Stock Wars: BJ's Vs. Costco

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two warehouse club giants: BJ's Wholesale Club Holdings Inc BJ and Costco Wholesale Corporation COST.

The Case For BJ’s: This company’s roots can be traced back to the Massachusetts discount department store chain Zayre in 1984 — the BJ’s name was a tribute to company president Mervyn Weich’s daughter Beverly Jean. The company was publicly traded before its 2011 acquisition by the private equity firms Leonard Green & Partners and CVC Capital Partners, and it returned to being publicly traded in 2018.

Today, the Westborough, Massachusetts-based BJ's focuses on the eastern half of the U.S. with 229 wholesale clubs and 160 branded gas stations in 17 states. On June 10, announced plans for new clubs in Noblesville, Indiana; New Albany, Ohio; Wayne, New Jersey; and Midlothian, Virginia.

In other corporate developments, the company recently partnered with DoorDash Inc DASH to offer on-demand grocery delivery from its location, making it the first wholesale club available on the DoorDash marketplace, and in January it acquired the assets and operations of four distribution centers and the related private transportation fleet from longtime partner Burris Logistics.

In its most recent earnings data, the first-quarter results published on May 19, BJ’s reported total revenue of $4.4 billion, up from $3.8 billion one year earlier, and net income of $112.4 million versus the previous year’s $81.5 million. The adjusted earnings per share of 87 cents were up from the first quarter of 2021’s 72 cents.

BJ’s also noted that its first-quarter total comparable club sales increased by 14.4% year-over-year while its comparable club sales (excluding gasoline sales) were up 4.1% year-over-year. The company’s membership fee income increased by 11.9% to $96.6 million year-over-year.

“Our performance in the first quarter was strong, as gains in member traffic underscored the value we provide,” said President and CEO Bob Eddy. “Our business model remains more relevant than ever in the current inflationary environment … Our membership has never been stronger — we reached 6.5 million members in the first quarter, which serves as a testament to the value that we consistently deliver to our members.”

BJ’s shares opened for trading today at $60.13; the company’s 52-week trading range is $45.54 to $74.09.

See Also: Benzinga’s complete Stock Wars series

The Case For Costco: This company’s roots were deep in the soil of revenge: In 1975 Sol Price was forced out of FedMart, a members-only discount store that he founded, and the following year he created the rival business called Price Club as a retail warehouse club. The company went public in 1980, expanded into Canada in 1986 and Mexico in 1992 before its 1993 merger with the small Seattle-based Costco, which had been operating for 10 years.

Today, Costco operates 830 warehouses including 574 in the U.S. and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the U.K., 16 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two each in France and China, and one in Iceland. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

In recent corporate developments, Costco is being sued by Legal Impact for Chickens, an animal rights group that accused the company of “illegal neglect and abandonment” of animals at its Nebraska chicken processing plant. The lawsuit claimed Costco has been breeding chickens that are too big to stand and die from poor health and starvation. In Canada, Costco announced this week that it had 50 job opportunities across the country ranging from non-customer facing to entry-level positions. The average Costco salary in Canada is C$26 per hour, with full-time warehouse clerks earning up to C$70,000 a year plus benefits.

In its most recent earnings data, the fiscal year, third-quarter results published on May 26, Costco reported total revenue of $52.5 billion, up from $45.2 billion one year earlier, and net income of $1.35 billion versus $1.2 billion from the previous year. The $3.05 basic earnings per common share were higher than the $2.75 from fiscal year, third-quarter 2021.

Costco also reported that its third-quarter membership fee income was $984 million versus last year's $901 million and its comparable sales for the quarter were up by 16.6% in the U.S, up by 15.25 in Canada and up 5.7% in its foreign markets. But the company also noted that the current economic condition is having an impact on its corporate decisions.

“Given the current macro environment, the historically high inflation, and the burden it's having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time,” said Bob Nelson, senior vice president of finance and investor relations, on the third-quarter earnings call. “We will let you know, however, when that changes.”

Costco shares opened for trading today at $463.11; its 52-week range is $386.56 to $612.27.

The Verdict: While both BJ’s and Costco are in a solid financial position, they are also moving into a quarter where inflation is at historic highs and the Biden administration is angrily insisting the nation is not moving into a recession while economists are politely disagreeing with that notion.

This could be either a blessing or a curse for the two companies: the pricing of merchandise, especially with their gas stations, could work to their advantage, but at the same time a decrease in consumer spending could result in all corporate ships sinking in inflationary waters.

Costco would be in a more vulnerable position because it is also dealing with European and Asian economies that tend to buckle (or worse) during recessionary periods.

While both companies are on solid footing at the moment, this Stock Wars duel gives the nod to BJ’s for three reasons: the DoorDash deal is a major coup for this sector, the quick-moving expansion of its footprint shows a nimbleness that is not immediately obvious with Costco, and its relatively low-priced shares (compared to Costco) could be a bargain for long-haul investors today.

Of course, it will be interesting to revisit these companies a year from now, when many economists believe that a recession will be fully underway.

Photo: Mohamed Hassan / Pixabay