The Best Warehouse Store Stock?

MoneyTalkNews recently compared three warehouse stores, privately held BJ's Wholesale Club, Costco Wholesale Corporation (NASDAQ: COST) and Sam’s Club owned by Wal-Mart Stores, Inc. (NYSE: WMT), but what about warehouse store stocks for investors? According to First Research, the warehouse store industry is a $390 billion industry that has seen a 137% jump in sales from 2001 to 2011 verses 47% for all general merchandise stores - meaning its a retail area worth that investors should take a closer look at.

However, shopping and saving at a warehouse store does come with some upfront costs for customers in the form of a $50 annual membership for BJ's Wholesale Club, a $55 fee at Costco and a $40 fee at Sam’s Club according to MoneyTalkNews, but Warehouse clubs will also offer special rewards programs. For non-members who wish to shop at warehouse stores, Costco is the least expensive with a 5% surcharge while BJ's Wholesale Club’s is the highest at 15% and Sam’s Club’s surcharge is 10% plus Costco and Sam’s Club have similar return policies while BJ’s policy is more stringent.

It should be mentioned that privately held BJ's Wholesale Club is the #3 membership warehouse club that currently operates over 190 Clubs in 15 states from Maine to Florida, but its #1 in New England. Moreover and obviously an investment in Wal-Mart Stores is only a partial investment in warehouse stores as Sam’s Club has 620 locations in the US and Puerto Rico while Wal-Mart itself has more than 10,000 retail units in 27 countries.

The last time Wal-Mart Stores reported earnings for the third quarter, it reported that Sam's Club had a comp sales increase of 2.7% for the quarter without fuel, a 1.5% increase in Comp traffic, a 1.2% increase in tickets and a 12.7% increase in operating income. Wal-Mart Stores’ executives noted that they are pursuing a price investment strategy with Sam’s Club and that all consumers across all geographies and Wal-Mart Store segments are price conscious. For that reason, Sam's Club is stepping up investments in order to drive prices lower on key traffic-driving items. Otherwise, Wal-Mart Stores has a trailing P/E of 14.21 along with a forward P/E of 12.84, a forward dividend of $1.59 for a dividend yield of 2.3% and the stock is up 17.05% over the past year and up 51% over the past five years.

As for Costco Wholesale Corporation, it reported that fiscal first quarter sales (12 weeks ended November 25) were up 9.6% while other comps were up 7% for the quarter (or 6% excluding gas and FX). Costco Wholesale Corporation’s executives noted that sales for all the regions have been fairly consistent for the past few fiscal quarters and generally they have been in the mid to high-single digit positive range. On the valuation front, Costco Wholesale Corporation has a trailing P/E of 24.84 along with a forward P/E of 20.39 - meaning the stock is not exactly as good of a bargain than what you might find in a Costco store. In addition, Costco Wholesale Corporation has a forward dividend of $1.10 for a dividend yield of 1.10% plus the stock is up 16% over the past year and up 53.8% over the past five years.

The Bottom Line. When shopping for a warehouse club membership, MoneyTalkNews concluded that the best warehouse store will be based upon individual preferences. However, I have a feeling Wal-Mart Stores’ Sam’s Club will give Costco Wholesale Corporation a real run for its customers on the pricing front plus the later has a rather high valuation. That means new investors might want to hold of on adding a membership in Costco Wholesale Corporation to their portfolio.