BJ's Wholesale Club Holdings

BJ's second-quarter results featured 15.9% net sales growth on strong fuel sales, alongside a 9.9% rise in membership fee income. Adjusted EPS rose 19% to $1.36, while gross margin sank 90 basis points to 17.8% from higher fuel sales and investments in lower prices on core merchandise.

Why it matters: Even as BJ's grew memberships to 8.5 million (from 8.0 million in 2025) and posted 3.1% comparable merchandise sales growth, we doubt its subscale model can reliably defend price competitiveness over time. BJ's pointed to supplier negotiations, assortment rationalization, and retail media as potential options to fund further reductions in price longer term. But without the scale of its larger rivals, we think BJ's will be challenged to pursue this course without a subsequent hit to profitability.

The bottom line: We plan to raise our $79 per share fair value estimate for no-moat BJ's Wholesale Club by a low-single-digit percentage, primarily reflecting outsize fuel sales and time value. After a 5% surge on the print, we view shares around 20% overvalued. In our view, the market is extrapolating the degree of profitability that can be achieved from merchandise sales, with the current market price implying that long-term operating margins expand to 5% (from 3.8% in 2025), which we find unlikely given unrelenting price competition in grocery. We forecast operating margin to expand to 4.4% by decade's end, paired with mid-single-digit annual sales growth. This presumes the firm captures fixed-cost leverage from its dense East Coast footprint and growing presence in Texas, but value investments cap merchandise margin expansion.

Coming up: BJ's aims to cut its stock-keeping-unit count by 20% to about 6,000 over the next few years. We think a leaner assortment could eventually strengthen localized procurement and enhance merchandise margins, but careful execution will be vital to not diminish its existing value proposition.

We have raised our fair value estimate for BJ's Wholesale Club to $82 per share from $79, reflecting the time value of money and stronger-than-expected second-quarter fuel performance. While elevated gasoline volumes and profitability lift our near-term earnings outlook, we make no material change to our long-term merchandise assumptions. We continue to expect persistent price investment and BJ's subscale purchasing position relative to larger warehouse rivals to limit merchandise margin expansion. Our revised valuation implies a fiscal 2027 EV/adjusted EBITDA multiple of roughly 9 times.

We forecast merchandise comparable sales growth of 2.4% annually on average, assuming BJ’s retains recent share gains through its execution-centric assortment. However, the more material shift in our model stems from new unit growth, which we now expect to contribute 3.1% to annual merchandise sales expansion (up from our prior estimate of 2.4%) as management affirms a faster store-growth strategy moving forward. We model net new-store growth of approximately 10 locations per year, a pace that should expand the fleet to roughly 355 clubs by the end of the decade.

Profitability improvements are equally central to our valuation. We forecast BJ’s terminal operating margin to expand to 4.4%, up from the 3.8% recorded in fiscal 2025. This margin accretion is driven by leverage at both the gross margin and SG&A lines. We project 10 basis points of gross margin expansion to 18.7%, supported by 7.6% growth in annual membership fee income and increased private-label penetration. At the same time, we expect SG&A expenses as a percentage of sales to decrease by 60 basis points to 14.2%. As the store base scales and sales density improves, we anticipate BJ’s will realize additional operating efficiencies and fixed-cost leverage.

We assign BJ's Wholesale Club a no-moat rating, as we believe the firm lacks a durable cost advantage or intangible assets sufficient to generate excess returns for the next decade. While BJ's has recently generated attractive returns, with a five-year average return on invested capital of roughly 15% versus our 7.6% estimated cost of capital, we view these excess returns as execution-driven and competitively exposed. In retail, economic moats tend to accrue to operators that can translate purchasing leverage, logistics density, and vast throughput into lower unit costs. Despite competent execution and a differentiated mix, BJ's remains subscale relative to category leaders and, thus, structurally disadvantaged in its ability to maintain above-average returns.

BJ's cost structure illustrates this limitation. On a per-unit basis, BJ's generates approximately $84 million in sales and about $3.2 million in EBIT per club, trailing both Sam's Club ($159 million and $3.4 million, respectively) and Costco US ($322 million and $11 million). These gaps matter because warehouse clubs operate on razor-thin margins that demand exceptional operating leverage to create cost leadership. Higher sales volumes allow overhead costs to be spread across a larger revenue base, enabling greater price reinvestment while preserving returns. BJ's modest 3% share of the US warehouse club and superstore market compared with 28% for Costco and 13% for Sam's Club restricts its bargaining power with suppliers and prevents it from shaping category economics across a broad assortment. BJ's lower throughput constrains this operating leverage and limits its ability to match the reinvestment capacity of Costco and Sam's Club over time. Given the lack of switching costs in the competitive retail defensive landscape, this could cap its share in the long term.

BJ's operating model lacks the differentiation to overcome this scale gap. The company carries a slightly broader set of 7,000 stock-keeping units, versus roughly 4,000 at Costco, and offers more traditional grocery features, such as a full-service deli and expanded produce. Still, this club-store concept fails to deliver the assortment of a traditional grocer, which offers roughly 30,000 stock-keeping units, compared with mass merchants such as Walmart (140,000) and Target (80,000). While these features aim to drive store traffic (given the fast turnover of perishable groceries), the benefits are offset by higher labor intensity and weaker fixed-cost leverage. BJ's has limited ability to reinvest in price given its higher operating costs, with SG&A as a share of sales roughly 570 basis points above Costco. Costco's scale-driven efficiency enables price reinvestment while still preserving profitability, a flexibility that BJ's lacks, which constrains its ability to compete on price over time.

Geographically, BJ's spans more than 260 clubs across 21 states, primarily on the East Coast. However, this regional density does not translate into a location-based advantage. Within BJ's 10 largest markets, the company operates approximately 212 clubs, while Costco and Sam's Club collectively operate roughly 317 clubs in the same territory. While BJ's store density supports operational efficiency, competition from larger national players in its core markets limits any meaningful regional advantage and may hinder expansion into new markets where scale is required to consistently outinvest or outprice its largest rivals. By contrast, Walmart and Costco benefit from greater supplier leverage and can invest more in automation, supply chain optimization, wages, and price leadership, spreading those costs across far larger revenue bases ($710 billion and $275 billion, respectively) and significantly broader membership ecosystems. Additionally, within BJ's primary markets, the company materially underperforms peers on sales productivity, despite operating in similarly dense regions. This is evident in average sales per square foot of approximately $730 at BJ's, compared with $1,514 at Village Super Market, $1,184 at Sam's Club, and $2,166 at Costco, underscoring BJ's weaker throughput and limited ability to translate regional presence into superior economic performance.

The firm's intangible assets also fall short of moat-level strength. Membership renewal rates near 90% indicate that BJ's offers a compelling value proposition, but we do not view its membership model as a moat-enabling intangible asset. Annual membership fees are modest and comparable across warehouse clubs ($50 to $65 for a basic membership and $110-$130 for premium status), and like Amazon Prime or Walmart+, memberships are not mutually exclusive. Furthermore, BJ's has approximately 8 million members (roughly 30,000 members per warehouse) versus more than 80 million members at Costco (estimated 87,000 members per warehouse). This disparity limits BJ's ability to convert its customer base into ecosystem-level benefits, such as superior purchasing leverage, which requires density to become self-reinforcing.

BJ's customer base, with household incomes of $75,000 to $100,000, closely overlaps with Sam's Club and Costco, but without Costco's scale-driven cost advantages or Sam's Club's integration within Walmart's ecosystem, this overlap exposes BJ's to direct price competition rather than insulating it, leaving returns vulnerable to persistent pressure.

We would reconsider our no-moat rating if BJ's meaningfully closed the scale gap through accelerated unit growth, membership density approaching Costco's per-warehouse levels, or a demonstrated ability to maintain pricing power independent of promotions, rather than merely posting above-cost-of-capital returns during a strong operating stretch. Absent such a structural shift, we view BJ's current excess returns as vulnerable to reversion once its execution edge fades or larger rivals intensify price investment in its core markets.

A rapid shift toward higher-tier membership penetration (42% versus 31% six years ago) could drive membership fee income growth above the 8% compounded annual rate we anticipate.

Digitally enabled sales penetration reached 16% in fiscal 2025, and continued growth among these members, who are twice as valuable as those who shop solely in-store, could drive additional sales upside.

Incremental expansion across population-dense pockets of the US could enable even greater operating margin expansion than we forecast (90 basis points) as supply chain efficiencies take hold.

Heavy East Coast concentration (over 80%) limits expansion optionality, as newer markets lack the same density benefits, with most of the US already occupied by entrenched warehouse and discount incumbents.

BJ’s rewards aren’t overly compelling, capping cash back at $500 versus Costco’s $1,250; this weaker incentive makes it harder to lock in the high-volume spending consolidation needed to drive unit velocity.

Smaller scale than Costco and Sam’s Club constrains BJ’s pricing power, limiting its ability to absorb cost inflation or fund price investments without pressuring margins.