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Warehouse Wars: Can BJ’s Take Advantage of Costco’s Weakness?

The hefty valuation bestowed on Costco Wholesale Corp. (NASDAQ: COST) may have finally caused the bulk retailer’s stock to spring a leak.

The stock trades at a premium that has long spooked more value-conscious investors, but has continued to produce strong earnings and membership growth returns.

Now that cracks are beginning to show despite U.S. stocks returning to all-time highs, can smaller competitors like BJ’s Wholesale Club Holdings Inc. (NYSE: BJ) take advantage?

Tale of the Tape: Earnings and Valuation

Americans are spending more money than ever at wholesale retailers, and the industry is expected to grow another 50% by 2033, according to market analysis firm Business Research Insights.

Costco and BJ’s, along with Walmart Inc. (NYSE: WMT) subsidiary Sam’s Club, make up the ‘Big Three’ wholesale clubs in the U.S. Costco is by far the biggest of these chains, with more than 79 million paying household members and nearly 900 stores worldwide. BJ’s is the smallest of the three, but it has been of tremendous value to investors over the last year.

BJ’s Smaller Scale But Reasonable Value

In terms of size, BJ’s is just a mouse compared to the Costco tiger, with just over 7.5 million paying members and 255 club locations at the end of Q1 2025. What separates BJ’s from Sam’s Club and Costco is a broader inventory selection in smaller package sizes, along with a full-service deli for fresh meats.

BJ’s footprint is relatively small, with club locations primarily along the East Coast in 21 states. However, the company announced plans to open 25 to 30 more stores over the next two years, which would represent more openings than the combined total of the previous three years.

BJ’s reported Q1 2025 earnings on May 22 and missed on revenue, but easily surpassed EPS estimates ($1.14 reported vs. $0.91 expected). Net sales increased 4.7% year-over-year (YOY) to $5 billion, and the company expanded its gross margin by 30 basis points from Q1 2024. EPS also grew more than 34% YOY, but the stock still trades at a much cheaper multiple to COST.

Costco Investors Pay a Premium for Growth

Costco’s earnings releases have become a minor market holiday, and the company continues to meet the outsized expectations of analysts. Costco operates 896 stores as of Q1 2025, with 614 in the U.S. alone—more than twice as many as BJ’s. Naturally, Costco’s pure revenue and income figures blow BJ’s out of the water, but the growth and comp sales numbers justify the pricey valuation (more than 55 times earnings).

In Q1 2025, Costco again surpassed EPS and revenue expectations, but the comp sales really grabbed the market’s attention. Adjusted comp sales, which factor in gasoline and currency price fluctuations, grew 8% YOY. BJ’s comp sales grew at less than 3% in the same period.

Store traffic was up 5% YOY, and average ticket size increased by 0.4%. If you’re looking for a reason why investors pay 55x earnings for a stock in the retail sector, 8% comp sales growth will do the trick.

Charts Showing Waning Momentum

Despite strong earnings, the charts show a pair of stocks losing steam. Markets rallied to new all-time highs this week, but COST failed to retake the all-time high it established in February, creating a bearish double top pattern. The momentum shift has taken the share price back under the 50-day moving average, which appears to be a new resistance level.

BJ shares have faced a similar dilemma lately. After a Golden Cross sparked a 12-month rally, the stock has also now dipped below the 50-day moving average, a previously dependable support area. Still, the gap between 50-day and 200-day MAs is notably wider on the BJ chart.

Investors haven’t been disappointed by either stock, but BJ shares are up 27% over the last 12 months, significantly outperforming COST’s 14% gain. However, with both stocks flashing signals hinting at easing momentum, returns could be hampered until the next round of earnings in August.

BJ’s Currently Offers Better Value With Similar Growth Metrics and Margins

With an expected compound annual growth rate (CAGR) of 4.6% between now and 2033, research suggests there’s plenty of room for healthy competition amongst wholesale clubs.

Expectations for Costco are sky-high, evidenced by a P/E ratio over 55.

Costco must continue its quarterly fireworks display on each conference call to maintain its lofty stock price.

On the contrary, BJ’s has also demonstrated significant growth at a better price, especially in its digital sales division (35% digital comp sales growth in Q1 2025).

BJ’s strong balance sheet, growth initiatives, and cheaper valuation offer higher upside than Costco.

Written by Dan Schmidt

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