BJ's Wholesale Club Holdings, Inc.

Hello everyone and welcome to BJ's Wholesale Club Holdings Inc second quarter 2022 earnings conference call. My name is Daisy and I'll be coordinating your call today. After the speaker remarks there will be a question and answer session. If you would like to register a question please press star followed by one on your telephone keypad. I'll now pass the call over to your host Cathy Park. Cathy please go ahead.

Good morning, and thank you for joining BJ's Wholesale Club's second quarter fiscal 2022 earnings conference call. On the call today are Bob Eddy, President and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Werner, Executive Vice President, Strategy and Development. 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 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 our investor relations 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. In the second quarter, we produced strong results in a marketplace influenced by inflation, waning government stimulus, and high gas prices. Investments we've made to transform this company and our relentless focus on executing our long-term initiatives have put us in a place to capitalize on current trends and deliver this strong performance. Our member base is growing in both size and quality. We're improving our merchandising to deliver more value. We're advancing our digital business, offering more convenience and optionality for our members. We are expanding our footprint into new and existing markets with success. We have built a great team to further advance these initiatives, and our business model is made for the current consumer environment where value is king. We are well-placed to take share by doing what we do best, delivering great value to our members. Comp sales in the second quarter were up 7.6% x gas, adjusted EBITDA grew 24% to a record $274 million, and adjusted EPS grew 29% to surpass the $1 mark for the first time in the history of the company at $1.06. Our second quarter comp was driven by significant gains in traffic and market share, led by our grocery and perishable categories. and our general merchandise and services comp improved both year over year and sequentially. Finally, another strong gas corridor contributed nicely to our profits. Our fuel business is one of the most visible ways in which members can see their savings and a great way for us to drive foot traffic. With average U.S. gas prices in the second quarter running about 45% higher than last year, the value that we offer has resulted in robust growth in comp gallons as members relied on BJs to save at the pump. Our comp gas gallons were up 18% in the second quarter versus an overall market with negative comp gallons. On a two-year stack, our comp gallons were up over 40% versus an overall market that was up only slightly. To put our gas gallons into context, the average C-store sells approximately 1.5 to 2 million gallons per year. Our stations exceed that volume meaningfully and nearly a quarter of our stations are on track this year to selling four to five times as much as that average C-store. These trends are an important measure of our relevance with our members. In addition, falling input costs mid-quarter led to higher than normal profit per gallon, driven by the natural lag effect in retail pricing. This dynamic, combined with our gallon growth, resulted in a very strong gas business for us in the second quarter. We continue to deliver on our strategic priorities, which are growing and retaining members, bringing significant value to our members, improving convenience with digital and expanding our footprint. These priorities are key to driving long-term sustainable growth in our business. Let me touch briefly on each. Our business starts with membership and it continues to be the strongest that I've seen in my history with the company. In the second quarter, Growth in our member count was impressive at 6% year over year. This was led by a combination of strong renewal rates and membership acquisition, helped by our growing success in digital acquisition. Our digitally acquired member penetration grew by 1,000 basis points year over year in the second quarter. Our first year and tenured renewal rates are improving over last year's levels, and we continue to believe that we will report new all-time high results in these rates at year end. Speaking of all time highs, easy renewal enrollment hit a record of over 77% this quarter, up three points over last year. We made progress on improving the quality of our members as well. Higher tier membership penetration grew yet again to 37%, up four points year over year, helped by increasing adoption rates for our co-branded credit card. I'm sure the fact that members are able to save an extra 10 cents on gas has something to do with that. Higher tier members are more valuable, given their higher spending and greater loyalty. Therefore, as the penetration of these members increases, the quality of our membership improves meaningfully. These efforts led to membership fee income growth of 11% in the second quarter, with our average MFI dollars per member still running above $60. The current inflationary trend continues to influence purchasing behavior. During the second quarter, we were pleased to see year-over-year and sequential spend per member growth across all of our income cohorts. The majority of our merchandise comps were driven by a nice uptick in trips led by