BJ's Wholesale Club vs Costco: Why the Valuation Gap Matters for Your Portfolio

The warehouse club model has proven its staying power, but not all membership retailers are created equal. BJ’s Wholesale Club (NYSE: BJ) and Costco Wholesale (NASDAQ: COST) both operate in the same space, yet the market prices them dramatically differently. For investors seeking exposure to the warehouse sector without paying Costco’s premium, BJ’s presents an interesting case study — though one that demands careful scrutiny.

The Valuation Disconnect: Numbers That Tell a Story

Here’s what jumps out immediately: BJ’s trades at roughly 19 times forward earnings with a price-to-sales ratio around 0.6, while Costco commands 44 times forward earnings and 1.4 times sales. That’s not a modest premium — it’s a chasm. The question every investor asks is simple: Is BJ’s undervalued or is there a good reason for the gap?

The answer lies in understanding what drives growth in this sector. Costco’s fiscal 2025 results paint a picture of consistent dominance: $275.2 billion in revenue with 8.2% year-over-year growth. Comparable sales growth hit 6.4% in the most recent quarter, excluding gas and currency effects. BJ’s, meanwhile, generated $15.9 billion in revenue through the first nine months of fiscal 2025, up just 4.3% year-over-year, with comparable club sales (ex-gasoline) growing a modest 2.6%.

This growth disparity is the foundation of Costco’s valuation premium.

Inside BJ’s Recent Performance: Mixed Signals

In its latest quarterly update, BJ’s delivered $5.35 billion in revenue, representing 4.9% year-over-year growth. Comparable sales rose 1.1%, though adjusting for gasoline volatility pushed that to 1.8%.

The bright spot? Membership fees surged 9.8% to $126.3 million — a crucial metric for this business model. Higher-tier membership adoption and fee increases implemented earlier in the year drove this strength. For a public BJ’s investor, membership fee acceleration is significant because it signals pricing power and customer loyalty.

But here’s where the picture gets complicated. Operating income declined 4.8% to $218.4 million, while net income fell 2.4% to $152.1 million. The culprits: rising labor and occupancy costs tied to new club expansion, increased advertising spend, and higher depreciation. Management also faced a tougher comparison due to a legal settlement benefit in the prior-year period.

There’s one silver lining: digitally enabled comparable sales grew 30% year-over-year, now representing a significantly larger portion of total sales than in previous years.

Where BJ’s Sees Growth Heading

Management raised its full-year adjusted earnings-per-share guidance to $4.30-$4.40 (from $4.20-$4.35) and maintained its comparable club sales forecast of 2-3% growth for fiscal 2025. CEO Bob Eddy expressed confidence about entering the holiday season “with momentum,” framing BJ’s as “the destination for value and convenience.”

The narrative here is cautiously optimistic but fundamentally different from Costco’s trajectory.

Understanding the Scale Advantage

Costco operates over 900 warehouses globally with a well-established presence in the U.S. and Canada, plus growing international momentum. BJ’s operates fewer than 300 clubs, primarily concentrated on the East Coast. This scale difference isn’t trivial — it translates into superior supplier negotiating power, better brand recognition, and far greater sales volume per location.

Walmart’s Sam’s Club represents another competitive pressure point. In a crowded marketplace, BJ’s must prove it can sustain lasting competitive advantages and accelerate top-line growth to justify a higher valuation multiple.

The Investment Thesis: Value Play or Valuation Trap?

For investors already deep into Costco positions or resistant to paying 44 times forward earnings, BJ’s warrants consideration. The current valuation doesn’t look demanding for a membership retailer with positive comparable sales and rising membership income. You’re essentially trading growth velocity for valuation cushion.

The realistic trade-off: slower growth in exchange for lower valuation risk. BJ’s needs to prove it can expand margins and sustain 3%+ comparable sales growth to move higher on the valuation spectrum. Until then, it remains a solid alternative for gaining public warehouse club exposure without premium pricing, but it’s not a slam-dunk investment.