BJ’s Wholesale Club is a Quad 4 outperformer on an absolute and relative basis. Food retailers benefited from the shift to at-home consumption during the pandemic. Just as COVID-19 restrictions were finally being lifted throughout the country and consumers were resuming their lives, food inflation and soaring gasoline prices have altered their behavior again. BJ’s Wholesale Club’s value proposition is positioned to gain share as consumers look to stretch their food budgets. BJ’s is an attractive capital preservation long for the quad environment with the highest probability of occurring. We see upside potential in both EPS estimates and the multiple as the company takes share and accelerates new store openings. We are currently long Grocery Outlet and BJs in food retail and short Kroger, Albertsons, Loblaw, and Sprouts Farmers Market.
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We updated food retail industry trends and made our case for warehouse clubs gaining share within food retail. BJs is doubling the number of stores it is opening each year. We also examined new store performance to see if the company should accelerate store growth. BJ's growth formula looks quite different with 4-5% store growth combined with a similar comp growth rate, plus sales leverage and capital deployment to generate low-teens EPS growth.
The investment themes for our call:
