The institutions and the analysts support BJ’s Wholesale Club (NYSE: BJ) and they have helped to push the stock up to all-time highs in recent months. On the institutional side, they’ve been net-buyers for 8 of the last 9 consecutive quarters and hold more than 98% of the stock, the remainder of which is mostly held by insiders. 

On the analyst side of the coin, they rate the stock at Moderate Buy and have maintained that rating for more than a year. Their price target is up in the 12, 3 and 1-month comparisons as well, but all this may change now the Q3 results are in. the company issued a report that is in tune with the retail choir in that it shows some strength now but an excellent potential for weakness in Q4 and beyond. In this light, the institutions may start rotating out of the name and the analysts could change their tune. 

BJ’s Wholesale Club Beats And Raises Guidance 

BJ’s Wholesale Club had a good quarter but the details leave little to be desired in relation to growth and the analysts' expectations.  The company’s $4.79 billion in revenue is up 12.4% versus last year and a company record that beat the analyst consensus by 280 basis points but the outlook for Q4 is weak. On a comp-store basis, sales are up 9.7% systemwide and supported by a 43% increase in digital channels. Ex-gasoline, comps are up a smaller 5.3% and bolstered by the addition of 3 new stores in the quarter. 

Looking at the margins, the operating margin held steady at 4% YOY as pricing actions helped to offset the sting of inflation. The company reported $0.99 in adjusted EPS which is up 8.8% versus last year and carried through into the guidance and yet the guidance remains weak. The company raised its targets for both revenue and earnings but the guidance is only expecting $3.70 to $3.80 in EPS compared to the $3.90 expected by the analysts. 

“We are optimistic about the outlook on our business given the sustained strength in our grocery business and our gains in market share … While we expect continued merchandise margin rate pressure, we also now expect fiscal year 2022 EPS to be in the $3.70 to $3.80 range.” said Laura Felice, Executive Vice President, Chief Financial Officer, BJ's Wholesale Club.

This guidance means that not only will the full year be weak but the Q4 period will be much weaker than previously expected and the guidance could be optimistic. Merchandise sales and margins are under pressure from inflation and shifts in consumer spending and that is leading to increased inventories across the retail universe. BJ’s Wholesale reports it merchandise inventory is up nearly 20% from last year and this could become a problem if spending slows any further. 

The Technical Outlook: BJ’s Hits A Top 

The price action in BJ’s Wholesale Club may continue to trend higher but it looks like it has hit a top that will hold for the near term at least. The stock is down more than 6.5% in the wake of the Q3 report and the move is confirmed by the indicators. If the market follows through on this signal the stock could fall to $70 or lower. In that scenario, firm support is likely to be hit at the $69 level if not higher. If the market is able to hold the current levels it will most likely move sideways until more news comes out.