Wholesaler BJ’s (NYSE:BJ) raised $638 million last week thanks to an IPO at $17 per share — the high end of its range. Already, the stock is sitting around 25% higher than that price.
For those not familiar, BJ’s is a warehouse club a la Walmart’s (NYSE:WMT) Sam’s Club or Costco (NASDAQ:COST). According to its prospectus, it offers shoppers 25% cheaper prices than traditional supermarkets.The company operates on the east coast, with locations in 16 states from Maine to Florida.
While this was the busiest week of the year for initial public offerings, BJ’s IPO stands out. Why? Because this isn’t the first time BJ’s will be a public company. Here are five things to know about this unique IPO:
More About BJ’s IPO
1. BJ’s went private seven years ago. BJ’s put itself up for sale in early 2011. A few months later private equity firms Leonard Green & Partners and CVC Capital Partners bought the company $2.8 billion ($51.25 per share). At the time, Marketwatch reported that the buy was the eighth largest U.S. retail transaction on record. Going private was seen as appealing, analysts said, because the company could take on a national rollout without worrying what those costs would do to the bottom line.
2. BJ’s wants to pay off debt. When it went private, BJ’s had 190 members-only grocery clubs. Now, according to its website, it has 215 clubs with over 5 million members. Membership fees have increased in each of the last 20 years and the company’s membership renewal rate was at an all-time high of 86% last year, it said. Once again, all of its locations are on the east coast. The reason for the second BJ’s IPO? The company wants to use some of the money it raises to pay off its $2.4 billion in debt. It’s selling 37.5 million shares; private owners will retain almost 70% of the company.
3. BJ’s has a lot of work to do. The grocery business is notably tough, with razor-thin margins and high competition. That’s even more so as the industry is being disrupted by technology. Amazon (AMZN) got in the game by buying Whole Foods, for instance, while established names like Wal-Mart are now offering more e-commerce options. BJ’s will have to work hard to compete. Leadership at BJ’s changed relatively recently, to that end. According to its S-1 filing, it replaced its CEO and multiple senior leaders our the last two years. They’re focused on leveraging data and creating an omnichannel experience, including same-day delivery for some items.
Last year, BJ’s made just over $50 million of profit on $12.75 billion of revenue. Over the next five years, it’s slated to grow earnings by 10% per year — not bad for the grocery biz. Sales growth is on tap to be just shy of double-digits, according to Yahoo Finance. But consumer spending is fickle and digital innovation is tough. BJ’s will definitely have to prove itself to Wall Street — again.
As of this writing, Robert Martin was long AMZN.
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