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Pick BJ's Wholesale for Solid Returns Amid Coronavirus Woes

Zacks Equity Research
·4-min read

BJ's Wholesale Club Holdings, Inc. BJ has emerged as one of the top-notch performers amid the COVID-19 jitters, courtesy of its sound fundamentals and growth efforts that reinforce its position in the ultra-competitive environment. A robust second-quarter fiscal 2020 performance is a testimony to the same. Impressively, shares of this operator of warehouse clubs have climbed 76.7% so far in the year against the industry’s decline of 14.8%.

This Westborough, MA-based company has also comfortably outperformed the S&P 500 Index that has advanced 2.4% in the aforementioned time frame. Further, the stock is hovering close to its 52-week high of $47.46. There is a likelihood that BJ's Wholesale Club with a long-term earnings growth rate of 15.8% can attain new highs. A VGM Score of B highlights this Zacks Rank #2 (Buy) stock’s upside potential.

Markedly, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 15.7% and 77.4%, respectively, from the year-ago period.

Strategic Endeavors to Drive Momentum

BJ's Wholesale Club’s focus on simplifying assortments, expanding into high-demand categories and building own-brands portfolio bodes well. The company also remains committed toward enhancing omni-channel capabilities and providing value to customers. Cumulatively, these endeavors have been contributing to growth in membership signups and renewals, resulting in higher membership fee income, higher average members per club and decent comparable club sales growth.

Comparable club sales during second-quarter fiscal 2020 rose 17.2%, following an increase of 19.9% in the preceding quarter. Excluding the impact of gasoline sales, comparable club sales surged 24.2% during the quarter, after increasing 27% in the preceding period. Impressive comparable sales growth of 25% in the grocery division contributed to this upbeat performance. Notably, the grocery division benefited from increased demand for paper products, cleaning supplies, fresh meat, frozen, dairy, fresh produce, packaged goods and beverages, owing to the coronavirus outbreak.



No wonder, BJ's Wholesale Club looks well poised to capitalize on this growing trend. The company has added 32 new vendors to strengthen supply chain in food, paper and cleaning supplies, and participate in new personal protective equipment categories. Additionally, general merchandise and services division registered comps growth of 22% driven by strong apparel sales, TV sales and other home-related categories. Management expects comps for the remainder of the fiscal year to be strong.

The coronavirus pandemic and the resultant stay-at-home trends have led to an increase in online shopping. Clearly, BJ's Wholesale Club has been sparing no effort to bolster omni-channel operations and ramp up delivery services. The company has been directing resources toward expanding digital capabilities in order to better engage with members and provide them a convenient way to shop, including same-day delivery, curbside pick-up and buy-online, pickup-in-club.

We note that during the second quarter digitally-enabled sales soared more than 300%, and added 6 percentage points to comparable club sales, excluding gasoline sales. This followed an increase of 350% in the preceding quarter.

Wrapping Up

In spite of lingering coronavirus woes, BJ's Wholesale Club looks well poised for growth on account of its better price management, focus on grocery offerings, ongoing investments in omni-channel capabilities and surge in membership.

3 More Key Picks in Retail

Target TGT has a long-term earnings growth rate of 7.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kroger KR has a long-term earnings growth rate of 6.2% and a Zacks Rank #2.

Sprouts Farmers Market SFM, a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.2%.

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Target Corporation (TGT) : Free Stock Analysis Report
 
BJs Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
 
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Zacks Investment Research