our higher-end income cohorts, and this remains a bright spot for us. Our members are increasingly relying on us to fulfill their shopping needs. Units were up significantly in our grocery businesses, highlighting the increasing value that we provide our members. Again, not only were these better results year over year, but also against first quarter performance. Our strong membership base is a testament to our success in delivering real value to our members. With waning government aid and elevated levels of inflation impacting virtually every aspect of consumer spending today, households across the U.S. are being forced to do more with less. In these challenging times, we remain steadfast in helping our members save money every day on their purchases. In fact, based on our internal analysis, our pricing positions against our core competitors improved in the second quarter as we invested to showcase value, especially in key items. Take our full-service deli as an example, which is always a great value for our members. Over the course of the year, we have seen competition raise prices in this area. and our savings have grown to approximately $2.50 per pound on average. That means a member shopping us weekly and buying a pound of turkey and a pound of cheese will save about $260 a year just on these two items alone. That savings equates to almost five times our base membership fee. We strive to meet the everyday shopping needs of our members and exceed their expectations by offering the optimal assortment of products and services at unbeatable prices. Our own brands help us achieve this goal. In the second quarter, own brand penetration improved by 200 basis points year over year to 25%. In fact, our own brand's comp sales in the second quarter outpaced the market, most notably in Sundry's. We've made significant progress in our own brand's penetration to date, and I know that there is a lot more room for growth here. At our IPO four years ago, we highlighted our goal to grow own brands to 25% of sales. Now that we've hit that mark, we believe that a longer-term aspirational goal of over 30% is achievable, and we will continue to add talent and resources to accomplish this goal. On the digital front, we are generating robust growth across our digital channels. anchored by BuyOnline Pickup and Club and Curbside. Through the pandemic, our members have significantly altered the way they engage with us. Today, more than half of our members engage with us digitally, and this compares to approximately 25% pre-pandemic. This is important because digitally engaged members typically have higher average baskets and shop with us more frequently, which increases the likelihood for membership renewal. Thanks to our successful expansion of omni-channel offerings, the member shopping experience is more convenient than ever. We see potential for even more digitally enabled growth in the coming years as we further enhance our capabilities, deepen loyalty through targeted personalization, and unlock opportunities in retail media. Finally, we remain on track with our expansion plans and continue to expect 11 new club openings in the fiscal year. From 2016 to 2020, we opened 10 clubs in aggregate, and now we expect to do that every year. Our decision to accelerate our new club opening pace stems from the performance of new clubs over the past handful of years, both in existing and new markets. In existing markets, sales at these new clubs are running well above our initial expectations. Further, we are seeing the impact of the network effect of membership coming to life, where members who have signed up with these new clubs are increasingly shopping not only at the new clubs, but the other BJ's clubs in the area as well. As a result, our overall return on investment is running substantially ahead of our plans. In new markets, we continue to execute on our membership acquisition and new member experience to drive lifetime value in our new clubs. Clubs opened in new markets over the past 12 months already have the total membership enrollment and higher tier penetration in line with the chain average. This performance gives us confidence as we continue our expansion into Columbus, Indianapolis, and Nashville in the coming months. Before I hand it over to Laura to delve into the numbers, I'd like to take a few minutes to discuss our current outlook. At the halfway point of the year, I'm pleased with the trajectory of the business. As I reflect on how we're trending versus our expectations at the beginning of the year, we have certainly seen higher sales, traffic, and market share. That has been balanced by investments and margin rates to help maintain our value prop. Significant gains in gasoline profitability have allowed us to spend into the beat and make these important investments. Our business model is clearly resonating with our members old and new, perhaps more now than ever. And I believe that delivering value to our members will drive loyalty, market share, and long-term growth. I'm grateful to our team members who remain true to this core principle as they serve our members every day. To our team members who are listening in today, Thank you for your hard work. We are a much stronger company today with a clear path for sustainable long-term growth and value creation, and I'm very excited about our future. I will now turn it over to Laura to provide more details on our results and outlook for the rest of the year.