such as home, seasonal, apparel, and electronics.

3. Gasoline and Other: Accounting for 18% and 19% of total net sales in the thirteen and thirty-nine weeks ended November 2, 2024, respectively.

Membership fee income, a crucial component of BJ's business model, was $115.0 million in the third quarter of fiscal 2024, an 8.4% increase compared to the prior year period. For the first nine months of fiscal 2024, membership fee income was $339.5 million, an 8.7% increase year-over-year.

Liquidity

As of November 2, 2024, BJ's had $33.87 million in cash and cash equivalents and $942.2 million available under its $1.2 billion ABL Revolving Facility. The company's debt-to-equity ratio stood at 1.61, while its current ratio was 0.76 and quick ratio was 0.14.

Based on the company's fiscal 2024 results, BJ's trades at a price-to-earnings ratio of 25.4x and an enterprise value-to-EBITDA ratio of 16.0x. These valuation metrics suggest the stock is attractively priced, especially considering BJ's growth potential and strong competitive positioning in the wholesale club segment.

Strategic Priorities and Growth Initiatives

BJ's has outlined four key strategic priorities that are critical to its long-term growth: improving member loyalty, providing an unbeatable shopping experience, delivering value conveniently, and growing its physical footprint.

On the membership front, the company has enhanced its credit card program, invested in gas discounts for its higher-tier members, and added benefits like two free same-day deliveries per year. These initiatives have driven growth in overall member counts and upgrades to the company's premium membership tiers, which now account for nearly 40% of the total member base. The company plans to increase its membership fees effective January 1, 2025, with the Club Card membership fee increasing by $5 to $60 per year and the Club membership fee increasing by $10 to $120 per year.

BJ's is also focused on enhancing its merchandising strategy to provide the best value for its members. This includes maintaining a strong pricing position, offering a highly curated assortment, and innovating its own private label brands, which represented approximately 26% of merchandise sales in fiscal 2024.

The company's digital investments have been a key driver of member engagement and loyalty. BJ's has seen double-digit growth in digitally-enabled comparable sales for the past four years, with over 60% of members now interacting with the company through its mobile app. In Q4 2024, digitally enabled comp sales grew 26% year-over-year.

On the real estate front, BJ's has an ambitious growth agenda, having opened 7 new clubs and 12 gas stations in fiscal 2024. The company expects to open 25 to 30 clubs across the next two fiscal years, including its first entry into the lucrative Dallas-Fort Worth market in 2026. The performance of BJ's new clubs has been strong, with these locations contributing to comparable sales at a rate over 2 times the chain average.

Guidance and Future Outlook

For fiscal year 2025, BJ's expects to grow comparable club sales excluding gas by 2% to 3.5%. Membership fee income is anticipated to outpace the company's long-term mid-single digit growth target due to the planned fee increase. BJ's projects adjusted EPS in the range of $4.10 to $4.30 for fiscal 2025.

The company plans capital expenditures of approximately $800 million in fiscal 2025, focused on new club and gas station openings as well as investments for future growth. BJ's is not currently factoring in the impact of potential tariffs in their 2025 guidance assumptions.

Risks and Challenges

While BJ's has demonstrated resilience in uncertain economic environments, the company is not immune to macroeconomic headwinds like inflation, rising interest rates, and potential trade disruptions. These factors could impact consumer spending patterns and the company's cost structure.

Additionally, BJ's operates in a highly competitive landscape, with rivals like Costco and Walmart posing formidable challenges. The company's ability to differentiate its offerings, maintain its pricing advantage, and provide a compelling member experience will be critical to its long-term success.

Conclusion

BJ's Wholesale Club has transformed itself into a value-oriented retail powerhouse, leveraging its membership model, strategic initiatives, and growing physical footprint to drive consistent growth and profitability. Despite the uncertain economic backdrop, the company's focus on delivering unbeatable value to its loyal member base positions it well for continued success. With an attractive valuation, strong free cash flow generation, and a clear roadmap for expansion, BJ's appears to be a compelling long-term investment opportunity in the retail sector.

The company's strong performance in fiscal 2024, including robust comparable sales growth and increasing membership fee income, demonstrates the effectiveness of its strategies. As BJ's continues to expand its footprint, enhance its digital capabilities, and invest in its value proposition, it is well-positioned to capitalize on the growing demand for value and convenience in the warehouse club industry.