BJ

Publicly traded companies mentioned herein: BJ’s Wholesale Club Holdings Inc (BJ), Costco Wholesale Corp (COST), Kroger Co/The (KR), Target Corp (TGT), Walmart Inc (WMT)

Highlights

The presenter is short shares of BJ’s Wholesale Club Holdings (BJ), which operates ~200 wholesale club stores predominantly in the Northeast. In 2011, the company was taken private by Leonard Green & Partners at 7x EBITDA. As far as the presenter can tell, based on the filings available, BJ comped negatively every year from 2011 – 2017; however, the investment has been good for private equity as they have been able to drive EBITDA growth through an aggressive procurement savings plan, relevering the asset, and paying itself a special dividend. It then took BJ public in Spring 2018 at $17 per share. The stock performed well out of the gate, allowing management to sell off additional shares in December at $26 per share. Management recently filed a shelf to sell its remaining ownership portion, and the presenter thinks the sale could happen after reporting Q4 ’18 results / guiding Q1 ’19 in early March. He expects strong results for Q4 ’18, aggressive guidance, and the stock to reach the “high $20s,” yielding an attractive entry point for his short position. Thereafter, he sees diminishing tailwinds leaving BJ set up to miss on guidance longer term. A combination of earnings misses and multiple contraction lead him to a $16 – $17 price target range.