As retailers prepare to report earnings, investors should gear up for a mixed bag, particularly for Advance Auto Parts Inc AAP and BJ’s Wholesale Club Holdings Inc BJ.

Walmart’s High Bar, Costco’s Layer Of Pressure

While Walmart Inc WMT set a high bar with its recent performance, JPMorgan analyst Christopher Horvers believes Advanced Auto and BJ’s are unlikely to match it, especially as Costco Wholesale Corp COST adds another layer of pressure.

Costco recently announced a membership fee hike, raising its Gold Star membership fee by $5 to $65 and its Executive membership fee by $10 to $130, effective September 1.

Read Also: Costco Hikes Membership Fees At Long Last; Analysts Caution Of ‘Sell The News’ Event, Point To Stock Underperformance After Last 3 Hikes

BJ’s Price Advantage

This move puts BJ’s in a tough spot. While Costco’s dominance in the wholesale space allows it to raise prices confidently, BJ’s may need to think twice.

Horvers suggests BJ's might delay a similar move to maintain its price advantage, particularly since it serves a lower-income customer base, with about 5% of its sales tied to SNAP benefits — significantly higher than Costco's negligible exposure.

BJ’s management hinted at reinvesting any potential fee hike profits back into improving customer experience rather than letting them fall to the bottom line.

Given the current economic climate and increasing competition, delaying a fee increase could be a strategic play to hold onto market share, particularly as consumer spending remains volatile.

Advance Auto’s Challenges

On the flip side, Advance Auto is facing its own set of challenges. Horvers highlights a likely guidance cut, driven by declining margins and continued maintenance deferrals as lower-income consumers tighten their belts.

With Advance Auto’s comps expected to drop by 1% in the second quarter, below the Street’s expectations, the retailer’s turnaround efforts are facing strong headwinds, making it tough to navigate in a receding tide.

While Costco’s fee hike could pressure BJ's to act, the latter’s strategy to hold off may prove crucial in retaining its customer base.

Meanwhile, Advance Auto's struggles seem far from over, signaling a rough road ahead. Investors should approach these retail stocks with caution as earnings season unfolds.

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