Boasting a viable business strategy and a healthy balance sheet, BJ’s Wholesale Club Inc. (BJ) offers investors one of the strongest growth stories in this space. The company expects to achieve earnings per share growth of 3.6% to 11.5% in fiscal 2011, based on net sales growth of 6.5% to 8.5% and comparable club sales growth of 2.5% to 4.5%.
BJ’s as a warehouse club, is uniquely positioned to drive traffic as it offers a wider assortments of brands at compelling prices by housing approximately 7,200 stock keeping units (SKUs) compared to 4,000–5,000 SKUs carried by its competitors. Moreover, BJ’s also offers its customers the choice of bulk or consumer-friendly package sizes.
The company’s retail model, which ensures optimum inventory movement, has considerable cost advantages including labor, logistics, and operations that are sustainable when compared to its supermarket competitors that normally stock between 30,000 to 50,000 SKUs, and require higher handling charges.
BJ’s Wholesale Club recently posted better-than-expected fourth-quarter 2010 results. The quarterly earnings of 95 cents a share beat the Zacks Consensus Estimate of 92 cents, and rose 1.1% from the prior-year quarter buoyed by a rise in traffic, membership renewals and increase in sales of perishable items, helping the company to gain market share.
BJ’s will sustain its investments in Club payroll, Club remodels and technology to augment sales of perishable items, which have been the driving force of fourth quarter results. Further, a negligible debt-load and healthy cash reserve augur well for future operating performance.
However, a sluggish economic recovery and erratic consumer behavior could intensify competition, as supermarket stores and other warehouse club operators could offer compelling prices to lure consumers. Moreover, being highly concentrated in northeastern U.S., BJ’s clubs might see cannibalization of sales with the opening of new stores in existing markets.
In February 2011, BJ’s hinted that it is looking at strategic options, which might include a possible sale of the company. For bidders, BJ’s offers a striking prospect for acquisition as it has a healthy balance sheet with modest debt and offers access to a sturdy food and grocery market that is gaining ground. It is not the first time that the speculation of BJ’s sale has hit the market. A private equity player, Leonard Green, had offered to acquire the wholesale-club chain in November 2010. However, the company remains silent about any such hearsay.
BJ’s Wholesale, which faces stiff competition from Costco Wholesale Corporation (COST) and Sam’s Clubs, a division of Wal-Mart Stores Inc. (WMT), operates 190 clubs in 15 states. Currently, we have a long-term “Neutral” rating on the stock. Moreover, BJ’s Wholesale holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
BJ’S WHOLESALE (BJ): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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