BJ's Wholesale Club Gains 30% in IPO -- Barron's Blog
Jun 29, 2018
By Karen Langley
At a challenging time for bricks-and-mortar retail, investors snapped up a new offering of BJ's Wholesale Club Holdings (BJ) on Thursday, driving the stock up nearly 30% from its IPO price of $17 to a close of $22.
The enthusiastic debut came on a day when other retailers saw their stock prices drop following earnings news. Bed Bath & Beyond (BBBY) was down 3.8%, and Pier 1 Imports (PIR) was down 19%.
The market may have liked the look of BJ's steady stream of income from membership fees, as well as the potential for the company to use the data it collects about shopper habits to shape decisions.
In a registration statement filed with the Securities and Exchange Commission, BJ's said it has more than five million members who pay annual fees ranging from $55 to $110. Membership-fee income in fiscal 2017 was approximately half of adjusted earnings before interest, taxes, depreciation and amortization, the company said.
BJ's noted that its membership model gives it access to "comprehensive data" on consumers that it uses to adjust prices, promotions, and product assortment.
The company has 215 warehouse stores across the eastern U.S. It says it offers members savings of 25% or more on groceries compared to its supermarket competitors.
Chuck Grom of Gordon Haskett Research Advisors initiated coverage of the stock Thursday morning with a Buy rating and a long-term price target of $22 to $26. Grom pointed to an opportunity for BJ's to increase its membership: In the areas BJ's serves, Costco Wholesale (COST) pulls in about 63,685 paid members per club, compared to 22,790 paid members per club for BJ's.
"Above and beyond the tailwinds within the warehouse club model, the bull case on BJ's revolves largely around the company's ability to drive both membership higher ... along with improved sales productivity, which at $540 per sq. ft. is noticeably lower than not only Costco ($1,245), but also Sam's Club ($703)," Grom wrote.
He noted steady growth in BJ's membership fee income in the years since 1997 and the potential for the company to better use information about customers.
"With spending history on its five million members, the ability to data mine for more effective marketing and digital promotions is sizeable. Importantly, we think this could pave the way for BJ's to gain access to better brands and also enter into new categories of growth down the road, " Grom wrote.
BJ's had been publicly traded until it was taken private in 2011 by Leonard Green & Partners and CVC Capital Partners.
The company offered 37.5 million shares of common stock on Thursday. It said it would use the proceeds to repay debt.