BJ’s Wholesale: Despite Solid Regional Presence, Tough Competitive Backdrop Prompts No-Moat Rating

We're initiating coverage of BJ's Wholesale Club with a $63 fair value estimate and a no-moat rating. BJ's maintains a regional footprint, with more than 240 stores located in densely populated cities along the East Coast. Akin to its larger warehouse club peers (such as wide-moat Costco and Sam's Club), the firm's business model is predicated on stringent cost management and operating efficiency. As such, BJ's maintains a frugal shopping environment designed to keep costs lower than its vast competitive set. For instance, the firm streamlines its distribution processes by limiting the use of distribution centers and storing large quantities of inventory on pallets located directly on the sales floor. The firm also builds procurement scale on select items by offering a limited product assortment of just 7,000 stock-keeping units, or SKUs, per store, well below the 40,000 and 100,000 SKUs that are typically offered at supermarkets and mass merchandisers, respectively.