Better Buy Right Now: Walmart vs. BJ's Wholesale

With the price of everyday items on the rise, more and more shoppers are looking for ways to reduce their spending. Although discount retailers contend with changing consumer tastes and persistent supply chain woes, these businesses are well-positioned to benefit from the current economic climate -- provided they remain resilient and competitive.

Let's compare two different cost-saving retailers and determine which consumer staples stock makes a better buy in today's market.

The case for Walmart

Walmart (WMT 0.57%) stock surged 22% over the past six months, now trading within reach of its April 2022 all-time high. Shareholders and potential investors want to know: Can Walmart stock push past current price levels and set new highs?

The retail chain grew revenue across all segments in Q3, beating both analysts' and the company's own expectations. Total sales for the third quarter hit over $150 billion, and Walmart raised its full-year guidance for consolidated sales growth by 1% as a result. Most remarkably, Walmart's e-commerce business grew 46% in Q3 vs. the same period last year.

Despite better-than-expected sales growth, the current economic climate continues to challenge the retail behemoth. Inflation, geopolitical turmoil, and supply chain disruptions have all taken their toll on Walmart's profitability, along with particularly unfavorable currency exchange rates in Q3. As a result, Walmart posted a net loss of $1.8 billion for the quarter. 

On the bright side, Walmart continues to churn through its surplus inventory, which has been a major drag on net profit margins for the past year. CEO Doug McMillon claims that Walmart will be "thoughtful and balanced about inventory levels'' in an effort to avoid a similar inventory glut.

Walmart has also converted a new wave of higher-income shoppers acquired during the pandemic. Q3 marked a rise in frequency from these consumers, and CFO John David Rainey believes Walmart is positioned to capture more higher-income shoppers as cost-saving trends prevail.

The case for BJ's Wholesale Club

BJ's Wholesale Club (BJ 0.79%) stock has advanced more than 30% from its May 2022 lows, but still trades 16% shy of its all-time high from last November. With consumer staples stocks showing resilience in spite of a slow economy, investors wonder if it's now time to buy the dip on BJ's.

Compared to Walmart's net loss in the third quarter, BJ's delivered its most profitable third quarter ever. Membership fee income reached nearly $100 million for the quarter, while same-store sales rose 9.7% year over year. Gasoline sales accounted for almost half of BJ's Q3 sales growth, and CEO Bob Eddy described 2022 as "the most profitable gasoline year we've ever seen."

At a rate close to Walmart's, BJ's online segment observed remarkable year-over-year growth of 43%. Its digital product offerings have almost tripled in the past three years, a curbside delivery option helping to fuel the expansion. During Q3's earnings call, Eddy boasted of BJ's ability to grow digital sales from nearly nothing to over $1 billion in just four years.

Gas sales aside, BJ's gross profit margins dropped by 30 basis points last quarter. Relentless supply chain interruptions and rising costs in commodities such as milk, cheese, and chicken wete the main culprits, and BJ's management team scrambled to keep prices competitive yet still profitable. Noting some relief in raw materials costs already, BJ's Wholesale Club remains focused on saving its customers money.

Which stock is a better buy right now?

To help determine which of these budget-friendly retail stocks makes a better buy in today's market, let's compare their price-to-book ratios and one-year growth estimates.

Source data: Yahoo! Finance.

With a lower price-to-book ratio and a better near-term growth forecast, Walmart stock presents the better buy right now -- at least, based on these two measures. But if BJ's Wholesale Club continues to break records, watch for its stock to reflect company progress. In an economy where saving money is a priority, both of these value-proposing retailers stand to benefit.