BJ's Wholesale Club Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to BJA's Wholesale Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer. During the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Fatin Frehar, Vice President of Investor Relations. Thank you. Please go ahead, ma'am.

Good morning, everyone. Thank you for joining BGA's Wholesale Club's first quarter fiscal 2020 earnings conference call. Lee Delaney, President, CEO, Bob Eddy, Chief Financial and Administrative Officer, and Bill Werner, Senior Vice President, Strategic Planning and Investor Relations are on the call. Please remember that during this call, we may make forward-looking statements within the meaning of the federal securities laws. These statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations described on this call. Please see the risk factors section of our Form 10-K filed with the SEC on March 19, 2020, 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 of 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 Lee.

Good morning, everyone. I hope you and your families are safe and healthy during these unprecedented and challenging times. Our thoughts go out to everyone who has been affected by the coronavirus pandemic. So much has changed since we last spoke. This pandemic has presented us all with challenges. I am proud of how we managed our business in this new environment and deeply thankful for the contributions of our club and distribution center team members. who have tirelessly served a surge in demand for our essential products while embracing new safety conditions and protocols. I also want to thank our home office team members for working hard to innovate on safety and product supply, as well as their flexibility in adapting to different ways of working. And also, thank our vendor partners who have been incredibly supportive of our outsized demand. Our team members' hard work and dedication has enabled us to safely serve our communities. We are humbled by our role in these difficult times and value the trust and confidence our members have in us to provide them with essential products and services. Our first and most important priority is the health and safety of our team members, members, and community. Since the outbreak of the pandemic, we have taken aggressive actions and implemented extensive safety measures across all our facilities. We have put in place increased sanitization and social distancing protocols. We have limited capacity in our clubs, provided and required team members to wear protective equipment, shut down our services businesses, given the close contact that they require, and introduced temperature checks for all our team members reporting to work. We have limited travel and asked nearly all home office team members to work remotely. We have taken hundreds of other steps, too numerous to mention, and will continue to work with federal and local authorities to ensure that we stay ahead of evolving safety and health standards. Our team members are working hard to serve our members, and we are recognizing them with well-deserved temporary hourly wage increases, as well as multiple bonuses. In the first quarter, we invested an incremental $51 million in pay and bonuses for our team members. And we are supporting team members through an enhanced benefits package, including a flexible sick leave policy the loosening of absenteeism policies, employee assistance programs, and financial assistance through our Employee Relief Fund. In April, we also decided to close all our clubs on Easter Sunday to give team members a day to rest. We will continue to support team members during these difficult times and ensure that we maintain a healthy and safe work environment. As you have no doubt already read, our financial results this quarter were strong. led by a 27% merchandising sales comp, and EBITDA was well ahead of our plans at $194 million. Earnings per share increased by 165%, and we generated more than $430 million. In the balance of my remarks, I will reframe our view of the three contributing factors that led to this outsized performance and the implications for our future. First, we clearly have become an even more on-trend competitor as consumer behaviors and needs changed in response to COVID-19. COVID-19 has brought with it a new way by which we live our daily lives, and the social distancing and stay-at-home measures we have taken as a society to fight it have resulted in dramatic changes to grocery shopping behavior. Grocery goods, which represent roughly 85% of our merchandise sales, were in extremely high demand throughout the quarter. bought bigger baskets to satisfy increased consumption at home needs. And while needs shifted throughout the quarter from cleaning supplies to pantry loading to perishables, we offered a one-stop destination with industry-leading value on the large sizes consumers need to stock up. These trends were relatively consistent in shape and magnitude across all our geographies. As a result, we believe we have gained considerable share in every region across most categories in which we compete. Second, our business model, augmented with the capabilities we've built over the last four years, are particularly well-suited for this environment. We run large clubs and distribution facilities with capacity for growth. We operate efficiently with focused labor and lower marginal expenses than many of our competitors. We have upgraded our operational standards with new practices and systems improvements, and we have built an expanded suite of digital capabilities with relatively advantaged economics. Together, the model and our improved capabilities allowed us to rapidly scale our business, meet unprecedented levels of demand for digital shopping, invest in our team members, deliver improved bottom line performance, and generate cash. Third, our team responded with extraordinary agility and dedication. Late in February, we were able to identify demand signals utilizing our new demand and fulfillment software to quickly and significantly bolster order flow and keep up with the surge in demand. Our merchants did an excellent job of working with existing suppliers, as well as expanding our sources of supply from new vendors, including those that service the restaurant industry. Our logistics and distribution teams worked around the clock to keep goods flowing. Our frontline employees worked tirelessly to keep shelves stocked and members happy. And our support team in the home office met an ever-changing set of demands. While we expect the supply chain environment to remain challenging in the near term in certain categories, we believe our systems, agility, and capacity should continue to serve us well. While none of us can predict the next few months with certainty, it is clear to us that we are well positioned to see increased demand for the foreseeable future. As a leading large format club store with regional