BJ's Wholesale Club Holdings, Inc.

ladies and gentlemen thank you for standing by and welcome to the bj's wholesale club fourth quarter fiscal 2020 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 session to ask a question during the session you will need to press star one on your telephone keypad if you require any further assistance please press star zero thank you I would now like to hand the conference over to your speaker today, Fatim Freehar, Vice President, Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining BGA's Wholesale Club's fourth quarter fiscal 2020 earnings conference call. Lee Delaney, President and 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 our 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 most recent Forms 10-K and 10-Q filed with the FCC for a description of those risks and uncertainties. Finally, 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 investor 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 and thank you for joining us. I hope you're healthy and safe. 2020 has been a remarkable and challenging year. I am humbled by our role helping our communities through this pandemic and immensely proud of our team members' dedication to serving our members during these unprecedented times. Our highest priority continues to be the safety and well-being of our team members, our members, and the communities we serve. We have implemented extensive protocols to maintain a safe and healthy environment. We continue to support our team members with investments in bonuses, enhanced benefits, and safety measures. And in 2020, we invested over $150 million in these practices. Our performance this year would not be possible without the hard work and dedication of our team. The unique circumstances brought on by the pandemic challenged us in almost every dimension. Our team remained intently focused on meeting short-term challenges and positioning the company for long-term growth, enabling us to deliver extraordinary financial performance and accelerate our long-term strategic transformation. Let me touch on both. From a financial perspective, we delivered industry-leading results this past year, including comp sales growth of 21%, adjusted EBITDA of $857 million, reflecting 47% year-over-year growth, adjusted EPS of $3.09, or 112% growth, free cash flow of $676 million, or 276% growth, and a leverage ratio of 1.2 times compared to 2.8 times a year ago. In addition to the great performance, we made transformational progress on each of our long-term strategic pillars, namely growing and retaining our membership, delivering value with merchandising and marketing, improving convenience with digital, and strategically expanding our footprint. Let me say a bit more about each. From a membership standpoint, we are seeing great results across all key metrics. Our membership base has strengthened in size and quality. This year, we attracted new members at record levels, including in the fourth quarter, where we added approximately 80,000 net members relative to the third quarter. Our retention rate for tenure members improved to an all-time high of 88%, and we made even greater gains with our first-year renewal rate. Higher tier penetration is at 31%, reflecting a 300 basis point increase compared to the prior year. In total, our membership grew by 11.3% on a net basis relative to the prior year. Across member cohorts, we are seeing elevated shopping levels, including larger baskets and increased trips to our clubs. In addition, our new members skew younger and are more digitally engaged. Assortment optimization remains a key initiative to deliver value to our members. Our merchants met a changing demand profile by adding dozens of additional suppliers and new relevant categories, including personal protective equipment. We meaningfully adjusted planning to account for rapid shifts in consumer demand and leverage relationships with suppliers to receive priority for inventory allocations. These short-term actions combined with market growth and the increased need to buy in bulk led to outsized performance, where our food business grew at two times the rate of the market. We also made significant progress on longer-term simplification and expansion into new high-demand categories. We reset the food business with better for you and organic options. We expanded into new categories where we were historically under-penetrated, including fitness, sporting goods, household goods, such as outdoor heaters and fire tables, and select consumer electronics. Owned brands continued to grow with penetration increasing to 21%, driven by success in several new categories like basic tableware, dairy, spreads, and home storage. We expanded our services offering significantly to further elevate the value of BJ's memberships. Specifically, we upgraded our offerings in optical, home improvement, major appliances, and financial services. For example, we just announced our consumer point of sale financing partnership with Citizens Bank. Through this partnership, our members will be able to pay for large purchases in-club or online through simple, transparent, and affordable installment loans by Q2 of 2021. We are thrilled to offer this flexibility and provide our members even more