BJ's Wholesale Club Holdings, Inc.

Hello, everyone, and welcome to the BJ's Wholesale Club Holdings Inc. Third Quarter 2022 Earnings Conference Call. My name is Adam, and I'll be coordinating your call today. After the speaker's remarks, there will be a question and answer session. If you wish to ask a question at that time, please press star followed by one on your telephone keypad. I'll now pass the call over to your host, Cathy Parkton-Gins. Please go ahead when you are ready.

Good morning, and thank you for joining BJ's Wholesale Club's Third 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 factor 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 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. This morning, we reported another quarter of strong results demonstrating the power of our business model. This was the most profitable third quarter in our history. Our consistent focus on delivering value to our members especially when they need it most has put us in a position of strength our member base is growing in both size and quality we're improving our merchandising to deliver unbeatable value we're offering more convenience for our members through a great digital experience we are expanding our footprint into new and existing markets and doing it successfully we have a great team and a competitive strategy and the investments we continue to make position us well for long-term growth and sustainable value creation. In the third quarter, our comp sales were up 9.7% overall and up 5.3%, excluding gas. Our food categories continued to anchor our strength, with comps increasing double digits over last year's performance. When we entered the year, we expected Q3 to be our most challenging quarter from a comp sales perspective, given the difficult compare. Our business has exceeded our expectations given the continued strong membership and shopping behaviors. As we've seen all year, traffic growth has been a positive driver of our comp and sales per member have been greater than last year in each of our income cohorts. I'd like to put Q3 in perspective relative to 2019. Our third quarter merchandise comp sales were nearly 30% on a three-year stack. which is a sequential acceleration from last quarter's results. The combination of membership growth, higher quality of membership, and our club growth continue to highlight our company as a structural long-term growth story. Adjusted EBITDA grew 19% to $272 million, and adjusted EPS grew 9% to 99 cents per share. Finally, another strong gas quarter contributed nicely to our profits. Gas is an emotional purchase for many of our members, so we set our prices to showcase value and drive member loyalty. This led to comp gallon growth of 11% in the third quarter, despite the broader market's decline in gas consumption. Our 30% two-year stack in gas gallons highlights a tremendous gain in market share. In addition to the growth in gallons, our business has been more profitable. Gasoline is structurally more profitable than it was a few years ago, and the last several years, and this year in particular, have seen increased levels of volatility. The resulting higher than normal profit per gallon has served as a significant tailwind to our business this quarter and this year. We are executing on our strategic priorities, which are growing and retaining members, bringing more value to our members through better merchandising, improving convenience with digital, and expanding our footprint. These priorities are key to driving long-term sustainable growth in our business. Let me briefly touch on each. The long-term success of our business is grounded in the strength of our membership. In the third quarter, our membership fee income grew 9% year over year to nearly $100 million. I'm proud of the progress we've made in growing and retaining our members over the past several years. We've evolved our membership acquisition campaigns to optimize our marketing, We're utilizing digital capabilities to expand our reach. We've gotten smarter about how we leverage data to remain relevant with new and existing members, yielding better renewal rates. And as we enter new markets, we're working to strategically build membership well ahead of our grand openings. Our member count stands at over 6.5 million members, up 6% year-over-year in the third quarter. Effective acquisition efforts across new and existing clubs, as well as growing digital acquisition, have contributed to the increase. In addition to overall member growth, we are improving the quality of our membership. Our higher-tier membership penetration in the third quarter was 38%, up roughly 4.0 a year. Our co-branded credit card program has meaningfully contributed to our higher-tier membership base, and this quarter, we formally announced our transition to Capital One. As we look back, the decision we made to invest in lifetime value by creating the best card value proposition in the club space has paid dividends, with our cardholder base growing over 10 times since we launched the program in 2014. As we look to the next leg of growth, I'm excited about our new partnership. Capital One's market-leading customer service and digital experience are widely recognized in the card space, and we're especially thrilled to offer an enhanced value proposition to our members as part of this new program. Our data shows that members with our co-branded card have profoundly better lifetime values, driven by renewal rates well above the chain average. As the penetration of these members increases, so does the