Why BJ’s wholesale stock fell on Friday

What happened

Shares of BJ’s Wholesale Club Holdings (NYSE:BJ) were trading down 6.4% as of 11:31 a.m. ET on Friday. The discount warehouse operator has more than doubled deliveries to investors in recent years, and that’s exactly why a Wall Street analyst thinks it’s time to sell.

JP Morgan analyst Christopher Horvers downgraded the stock from overweight to underweight and cut the stock’s near-term price target from $78 to $60, citing the potential for further growth. weaker short term comp sales.

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So what

The analyst’s bearish stance stems from upcoming year-over-year comparisons to stimulus checks and tax credits that have helped retail sales over the past year. Horvers believes these factors, along with food price inflation, could lead to disappointing same-store sales performance growth in calendar year 2022.

In its third fiscal quarter, which ended in October, BJ’s saw net sales accelerate to 14% year-over-year growth, up from 5.6% in the prior quarter. CEO Bob Eddy said, “Our growth wheel is spinning faster than it has in a long time, and we look forward to continuing to build on this momentum.

However, operating profit fell 10.6% year over year in the last quarter, mainly due to significant increases in employees’ starting hourly wages.

Now what

Management guided positive offset sales into the low single digits for the fiscal fourth quarter, representing a deceleration from the robust third quarter offset sales rate of 13.1%. This would validate Horvers’ case, as the forecast includes the impact of lower stimulus payments.

On the other hand, management also cited “strong momentum and buy-in results”, partially offsetting the decline in stimulus. Like Wholesale Costco, BJ’s derives approximately half of its operating income from membership dues. Chief Financial Officer Laura Felice mentioned on the third quarter earnings call that commission revenue was “ahead” of last quarter expectations due to “larger than expected renewals and level penetration.” higher”.

All in all, the sale could be a buying opportunity. BJ’s trades at a massive discount to Costco on a price-earnings basis. Overall, BJ’s P/E of 20 isn’t expensive for a growing retail business.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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