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Why BJ's Wholesale Club Thinks Growth Will Speed Back Up

By Demitri Kalogeropoulos - Mar 14, 2020 at 7:00AM

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The chain is optimistic about its growth plan despite weak 2019 results.

Investors were happy with the news they heard from BJ's Wholesale Club Holdings (BJ 0.88%) last week. The company reported modest sales growth and a sharp jump in membership fee income for its fiscal fourth quarter and the wider year. The warehouse retailer also announced a more aggressive cost-cutting plan that might allow it to accelerate growth and close the gap with rival Costco Wholesale (COST 0.90%).

In a conference call with Wall Street analysts, new CEO Lee Delaney and team outlined their plan for boosting growth in the highly competitive retailing space. Let's look at a few highlights from that call.

A man pushes a shopping cart through a warehouse store

Image source: Getty Images.

Fixing the growth problem

"We expect our continued omni investments to attract new, higher-quality members, improve member engagement, drive trips, and fuel our top line." -- Delaney

BJ's has expanded sales at its established locations by 1% for the full year (which ended Feb. 1), and that key figure was flat for the holiday quarter. Executives said the Q4 result would have been higher after adjusting for one-time pressures. However, that result likely still translated into market-share losses. Costco grew same-store sales by an adjusted 8% over the past few months. 

While noting that "we must grow faster," Delaney listed a few factors that will support that rebound. The biggest is investments in the omni-channel selling platform so that more members can opt for same-day pickup and delivery options. BJ's is also looking to get help from an improved merchandising mix and a higher-quality membership base.

Membership statistics

"Membership fee income grew by 6% during the fourth quarter. Performance was primarily driven by improving the quality of our membership base." -- CFO Robert Eddy

There's plenty to celebrate about BJ's membership base, which accounts for most of its annual profits. Fee income rose almost 7% for the full year thanks to the combination of a growing count of shoppers, reduced reliance on trial memberships, and higher yearly fees. The renewal rate was 87%, compared to roughly 91% for Costco's U.S. stores.

Looking out to 2020

"We do not anticipate closing any additional clubs in the near term, and we remain on track to open two new clubs in the first half of 2020." -- Delaney

After closing two warehouses this quarter, BJ's believes it has no other major weak spots in its geographic footprint. It is planning to open two new stores over the next few months, in fact, with one landing in Pensacola, Florida, and another launching in Chesterfield, Michigan.

As for its finances, the consumer company is planning to cut costs by over $100 million over the next two years, which should help keep profits rising even though it has already booked all of the benefit from its early 2018 membership hike.

The main challenge over the next few quarters is for BJ's to improve its merchandising while building more convenient purchasing options such as home delivery. Wins in these areas would first boost membership metrics such as fee income and renewal rates before trickling down to raise BJ's core growth figure.

Still, investors should expect that acceleration to take time, given that executives believe comps will land between 1% and 2% in 2020 to mark no improvement over last year's sluggish result.

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Stocks Mentioned

BJ's Wholesale Club Holdings, Inc. Stock Quote
BJ's Wholesale Club Holdings, Inc.
BJ
$65.25 (0.88%) $0.57
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$492.65 (0.90%) $4.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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