BJ's Wholesale Club Holdings, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the BJ's Wholesale Club Q2 2021 earnings conference call. At this time, all participants will now 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 1 on your telephone keypad. 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, Brayden Freja. Thank you.

Please go ahead. Good morning, everyone. Thank you for joining EJ's Wholesale Club second quarter fiscal 2021 earnings conference call. Bob Eddy, President and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Werner, Executive Vice President, Strategy and Development 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 sections of our most recent Form 10-K and Form 10-Q filed with the SEC 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 Bob.

Good morning and thank you for joining us. The second quarter was another impressive quarter for our company. I'd like to take this opportunity to thank our team throughout the chain for their execution and dedication during a dynamic and challenging period. Our stance on safety has not changed. Our highest priority continues to be the safety and well-being of our team members and members. As a result, we have tightened our COVID protocols around the chain in response to the resurgence of the virus, including the introduction of a vaccine mandate for our home office and field support teams. We will continue to operate in an agile manner with a focus on doing the right thing for our team members and members. When I reflect on our performance over the last year and a half, it is clear that our progress against our strategic priorities has enabled our success. We have invested into our team members, the value of our membership, our digital infrastructure, and physical footprint. All in the name of getting our flywheel going faster, and it is clear to me that we are making progress. In the first half of this year, we drove outstanding membership results and strong market share gains, particularly in our gasoline business. Furthermore, we elevated the value proposition to our team members through meaningful investments in wages and bonuses. Our team members are central to driving our strategy forward. and these investments will help us attract, retain, and motivate the best talents and help ensure that they can thrive in our business. During the second quarter, we delivered the following great results. Two-year stacked comp sales of 21%, adjusted EBITDA of $220 million, adjusted EPS of 82 cents, free cash flow of $240 million, And as a result of those very strong cash flows, we ended the quarter with a leverage ratio of 0.8 times. Our team delivered these terrific results in the face of three external factors influencing our business, inflation, a fast-paced labor market, and inventory availability challenges. Let me talk a bit about how our team is managing each of those to continue to power the strong momentum we are seeing in our business. Let's start with inflation. We experienced meaningful inflation this quarter and more is on the horizon. The increases are both deep and broad. They have impacted many categories and some significantly. Managed appropriately, inflation can be good for our business. Historically, inflationary pressures have widened our price gaps relative to grocery, leading to market share gains and top line growth. It does come at the price of investing in value in the initial days of cost increases, which will pressure margins as the inflation works its way through the industry. This is a trade-off we are willing to make as value is paramount in our business. Our team has worked diligently to mitigate impact on our margins while investing in price where necessary to maintain outstanding results to our members. Next, labor challenges are impacting our industry like many others. For a long time, we have chased the labor market. Recently, we've chosen a different path, a path that calls for significant investment in our team, backed by our great financial performance, to ensure that we get ahead of market forces and better serve our growing membership. Specifically, we have made the largest increases in starting hourly wages in our history. In addition, we rewarded our club and distribution center team members this quarter with a one-time recognition bonus in appreciation of their continued hard work and commitment to serving our members. These investments are material to Q2, and we expect these investments to get larger as we go through the year. Our average hourly wage is now well above $15 per hour, and we will continue to invest in our teams so that we can recruit and retain top talent across our footprint. Finally, there are widespread challenges in the global supply chain. 90 days ago, the pressure was limited to certain general merchandise categories. Now many categories, some entirely domestic like poultry, pet food, and juice are having trouble meeting demand. We expect supply chain and sourcing challenges to continue for the foreseeable future. Our team's execution and ability to stay in stock at the height of the pandemic last year demonstrates the strength of our capabilities and our capacity to thrive in challenging environments. We remain intently focused on executing our strategy validated by the strength of our performance and centered around four pillars, growing and retaining members, delivering value with an optimized assortment, improving convenience with digital and strategically expanding our footprint. Let me provide an update on each. Membership is the foundation of our business and we continue to enhance the size and quality of our membership base. In Q2, we grew our membership by 3% relative to the prior year and 14% compared to 2019. Our growth this quarter was driven primarily by record renewals. We continue to experience the highest rates of renewal on the largest class of members we have ever attracted. Our first-year renewal rate and on-time renewals are at historic levels. As we noted last quarter, we are intently focused on renewals this year because these renewing members are generally more valuable than an average new member. We're seeing both more timely renewal and incremental renewal, and we continue to believe that we will finish the year with all-time high first-year renewal rates. As a reminder, although these renewal results continue to be strong, several factors could still influence the renewal rates we ultimately disclose at year-end, such as timing and behavior differences. Membership quality continues to improve. In prior quarters, we have reported higher tier penetration and easy renewal participation rates as evidence of increases in quality. Those same facts are present in this quarter. Higher tier penetration for the second quarter is at 33%, representing a 400 basis point improvement relative to the prior year. This group consists of our most loyal members with the strongest renewal rates and highest lifetime value. In addition, more than 74% of our members are now enrolled in Easy Renewal. As incremental evidence that the team continued to improve the value of our membership, we are seeing a notable improvement in MFI per member. Our MFI growth has outpaced member growth for the last two quarters, and that should continue in the back