payment options to conveniently shop at BJ's. We continue to believe services will be a significant growth driver for many years to come. Our digitally enabled sales grew by 168% this quarter, surpassing our high expectations. The centerpiece of our digital strategy is our recently upgraded app, which continues to resonate strongly with our members. Our app delivers real utility, including personalized promotions, improved shopping experiences, and an efficient gateway to our fulfillment options. Total app downloads exceeded 5 million compared to a little over 2 million last year, with roughly 30% of our membership regularly using the app compared to 12% last year. Our app receives a higher rating than many of our peers, and we have a robust roadmap to further enhance it with new features that deliver convenience. On a scale-adjusted basis, our digital app engagement appears ahead of many of our competitors as we're making shopping meaningfully easier and faster. We continue to expand our digital fulfillment options. Following our Q2 launch of curbside pickup, we added the ability to fulfill fresh items through BOPEC and curbside late in Q3. More than 50% of our BOPEC orders for the fourth quarter were delivered curbside. In recent weeks, we began the rollout of a multi-phase plan to enable our members to use EBT payment when shopping on bjs.com for in-club pickup and curbside pickup. By spring 2021, we plan to have this payment option available to all locations and states participating in the SNAP online purchasing pilot. Our efforts to expand our footprint remain on track. We have strengthened our real estate pipeline considerably, enabling us to accelerate the pace of new club openings. After opening four clubs in 2020, we plan to open as many as six clubs in 2021. Even more exciting is that we can see a path to 10 more clubs in 2022. This progress is underpinned by the performance of our newest clubs, where we are gaining market share and driving membership growth. The two clubs we opened in the first half of 2020, Chesterfield, Michigan and Pensacola, Florida, the membership per club averages 20% higher than the chain. And in our Michigan clubs, first-year retention rates are well above chain-wide averages. We believe we have cracked the code on successfully opening new clubs and will invest aggressively to grow share in an expanded market. Overall, we are incredibly proud of the progress we have made, both managing through the challenges of 2020 and redefining our go-forward business model. Against this backdrop, we suspect you will have two key questions. What should we expect in 2021, and how has your long-term growth algorithm changed? Let me address each. In 2021, we will continue to do everything in our power to stay in stock for members and lead into investments that will drive long-term growth, all while prioritizing health and safety. We face uncertainties driven by market factors outside of our control, most notably the trajectory of at-home food consumption and the overall macroeconomic environment. These uncertainties lead to a range of possible scenarios for 2021. Our expectation is that current trends will continue for at least the first half of the year but may change in the second half as vaccine distribution expands and life looks a little more normal again. Should the public health situation fail to materially improve in our markets, we would expect a longer period of elevated food at home consumption driving our sales further. Under any scenario, we expect our membership, sales, and profitability to be well ahead of our historical plans. We have considerable confidence in our long-term algorithm, which we anticipate will be well above the levels we framed at the time of our IPO. Our conviction is grounded in shifts to long-term trends and our progress against our strategic initiatives. Let me elaborate on the underlying factors. We believe at-home food consumption will reset at a higher level, and economic uncertainty has heightened consumers' focus on value. We have a loyal, growing, and higher-quality membership base that has changed their shopping behaviors to our benefit. We will continue to upgrade our assortment, particularly in services, general merchandise, and owned brands, to power the next wave of growth and grow share of wallet with our members. We have a relevant and growing digital business with industry-leading levels of engagement and advantaged economics. We expect dramatically higher unit growth rates as we push towards 10 plus units per year, allowing us to tap into considerably expanded addressable markets and grow share. In summary, we have truly transformed our business by every measure. We are not the same company we were 12 months ago. Our underlying growth rate will accelerate as we benefit from long-term trends and continue to accelerate on our strategic initiatives. While the short-term COVID-related uncertainties may create headwinds that temporarily mask these long-term gains, we will reset at a higher base and faster growth rate. Our team members continue to execute at the highest level, enabling us to take advantage of the opportunities ahead and positioning the company for long-term success. With that, I'll turn the call over to Bob. Bob?