BJ's Wholesale Club Holdings, Inc.

Good morning and welcome to today's BJ's Wholesale Club fourth quarter fiscal 2021 earnings conference call. My name is Candice and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for question and answer at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference call over to our host. Kathy Parks. Your line is now open. Please go ahead.

Good morning, everyone, and thank you all for joining BJ's Wholesale Club's fourth quarter fiscal 2021 earnings conference call. Bob Eddy, President and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Warner, 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 files with the SEC for a description of those risks and uncertainties. Finally, please note that on today's call, we'll 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 Bob.

Good morning. Thank you for joining us today on our fourth quarter earnings call. Before we begin, I'd like to introduce Kathy Park, who just joined us as our vice president of investor relations. We're excited to have Kathy on board. Please join us in welcoming her to BJ's. 2021 has been the best year in our history with tremendous financial results and impressive progress on our strategic priorities. 2021 was the most profitable year in the company's history, generating $880 million of adjusted EBITDA and $3.25 in adjusted EPS, above even the strong performance of 2020. Beyond profitability, we also made significant progress on our balance sheet, paying off $360 million of debt and bringing leverage to less than one turn versus nearly three turns just three years ago. We delivered over $500 million of free cash flow in 2021, and we have used this cash to invest in the business and return cash to shareholders, buying back 3.3 million shares and issuing a new $500 million share repurchase authorization. When looking at the company from an investment perspective, our collective efforts in building a more robust business have yielded shareholder returns that have been among the best in the industry over each of the past three years. We now have had consecutive years of considerable transformation in membership, merchandising, digital, and our real estate portfolio. And there is still plenty of opportunity for us to capture as we look ahead to 2022 and beyond. Taking membership first, this part of our business has never been stronger. The improvements in the size and quality of our membership base is evidence of the value we offer to our members. Our member count has grown by 2% sequentially, 3% versus last year, and 15% over two years ago. Along with the size of our membership base, the quality has also improved. Our higher tier members now comprise 35% of our member base, an increase of four points over last year. Tying these improvements together, we are proud to report the highest renewal rates in our company's history, closing out the year at 89%, a one-point improvement over last year's renewal rates, which had also been a record. The improvements in size and quality are not just a pandemic story. In the past five years, our membership has grown each year and by a compound annual growth rate of over 5%. As we've improved the size and quality of our membership base, we've also grown our membership fee income to new record highs. Our membership fee income per member is up 5% over last year. And over the last five years, MFI dollars per member have risen from just over $52 to just shy of $60. As a result, we reported full year MFI of $361 million. more than $100 million more than what we reported five years ago, and representing a compound annual growth rate of approximately 7%. The gains we've made in our membership are lasting structural improvements in our business. To put it in context, when I began my tenure with the company nearly 15 years ago, our renewal rate had never exceeded 84%, and now 90% is in sight. Think of that progress another way. In the last few years, we have grown the average member tenure by more than 50%, over three years more life. We are incredibly proud of all that we have accomplished across our membership initiatives. We expect to eclipse 6.5 million members, likely in Q2 of this year. As I mentioned earlier, we are also targeting a 90% tenured renewal rate, which will be a very important marker of our success in becoming a different and better company. We will also continue to increase the quality of our membership base. Our co-branded MasterCard offering is an important part of this initiative. When we created this product several years ago, we set out to have our members directly benefit from the value created, knowing that they would reward us with more lifetime value. Our value prop, which continues to be among the best in the industry, has allowed us to grow to about 1.4 million cardholders. We've chosen Capital One to help us take this program to the next level. We will spend the next year designing a program that will pass even more value to our members, again, knowing that they will reward us. We believe that this will be very powerful over time, and we look forward to moving ahead with our new partner in the early days of next fiscal year. We've continued to make progress in improving our merchandising, such as the continuing simplification in our sundries categories. The affected categories have seen skew reductions of over 40%, and now feature much better presentation and shopability. We're seeing strong results in our efforts in Sundries. The simplified categories are currently exceeding their pre-simplification comp performance despite having less SKUs. This effort has also allowed us to expand margin rate. We continue to see significant opportunities to improve our merchandising, beginning with internal capability building and the additions of external talent. After announcing Rachel Vegas as our chief merchandising officer last quarter, we added new senior vice presidents of own brands and B2B sales. With increased focus on own brands, we will look to accelerate the steady improvements we've been making, and we think we have a good run right