scale in the Northeast and a grocery offering of unbeatable value, strong private label brands, robust digital capabilities, and an efficient store model, we are more relevant to shoppers consolidating trips than ever before. And while we would like nothing more than for public health fears to subside quickly, we expect the potentially recessionary impacts in the broader economy to drive increased demand for discount grocery options. We talked to you in the past about growing membership and engaging our members in digital capabilities, and the current environment has accelerated these efforts. positioning us to leverage this unique opportunity to set the foundation for a multi-year profitable expansion of the business. In our view, the consumer's need for digital services advanced considerably in the last two months. We have had more members join our club and try these services and believe our advantaged economic model will allow us to continue to invest. Before I update you on the progress of our strategic priorities for the quarter, I'd like to note that we remain committed to project momentum, and we are on track to deliver $40 million in savings for this year. All savings will be reinvested back into the business, as previously noted. Let's turn to our long-term priorities. First, let's talk about digital businesses, which remains a top priority. Over the last three years, we built a robust digital team that drove significant progress in our omnichannel transformation. The team launched pivotal platforms such as DJ's mobile app, Buy Online Pickup and Club, or Bopec, same-day delivery, and ship from club to better meet member demands. Our investments in these platforms set us up for success in the current shopping environment. Digitally enabled sales grew by more than threefold this quarter and represented 5% of our merchandising comp sales for the quarter, compared to 3% in the fourth quarter, and 1.5% in last year's first quarter. We believe we have a structural cost advantage as we continue to grow these businesses, especially in our same-day delivery business, which was up more than eightfold over last year's first quarter. We plan to continue to improve upon our existing capabilities and launch new offerings to delight our members and increase the value of their membership. In the first quarter, we began testing curbside pickup and BOPIC for perishables in select clubs. Second, we remain focused on membership, the cornerstone of our company, and a key leading indicator for the health of our business. In the first quarter, we saw a strong increase in the number of new members joining BJ's. This new member growth will drive long-lasting benefits, including MFI growth in the coming quarters, higher average members per club, and strong, comparable sales growth, positioning us for success in the near and long term. We expect this progress to continue, and we will use this moment to attract more members in our clubs. Looking ahead, we will continue to lean into membership investments, upgrading our acquisition tools, and integrating membership, marketing, and analytics capabilities to continue to accelerate positive membership trends. Early in April, we appointed Paul Chihaki to lead our membership, marketing, and analytics organizations. I'm thrilled to have Paul on the team, has his extensive experience in leading performance improvement and business transformation will help accelerate our efforts. Third, simplifying our assortment and expanding into high demand categories remains crucial to our success. As we simplify, we can operate with greater flexibility and better manage our supply chain to deliver the products members need. As we noted on our last call, we have built the space optimization tools that allow us to reflow space, optimize productivity, and allocate space based on demand. In the first quarter, we were able to accelerate various grocery assortment initiatives, like expanding into Better For You and organic snacks, as we sold through existing center store grocery inventory at a high rate. From a general merchandise perspective, we expect the go-forward environment to become even more favorable as other sectors of retail come under increased pressure. As evidence, our merchants saw early engagement this quarter from several leading suppliers who do not typically do business with BJ's. Our expansion into new service offerings such as cellular phones and home improvement remains on track. While scaling these offerings will be later than planned due to COVID-19, we are steadily working to enhance the portfolio with new and exciting services, elevate our value proposition, and prepare for an enhanced marketing strategy, which we anticipate rolling out this summer. Fourth, we remain focused on elevating our marketing and keeping it relatable to members. Our expanded digital capabilities enable us to engage with existing and new members across all digital channels. Our new marketing campaign, launched in the last two weeks, allows us to connect and engage with current and potential members across a variety of mediums in the context of the current environment, showcasing what sets us apart from other retailers like family pack sizes, in-club pickup, and same-day delivery. Importantly, we remain committed to integrating and simplifying messages across all channels to ensure members have a seamless and better overall experience. Lastly, I'd like to touch on club expansion. Year to date, we have opened one club in Pensacola, Florida, and we currently expect our club in Chesterfield, Michigan to open this summer. The Chesterfield opening was delayed as a result of COVID-19 related construction bans. We expect similar delays to impact our PAR club expansion goals for the year but hope increasing availability of good real estate will open more opportunity in 2021 and beyond. We remain confident in our ability to successfully open clubs and expand into new markets as evidenced by our success in Michigan. We will aggressively look for new real estate opportunities throughout the balance of the year. Looking ahead, we believe we are very well positioned given the structure and strength of our business, the progress we have made through our transformation, and our continued execution against our priorities. Before I turn it over to Bob, who will have more details on our financials and outlook, I'd like to close by saying that I am honored to lead BJ's Wholesale Club during these unprecedented times. I am thrilled to be working alongside talented and dedicated team members who are critical to helping our members get access to essential items and executing against our strategic priorities. Again, I would like to sincerely thank all our team members and members for their support and loyalty as we navigate these unprecedented times and continue to make progress in transforming and expanding our business. With that, I'll turn the call over to Bob. Bob?