BJ | New Short Idea. We’re adding BJ’s short side. Covid winner with share risk and cost pressures on reopening in 2021. BJ’s Wholesale (BJ) is one of the three big US wholesale clubs. It’s the runt of the litter at $15bn in sales vs Sam’s (WMT) at $64bn and COST at about $125bn. The stock is up over 100% vs pre-covid levels as the business was a huge winner in the pandemic benefitting from the combination of consumer’s stocking up on essentials, trip consolidation toward’s bulk buying, and long lines at top competitors driving easy share wins. This meant a big step up in comps, margin upside, and EPS more than doubling vs 2019. As we progress through 2021 and into the re-opening phase, we think BJ will be facing share losses, revenue declines, cost deleverage, and downward earnings revisions meaning up to 35% downside risk for the stock.
We’re removing Northern Star Acquisition Corp (STIC) – the BarkBox SPAC – from our Short Bias list. We added it short side at $14 in early Jan, but the price has since corrected by 25% to $10.59. We think this business model is flawed, and think that it is simply riding the halo of anything pet-related (CHWY, WOOF), despite our view that the TAM is limited and profitability will be evasive for this company. We’ll revisit short-side after the merger closes.