here. Our penetration this quarter was 23%, up 200 basis points year over year, driven by strength in our perishables and sundries divisions. Our members are reacting well to our brands, and we find that members that shop Own Brands are among our most valuable. The number of baskets including at least one Own Brands item was up this year and repeat purchase rates improved by approximately 400 basis points during the year. In addition to completing the sundry simplification and increasing Own Brands penetration, we will also begin the reinvention of our fresh offering to ensure that we're providing a higher quality and better value version of the products our members want most. Fresh is already the anchor of our business, yet we see considerable opportunity here too, and we will update you more as we make progress. And finally, we will place renewed focus on increasing the share of general merchandise in our business. We need to have a better, more relevant assortment to take GM where we think it can go. Turning to our objective of improving convenience for our members, the performance of our digital business this year shows our success. For the first time, we generated over a billion dollars in digitally enabled sales in 2021, and these sales now comprise almost 8% of our total business, having grown 22% year over year and over 250% on a stacked basis. Approximately 80% of our digitally enabled sales are fulfilled by our clubs with services like Bopick, Curbside, and Same Day Delivery. This has increased from about 45% over the last year. We are finding that our members are engaging with all of our digital offerings, and this is exciting because we also know that members who increasingly engage digitally are younger, visit us more often, and purchase more when they visit. We also continue to launch new products like Express Pay, the ability to skip the checkout lines using your phone. That went live across our chain in Q4. We know that leveraging technology to deliver a more convenient experience for our members is a long-term game changer for our business. The Club Channel has never been thought of as the most convenient place to shop. Our digital assets are changing that paradigm, and we believe our members will increasingly reward us for that. To that end, we now have our DoorDash marketplace live in the chain in just the last few days, and we're excited about the convenience and value this will bring to our members. We're continuing to work on the new model of same day delivery driven by bjs.com and expect this to be live in April. Under this model, our team members will pick orders and our delivery partners will make deliveries to our members. This model will allow for a better experience and better value for our members and better economics for us. We will also launch an unlimited deliveries package, which will allow members to get unlimited same day deliveries for a fixed price for one year. In our testing, we've seen an encouraging response and results from our members, and we'll share more as our program specifics crystallize. Moving to real estate, I'm proud to report that we continue to accelerate our efforts. We opened five new clubs and seven new gas stations in 2021. Our confidence here continues to increase as new clubs opened in the last few years have performed better than expectations, with stronger sales and operating performance leading to faster paybacks than had initially been contemplated. We expect to open 11 clubs in 2022 in new and existing markets. The new markets are expected to include Columbus, Indianapolis and Nashville, with existing markets being Atlanta, Miami, Richmond, Orlando, Detroit and New York Metro. We will also significantly increase our gas station footprint with a total of 12 new gas stations expected in the year. This would bring our percentage of clubs with gas stations to nearly 75% at the end of 2022. Fuel is an important value driver in its own right, but becomes an even more important when paired with our co-branded MasterCard, which offers those members a 10 cents per gallon discount on our already great prices. As we look ahead at the various ways we can grow new units, we will also open a small box pilot this year. While this could become a new expansion vector for us, it will initially function as an innovation lab. for us to test out new assortments, displays, product demonstrations, and convenience initiatives. Our financial performance and strategic progress is also evident in how we use our cash flow. In Q4, we made two key investments underpinning our business, both in the logistics area. First, we opened our fourth perishable distribution center in Independence, Kentucky. This facility, currently operated by Bars Logistics, will serve our new markets in the Midwest, but also take some of our core market volume to allow us to better balance our facilities. Second, and most importantly, we announced the acquisition of all of our perishable distribution centers from Baris Logistics. The Baris family and team members have been phenomenal partners to us for over 20 years. We're excited to welcome the over 800 Baris team members to our family. One thing we've learned over the past two years is that the food supply chain is not as resilient as once thought. This purchase allows us direct control over the most important and complex part of our supply chain, and once complete, de-risks the business considerably. While risk reduction is important, this deal also has strategic merit. Our perishable foods are a critical reason why our members shop our clubs, and we can do much better in terms of the assortment, quality, and freshness of these items. I mentioned earlier a new effort to improve our fresh offerings. Controlling our distribution will allow us to more aggressively optimize our network for freshness and to be more flexible in assortment in areas in which we lag, like prepared foods. This deal should provide a great foundation on which to build our future business. And with that, I'll turn it over to Laura to discuss our financial results in more detail.