half. The progress we are making in membership in terms of size and quality has elevated the lifetime value of our members across the chain and will help power our future results. Assortment optimization remains key to continuing to deliver unbeatable value to our members. We remain focused on curating the best assortment of products and services to meet our members' evolving demands. Our goal is to simplify and expand into new high-demand categories. Last year, we were able to accelerate certain simplification initiatives like expanding into better-for-you snacks as we sold through existing center store grocery inventory at a high rate. This year, the inflationary environment has provided an impetus to simplify to ensure we can limit inflationary pressures, while also allowing for the benefits of simplification, such as improved clarity of offering and the addition of new categories. Our plan is to drive these changes through various CPI initiatives. Our suppliers should note that we will be aggressive in this area in order to maintain great value for our members. Private label remains essential to providing great value to our members, to our assortment simplification initiatives, and to our category profit improvement efforts. We made great progress this quarter. Own brands penetration increased to 23% of merchandise sales compared to 21% in the prior year. This increase was driven by strong growth in summer seasonal, recreation, and other home-related categories, as well as frozen, dairy, and perishables. We will continue to build on this progress and further expand our own brand's portfolio over the long term, which will strengthen member loyalty, increase value, and improve our margins. Our services business is one of the important areas where we intend to grow our business along the lines of our club competitors. We have a tremendous opportunity to elevate the value of our membership and deliver growth by scaling and enhancing our core portfolio of services. This includes businesses such as optical, travel, home improvement, and cellular phones, where we offer our members outstanding value in the market, and the savings are easily comparable to the cost of a membership. Our focus in the near term is to scale these existing businesses to drive stronger top-line growth. For example, we've bolstered our optical services with telehealth capabilities, which are now live in 30 clubs. This will be a long-term build, and we expect services to be a meaningful source of growth to the top line, and from a margin rate perspective. Let me touch briefly on our gasoline business, where we are seeing significant market share gains. Gallons and comp clubs were up 25% this quarter and are increasingly ahead of the market. Since gasoline is likely the best example of a key value item, price signs are on every corner. It's easy for us to show outstanding value. And when we pair the gasoline business with the club, it drives tremendous loyalty. Members who shop us for gas renew at much higher rates and their gasoline purchases keep BJ's top of mind for additional shopping trips in the club. We're very pleased with the performance of our gas business as we believe it drives robust member engagement. Our digital platforms continue to resonate with our members and allow us to offer convenient access to the tremendous value we provide every day. Our digitally enabled sales grew by 4% this quarter and over 300% on a stacked basis. Digital sales growth relative to the prior year was driven by strong growth in our BOPIC curbside offering. More than half of our BOPIC orders were delivered curbside this past quarter. Engagement among our members is most evident through the increased use of our app, which has been downloaded over 5 million times, and approximately a third of our members use it regularly. In addition, our app continues to receive industry-leading ratings. Digitally engaged members have higher average baskets and make more trips per year than members who shop in-club only. Finally, our plan to enable members to use EBT payment when shopping on bjs.com for ship-to-home, same-day delivery, in-club pickup, and curbside pickup remains on track. This capability is now live in nine states, and pending state approval, we expect digital EBT payments to become available in all additional eligible locations in the next few months. Our efforts to expand our footprint continue to progress. This quarter, we opened one new club in Seabrook, New Hampshire. While it's still very early, we are delighted with the initial membership response and sales trends. The remainder of our 2021 clubs are expected to open in the fourth quarter, including new locations in Port Charlotte, Florida, Comac, New York, Lansing, Michigan, and two clubs in Pittsburgh, Pennsylvania, which is a new market for us. We continue to expect to open as many as 10 or more new clubs in 2022. In addition, we expect to open nine gas stations this year, followed by a dozen or more gas stations in 2022, which means three-quarters of our clubs will have gas stations by the end of 2022. This is a great example of continued investment into getting the flywheel going even faster, tying back to my comments earlier on gasoline driving membership. We are very excited about our expansion and our confidence is underpinned by the strong performance we're seeing in new clubs, particularly in new markets where our brand is resonating. In our Michigan clubs and in Pensacola, Florida, first-year renewal rates are well above chain-wide averages. Overall, we are incredibly proud of our results. We capitalized on the current environment and delivered record results. Our performance exceeded our internal plans across all key metrics, increasing our confidence in the balance of this year. While there continues to be a tremendous amount of uncertainty, our ability to retain members and market share has been strong, and we continue to execute at the highest levels. The resurgence of the virus and resulting effects on plans to go back to work will likely keep food at home consumption high for longer. We also expect tailwinds from continued government assistance, such as the child tax credit. Offsetting those tailwinds are uncertainty around inflation and inventory availability, and the expected decreases in unemployment funding. When we mix all that together, our current view of the back half sales trend has improved from what we thought it would be at the end of Q1. These stronger outlook for sales will be offset by increasing expenses such as margin pressures from inflation and freight costs, along with considerable investments we were proud to make in our team and in their safety. While the impact and benefit of all these factors are far from clear, we do know that our business is extremely well-positioned and poised for further growth. Our better-than-expected results for the first half of this year continue to validate our strategy and execution. We remain confident that our membership trends, assortment initiatives, enhanced digital capabilities, and robust real estate pipeline will power a long-term algorithm that includes mid-single-digit top-line growth. Let me turn the call over to Laura to give a bit more color on our results and a view of the future. Laurel?