BJ’s Wholesale Earnings on Deck: Stock Down 22.9% in 6 Months Leading In

As BJ's Wholesale Club Holdings Inc. (NYSE: BJ) gears up to release its third-quarter fiscal 2025 earnings report this morning, markets are keenly watching to see if the warehouse retailer can return to form after a tricky run. BJ's stock has fallen 22.9% over the past 6 months, and 2.37% in the past 12 months, as sentiment has turned bearish.

Analysts are currently projecting a 4.70% increase in revenues to $5.34 billion for the third quarter of fiscal 2025. However, earnings per share are expected to decline by -7.63% to $1.09. This divergence between revenue growth and earnings decline underscores the challenges BJ's faces in managing costs and maintaining profitability in an inflationary environment.

The upcoming earnings announcement is particularly crucial given the mixed signals the company has sent to the market recently. While BJ's reported a strong third quarter in fiscal 2024, with comparable club sales up 1.5% (3.8% excluding gasoline) and net income rising 19.4%, its subsequent projections for modest growth in August spooked the markets. The company forecast comparable club sales, excluding gasoline, to range from a decline of 2% to an increase of 1% for the fourth quarter, leading to a dip in the stock price.

BJ's strategic initiatives, particularly its focus on membership growth and digital expansion, will be under scrutiny. The company's membership model, which saw fee income rise 8.4% to $115.0 million in the third quarter of fiscal 2024, remains a key driver of revenue.

The planned increase in membership fees, effective January 2025, from $55 to $60 for Club members and from $110 to $120 for Club+ members, indicates confidence in the value proposition offered to its members. However, it also presents a risk if the price increase leads to increased churn or slower new member acquisition.

The company's digital strategy, including its online marketplace and mobile app, is also a critical area to watch. As consumers increasingly shift to online shopping, BJ's ability to effectively compete in the digital space will be crucial for its long-term success.

While the consensus seems to be cautiously optimistic about BJ's revenue growth but concerned about its earnings, a contrarian view might suggest that the market is underestimating the company's ability to manage its cost structure. Perhaps BJ's is being deliberately conservative with its guidance, setting a low bar that it can easily surpass. The planned membership fee increase could provide a significant boost to revenue and profitability, offsetting any potential decline in membership numbers.

Moreover, BJ's focus on private-label brands and efficient supply chain management could allow it to maintain margins even in a challenging economic environment. This would mean that the projected earnings decline is either overstated or a temporary blip before an upswing.

Furthermore, the recent approval of a new $1 billion share repurchase program sends a strong signal that the company believes its stock is undervalued. This could be interpreted as a sign that management has confidence in BJ's long-term prospects and is willing to invest in its own shares.