We recently compiled a list of the 8 High Growth Retail Stocks That Are Profitable in 2024. In this article, we are going to take a look at where BJ’s Wholesale Club Holdings (NYSE:BJ) stands against the other high growth retail stocks.
Lift in US Retail Sales due to Discretionary Spending
US retail sales increased solidly in September, supporting the view that the US economy possibly maintained a strong growth pace in Q3. Sales growth surpassed forecasts with an increase of 0.4%. A so-called control group of core sales jumped 0.7%. On October 18, James Knightley, chief international economist at ING, appeared on Reuters to talk about the retail sales growth. He said that a number of things are happening in the sector, with the key story being the remarkable resilience showed by the US consumer despite concerns about the job market cooling, high borrowing costs, and savings being exhausted. It looks as if the economy is on track to record a second consecutive 3% growth rate in this current quarter.
However, concerns that disproportionately high spending by higher-income groups is offsetting weaker spending by lower-income households are rising. The top 20% of the American households spend more in dollar terms as compared to the bottom 60% of the households by income. For the people in the top 20%, everything that could go right is going right. However, lower-income households have several pressures weighing them down, with inflation being a constraint.
This divergence in the household performance is a key story in the sector, with experts looking at how long high-income households can continue to offset the intensifying weakness in the lower-income sector. Knightley says that hiring does appear to be slowing in the job market, with jobless claims apparently being on the rise. These factors point to an intensification in the job market slowdown. If that is the case, it is expected to put more and more pressure on the bottom 60% of the households. If these households begin to fear the risk of rising joblessness, then that can be more of a headwind for economic activity felt more broadly.
All in all, it appears to be a mixed picture for the Fed. Being in the middle of the Q3 earnings season, Knightley gives an outlook on future earnings growth and says that it appears that the economy is performing pretty robustly despite headwinds. However, he also says that it is important to note that the equity market looks towards the future at all times, and that the Fed cuts rates for a reason. He feels as if a cooling is coming through, and that the earning estimates in the coming quarters might be even softer than what we are seeing in Q3. He thus think that the pressure is going to be much more telling for US corporate moving through Q4 and through next year.
A Concentrated Consumer or Slowing Consumer?
On August 21, Matt Boss, JPMorgan retail analyst, appeared on ‘Closing Bell’ to discuss the retail sector and the state of the consumer. He said that seeing from the backdrop of the consumer, we are witnessing a concentrated consumer instead of a slowing consumer across the spending front. Consumers are concentrating on events, such as the Back to School season experiencing accelerated traffic in consumers in that segment. Boss also said that the consumer is concentrating on value, highlighting the need for value in brick-and-mortar to offset convenience.
With consumer concentration directed towards key catalysts or holiday shopping periods, trends may show higher “peaks” and greater “lulls” of spending in between catalysts. Consumer shopping is coming up in several different ways, which he considers a by-product of COVID-19. However, Boss says that the reality is that consumer spending remains stable.
He believes that retail stocks that deliver value and have brands that consumers want in convenient settings are likely to experience higher consumer engagement and exhibit signs of consumer stability. Boss’ playbook for growth in the retail segment for the back half of 2024 thus includes innovation, differentiated product, value, and convenience in the e-commerce front.
In his optimism across the sector, Boss sees more winners than losers within the department store and specialty segment. He also believes that the consumer has been in a selective recession, with the low-income consumer being under immense pressure. The high-income and middle-income consumers remain plentiful on the spending side.
Our Methodology
To compile the list of 8 high growth retail stocks that are profitable in 2024, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener, we compiled an initial list of 40 retail stocks with 5 years of positive sales growth (at least high single digits). Next, using Yahoo Finance and Seeking Alpha, we sourced the 5-year net income and revenue growth rates along with the TTM net income (at least $100 million) to ensure profitability in 2024. Lastly, we ranked our stocks based on the number of hedge fund holders in Q2 2024 as per Insider Monkey’s database. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer happily filling up their tank at the Wholesale Club’s gasoline station.
BJ’s Wholesale Club Holdings (NYSE:BJ)
5-Year Net Income Growth: 20.55%
5-Year Revenue Growth: 9.22%
TTM Net Income: $532.35 million
Number of Hedge Funds as of Q2 2024: 17
BJ’s Wholesale Club Holdings (NYSE:BJ) is a membership-only warehouse chain offering an elaborate assortment of goods. Its merchandise offerings include a wide assortment divided into grocery and general merchandise and services. It also offers specialty services and operates around 245 clubs and 180 gas locations across 20 states.
The company has solid expansion plans, and is on the path to opening new clubs in key market locations. Such initiatives are expected to expand the company’s share in the warehouse club market and drive additional sales growth.
It is operating on a robust profitability model, with revenue in Q2 2024 increasing by 5% compared to 2023 and reaching $5.2 billion. The primary drivers of this growth are higher membership renewals, improved same-store sales, and strong performance in digital channels.
Continual growth in membership fees, strong membership renewal rates, and growth in the company’s premium tier memberships reflect its competitive market edge. Its membership fees grew 9% in Q2 2024. BJ’s Wholesale Club Holdings (NYSE:BJ) is also increasing attention to value and its private-label items. The company ranks seventh on our list of the top high growth retail stocks that are profitable in 2024.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) in its first quarter 2024 investor letter:
“Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, or premium brands. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) operates membership warehouse clubs. Its shares gained 14% after it reported better-than-expected comparable sales growth, in-line revenues, and earnings for its fiscal fourth quarter. Highlights of the quarter were increased membership and customer traffic.”
Overall BJ ranks 7th on our list of the high growth retail stocks that are profitable in 2024. While we acknowledge the potential of BJ as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BJ but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.