BJ’s Wholesale Earnings: Positive Traffic Helps Propel Top-Line Gains, but Shares Look Pricey

No-moat BJ’s Wholesale delivered solid second-quarter results that landed closely in line with our expectations. Comparable sales growth of 2.4% modestly outpaced our 2% forecast and was led by strong traffic gains as the firm continued attracting value-conscious shoppers to its warehouses. Notably, BJ’s comp growth exceeded annual food-at-home inflation, which has averaged about 1% for the past three months. Management noted that traffic has improved for 10 straight quarters and cited a 9% increase in membership fees, with the bulk of fee income growth appearing to stem from its existing store base. We were also encouraged to see an uptick in BJ’s premium membership penetration, which reached 39% of total members (up from 38% at the beginning of the year and 28% in early 2020). We think this bodes well for the firm’s ability to capture larger wallet share with its most loyal customers, which typically allocate more dollars to BJ’s. Despite the positive results, shares suffered a 7% decline as we surmise investors were looking for management to issue a more favorable outlook for the full year. Instead, management reiterated its guidance for fiscal 2024 that consists of 1%-2% comp growth and EPS of $3.75-$4.00, both of which are consistent with our forecast (we currently model 2% comp growth and EPS of $3.99). We don’t plan to materially alter our $63 fair value estimate. Shares currently strike us as significantly overvalued, and we encourage investors to wait for a better entry point.