When I look for companies that offer value to investors at their current price, there are a few specific parameters that I typically review. BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) ticks nearly all those boxes, and that's what I'd like to share with you today.
Thesis: It's hard to find a retail brand that's not growing fast during the ongoing pandemic. As a result, most of them have strong growth already priced in and are largely trading at or above fair value. BJ's, however, is still trading at a significant discount despite ticking the boxes that I mentioned. I see a lucrative opportunity based on these factors that I outline in this article.
Growth Continues
Top line growth is almost a given for any consumer staples company or retail chain these days. Uncertainties around the pandemic continue to keep the demand for essentials at elevated levels, at-home food consumption is still high, BOPIS channels (buy online, pickup in-store, or in BJ's case, buy online, pickup in-club - BOPIC) are still growing, and eCommerce initiatives are getting more aggressive to handle the shift to digital.
Even by those high standards, BJ's sales growth during the pandemic has been outstanding.
Growth at the top typically levers margins down the income statement once the economies of scale have been achieved, and BJ's Wholesale's case is no different. The 17.1% expansion at the top for FY-20 has allowed operating income to balloon by 82.4% for the period. The growth momentum in net sales is still very strong at 13.7% (inc. fuel sales) for Q4-20, which helped operating income grow by 76.8%.
Of course, gross margins are typically in the low double digits for wholesale discount clubs; but even here, BJ's has outperformed its peer market with a gross margin of nearly 19%. For context, Costco (
