BJ's Wholesale Club Holdings Inc. Ratings Raised To 'B+' From 'B' On Expected Deleveraging; Outlook Stable

  • Membership warehouse club operator BJ's Wholesale Club Holdings Inc. reported good growth in its membership base, and revenues and profits on successful operating initiatives. We believe current performance trends are sustainable and will likely lead to continued deleveraging.
  • On March 13, 2019 S&P Global Ratings raised its ratings on BJ's, including the issuer credit rating, to 'B+' from 'B'.
  • The stable outlook reflects our expectation for modest profit growth and some debt repayment that lead to adjusted debt- to- EBITDA in the high 4x area.
NEW YORK (S&P Global Ratings) March 13, 2019--S&P Global Ratings today took 
the rating actions listed above. The higher ratings reflect our forecasted 
improvement in BJ's operating performance, stemming from the company's 
strategic initiatives, such as automatic membership renewals, disciplined cost 
management and omni-channel investments. The upgrade also reflects a 
decreasing ownership stake in the company by financial sponsors that reduces 
their influence in the company's financial policy decisions. As a result, we 
believe BJ's will adopt a moderate financial policy going forward that will 
likely support debt reduction. We expect debt to EBITDA of about 4.8x by 
year-end 2019, improving from about 5x the previous year.

The stable outlook reflects our expectation for debt- to- EBITDA in the high 
4x area in the next 12 months on profit growth from in-store and omni-channel 
initiatives and some debt repayment. 

We could lower the rating if debt- to- EBITDA approaches the mid-5x area on a 
sustained basis. This could happen if heightened competitive pressures or 
operational inefficiencies lead to membership attrition or market share loss, 
such that performance is below our forecast. Credit metrics could also 
underperform our forecast if the company adopts an aggressive financial policy 
that results in a material increase in debt. 

We could raise the rating if we expected the company's debt leverage to 
sustain in the low-4x area. We estimate this could occur if EBITDA grows by 
more than 15% from our estimates or if the company pays down about $400 
million in debt while EBITDA is constant. We could also raise the rating if 
the company continued to profitably expand its fleet of warehouse clubs, 
potentially leading us to believe that its competitive position has improved.
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