BJ's Wholesale Club Holdings, Inc.

Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the BJ's Wholesale Club Third Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key. We ask that you please limit your questions to one per participant and to re-queue for any follow-up questions. I would now like to turn the call over to Fatin Freja, Vice President, Investor Relations. You may begin your conference.

Thank you. Good morning, everyone. We appreciate you joining BJ's Wholesale Club third quarter fiscal 2019 earnings conference call. Chris Baldwin, Chairman and CEO, Bob Eddy, Chief Financial and Administrative Officer, and Bill Werner, Senior Vice President, Strategic Planning and Investor Relations are on the call. Chris and Bob will provide you with an overview of our results followed by a Q&A session. Before we begin, please remember that during this call, we may make forward-looking statements within the meaning of the Federal Securities Law. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations typed on this call and in today's press release. Please see the Risk Factors section of our Form 10-K, filed with the SEC on March 25, 2019, for a description of those risks and uncertainties. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release posted on the Investors section of our website for a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, I'll turn the call over to Chris.

Good morning, and thank you for joining us. In Q3, we continued our progress in expanding margins, enabling us to deliver another quarter of record earnings with adjusted EBITDA of $154 million, an increase of 4% over the prior year. We posted merchandise comp sales of 1.1%, our ninth consecutive quarter of positive comps. The quarter got off to a strong start as we built on the momentum from Q2, but we faced some unique challenges in October, particularly in general merchandise that we don't expect to repeat. These headwinds included a shift in the timing and scope of our promotions and warmer than normal weather in October, which affected our seasonal apparel and cold weather related general merchandise products. In the press release, we updated our guidance to reflect our year-to-date performance and current expectations. Bob will provide more details on the update in his remarks. Overall, we believe we are well positioned for the fourth quarter from an assortment and promotional standpoint. We expect our two-year stack comps to improve compared to the first half of the year, and continue to drive solid margins, adjusted EBITDA, and earnings growth for the full year. Our transformation has been and will continue to be built on investing and making strategic decisions that will benefit our business over the long term. We've made so much progress, but we all know we have more work to do. Let me give you an update on our strategic priorities. First, acquiring and retaining members. Membership is the foundation of our company, and as we have discussed in prior calls, we are investing in the overall quality of our membership base. It's important to note that we finished the quarter with record MFI driven by increases in paid members and higher tier memberships. But it's more important to note that the dividends that this higher quality membership base will yield will pay over the long term. First, let's talk about new members. As you may know, we've changed our approach to first year membership offers, moving away from trial members with a goal of increasing the number of paid members. As a result, we finished the quarter with the highest percentage of paid members in our company's history. We continue to make strides in shifting our membership acquisition to digital channels. As a result, the percentage of members acquired through digital channels doubled in the quarter year over year. Members acquired through these channels tend to be younger than those acquired through traditional methods. We're very pleased with the progress in this area as we continue to invest in innovative ways to acquire members. Higher tier memberships represented 23% of our member base at the end of last year and is now at a 28% number, again, the highest in our company's history. The progress has been anchored by our ability to offer BJ's MasterCard at the register, a new capability we invested in this year. As a reminder, higher tier members include all members that hold a credit card as well as our rewards members. We will continue to invest in this area, which will benefit the company for a long time. Finally, from a renewal perspective, we continue to make progress in our easy renewal offering with more than 60% of the member base enrolled in the program. We're pleased with our progress in this area. Our second strategic priority is to deliver values to get our members shopping. Providing outstanding value to the families we serve is the fundamental commitment of our company, and we've continued to make investments that will ensure we can offer unbeatable prices on quality products. Let me address our three growth platforms in this area, assortment, promotions, and services. First, we're making a sustained effort to transform and simplify our assortment, including continuing investments in private label. Our simplification efforts began in general merchandise, which is up on 5% on a two-year stack basis, as well as for 2019 year to date. The work we've done in this area leaves us in a strong position for Q4 and beyond. We're moving forward with the transformation in our