The problem is “near-term headwinds, including delayed cost pass-throughs, supply chain challenges, etc.,” analyst Robert Ohmes wrote in a commentary.
That “may overshadow BJ's strong long-term positioning supported by elevated membership quantity and quality, merchandising initiatives, and accelerating unit growth.”
Given that long-term view, Ohmes raised his price target to $66 from $60.
BJ’s stock recently traded at $58.65, down 0.8%. It has moved up 18% in the past three months as the pandemic eased and consumers resumed shopping.
But, “BJ’s could be last to pass through cost increases,” Ohmes said. “The large negative spread between the Finished Consumer Foods producer price index and Food at Home consumer price index in September implies margin pressure for food retailers.
“We expect BJ to hold its prices until competitors, including Costco (COST) - Get Costco Wholesale Corporation Report and [Walmart’s (WMT) - Get Walmart Inc. Report] Sam’s Club, pass through cost increases.
“This could pressure BJ margins into 2022, particularly given BJ’s higher consumables mix (grocery represents 70%-plus of sales) versus other discount retailers and potential inventory challenges in general merchandise categories.”
As for inventory, “BJ noted general merchandise ‘inventory availability’ issues in the fiscal second quarter, ending with levels that were in line with 2019,” Ohmes said.
That “implies risk of share loss this holiday season to retailers with stronger inventory positions.
"We also believe BJ could face challenges in the second half from supplier allocations and less favorable port access versus larger competitors.”