Soaring demand for consumer staples, paired with an intense desire to limit shopping trips during the pandemic, has created a bonanza for wholesale club retailers this year. The regional specialist BJ's Wholesale (NYSE:BJ) has seen some of the biggest impacts to its business as it has notched relatively larger gains than national peers like Costco (NASDAQ:COST) and Walmart (NYSE:WMT).

That impressive growth trend carried through into the fiscal third quarter, the company revealed in its latest earnings release, even as its sales gains slowed through early November.

A man shops in a warehouse store.

Image source: Getty Images.

1. Still winning share

Comparable-store sales growth landed at 19% to mark just a slight slowdown from the prior quarter. BJ's comps stack up favorably against rivals like Sam's Club, which Walmart said expanded at an 11% rate in Q3. The chain appears to be growing at least as fast as Costco, too, which last noted a 14% sales increase for the nine weeks ended on Nov. 22 (Costco's comps exclude gas price changes but have been held back by declining gas demand in recent months).

BJ's management said the broader results bolstered the narrative that the business is building some sustainable competitive advantages through the pandemic. "The third quarter was another remarkable quarter with robust comp growth, significant market share gains, and record profitability," CEO Lee Delaney said in a press release.

2. Gushing cash flow

BJ's growth wins are making the business significantly more profitable. Gross profit margin had been pressured by rising costs since the start of COVID-19 closures, but the chain ended that slide this quarter and notched a slight increase as higher prices fully offset those expenses.

Management also kept a lid on selling expenses so that operating income rose to $190 million, or 5% of revenue, compared to $101 million, or 3% of revenue, a year ago. These positive trends combined to push adjusted earnings higher by 120% to $0.88 per share.

BJ's cash flow was also strong, having improved to over $800 million through the first three quarters of the year compared to $222 million in 2019.

3. A bright outlook 

The company doesn't issue short-term growth forecasts, but executives implied that sales could stay elevated through the holiday shopping season and well after the COVID-19 threats fade. "We are confident our business will continue to thrive," Delaney said, "given the structural shift in consumer behavior, our market share gains, and our strategic investments" in areas like online selling. BJ's digital platform was responsible for a large portion of its growth this quarter and tripled in size year over year.

While it could be several quarters before investors know for sure whether BJ's is on a fundamentally stronger market share footing, there's no denying that the business has much more financial flexibility today than it did a year ago.

Its growing base of shoppers is also giving it more industry clout that it can use to push prices lower. With continued solid execution, BJ's could use those new assets to transform itself into a more national threat to the currently dominant industry forces.

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