edible and non-edible grocery business, with the goal of driving sales growth with a simpler assortment. In Q4, we'll continue to roll out a simpler edible grocery assortment. We're also seeing good results from the clubs where we have this assortment in place. We're also testing simplified assortments in our non-edible grocery business and have plans to continue to reduce SKUs over the next year. We're taking a very deliberate approach in this area, taking time to make sure we get the simplified assortment right. Our own brands are central to providing great value to our members, to assortment simplification, and to our category profit improvement efforts. We continue to increase own brand penetration during the quarter. It's currently above 20%, and we remain on track to get to 21% for the full year. We're particularly pleased with our performance in prepared foods, which we introduced this year. Our new clubs in Michigan were launched with an expanded assortment of prepared foods, showing very strong early results. I'll provide more details on our performance in Michigan shortly. The assortment transformation will go on throughout 2020. We strongly believe in limiting our assortment will offer better clarity of offering, provide opportunities for sourcing savings, and free up space to drive growth through entry into new categories. Next, we continue to invest to take advantage of our new promotional capabilities. This work enables us to deliver highly personalized offers and targeted promotions. Personalized offers are based on members' purchase history, giving us a powerful vehicle to engage members and drive trips and baskets. While this is still in the very early innings, we're confident that our investment in the system will deliver outstanding value to our members, drive trips, and enable us to use our promotional dollars more effectively. In addition, we'll leverage this capability to improve our promotional cadence. Finally, we're making rapid progress in transforming our services business. We're pleased with the performance of our new optical offering as members have responded to our improved assortment that features strong brands at outstanding value. We're excited to launch the next phase of our services transformation. We recently began offering our members outstanding value on cellular services through AT&T. We believe that this new arrangement will offer our members significantly better value than the best deals in the market on the latest smartphones every day of the year. This offer will be live in the vast majority of our clubs before Black Friday. Our progress in optical and cellular services is just the beginning of our services transformation. We're on the right track to delivering outstanding value to our members and driving growth through services. Our next strategic priority is to make it more convenient to shop at BJ's. Omnichannel is another area where we have invested for the long term, and our progress in this area continued in Q3. Late in the quarter, we launched same-day delivery for beer, wine, and liquor in 74 clubs in seven states. We also expanded our mobile ordering for deli items to 64 clubs in New York, New Jersey, and Boston, which lets members place their orders in advance and save time once they're in the club. Our convenience services, while still small compared to the rest of the business, continue to grow and resonate with our members. Buy online, pick up in club, and same-day delivery continue to accelerate in the third quarter. About half of our BOPIC users make additional purchases once they're in the club. We're expecting the biggest holiday season ever in digital, driven by a fully integrated marketing campaign, a strong assortment, free shipping for our premium tier members, and, of course, outstanding value. Finally, we plan to expand our strategic footprint. We opened two clubs and gas stations in eastern Michigan this month. As we've said before, we took a very new approach to marketing to raise awareness in these clubs. We opened these clubs with about 1,000 fewer items than our typical clubs, along with new items such as an expanded prepared food assortment, localized apparel, local craft beers, and a snack shop. Though still in the early days, we're very pleased with the initial membership response and our near-term sales trends. Our performance in Michigan, along with our performance in other recently added clubs, is very encouraging for the future of our company. We've opened six gas stations in 2019 and remain on track to open eight to ten across the portfolio. We're also on track to open our club in Pensacola, Florida around the end of the year, followed by our third Michigan club in Chesterfield during the first half of next year. Our new club pipeline remains strong. and we look forward to providing an update on next year's plans and our next call. Looking forward to Q4, we have strong plans in place for the holiday season. We feel confident in our promotional cadence and our ability to deliver unbeatable value to our members. Our combination of fresh items and general merchandise is crucial to delivering value to our members during the Thanksgiving period and beyond. We are focused on executing the marketing, merchandising, and operations programs that will get our members shopping and to drive sales. We remain committed to driving top-line results while also delivering on our bottom-line goals. With that, I'll turn the call over to Bob, who will review our results in more detail. Bob?