quality of our membership. Ensuring a successful transition with Capital One will be one of our highest priorities over the next handful of quarters, and we are confident that this is the right next step for the company as we continue to grow with the best partner in the business. A final point on membership strength. Our first year and tenured renewal rates are improving over last year's levels, and I believe we will achieve another all-time high at year end. Persistently high levels of inflation are diminishing consumer purchasing power. In the U.S., food at home CPI has grown in the double-digit territory year over year for most of this year, and households with waning government aid have been further constrained. Overall energy costs, including gas, have come down a touch since summer but are still running higher than last year's levels. As sustained cost pressures continue to weigh on consumers' pockets, we have remained focused on delivering great value to our members. Specifically, we have continued to invest in price, resulting in significant savings for our members. In fact, our internal analysis shows that our pricing positions remain stronger against our competitors in the third quarter compared to the same time last year. Having the right value is especially important to us during the holidays. This year, our members who spent $150 or more at our clubs during the first 10 days of November are offered a turkey for free. Consider the savings from this one transaction alone. Our members can save about 25% or more when they shop with us when compared to our supermarket competitors. That 25% savings from a member's $150 basket combined with the free turkey basically covers a one-year BJ's membership fee. This offer and the examples highlighted in our last two earnings calls, rotisserie chicken and our deli offering, are meant to highlight our outstanding value. We aim to offer our members as many ways as possible to get a return on their membership fee. We are leveraging our competitive advantages to drive market share gains in the near term while investing in initiatives to further optimize assortment and deliver more value to our members in the long run. Our fresh business, for example, is a major reason why our members shop our clubs, and we aim to offer the freshest assortment at a compelling price. Bringing our perishable supply chain capabilities in-house was the natural first step in this process. We are now in the early stages of working through everything from sourcing to packaging to supply chain lead times, all the way to marketing and in-club presentation. In addition to our work in fresh, we are leaning into our own brand strategy as our members look to maximize their savings with quality products. In the third quarter, our own brand's penetration grew to 24% despite a difficult compare. Our third strategic pillar is driving convenience through digital, and we are generating robust growth in this area led by Bopik and Curbside. In fact, our digitally enabled sales are trending towards 9% of our overall net sales this year, up from 8% last year. Digitally engaged members typically have higher average baskets and shop with us more frequently, which increases the likelihood of membership renewal. With the expansion of these offerings, our member experience is more convenient than ever, and we will continue to invest in enhancing our digital efforts. Finally, as you know, we have dramatically accelerated our real estate plans. We've opened seven new clubs this year, including our entry into Indiana in September. Last month, we opened in Greenberg, New York, and we also opened in New Albany, Ohio a couple of weeks ago, expanding our presence in the state to the Columbus market. We're almost set to open our doors in Wayne, New Jersey this weekend, and we have a few more clubs slated to open over the next few months. The clubs that we've opened in the past several years continue to perform better than our initial plans, giving us the confidence to sustain 4% to 5% unit growth in the foreseeable future. Our commitment and ability to bring value to our members remains a powerful advantage in times like these. As a result, we've grown our top line and market share throughout the year while navigating a pressured margin environment. Gas has driven considerable upside to our results, granting us the ability to further invest in our members and our team members. Our grocery business is strong, and we feel good about how we're managing our inventory through the holiday seasons. There's no doubt that inflation is impacting consumer decisions, and it's looking likely that inflation will continue into next year, albeit at a moderating pace. No matter how the macro ends up playing out, we will remain true to being there for our members and delivering unbeatable value, which I believe will deepen loyalty, reinforce our brand, and drive long-term growth. Before I wrap, I'd like to acknowledge and thank our team members for their dedication in serving our members and the communities in which we operate. I'm especially heartened by the incredible support our team members have provided to those impacted by Hurricane Ian. Our emergency response teams work in the days leading up to Ian's landfall, ensured inventory preparedness, asset security, and the safety of our team members and members. Our clubs were up and running so long as we deemed that safety was not compromised. Our teams worked with our partners to provide essentials such as water, snacks, baby formula, and cleaning supplies to local shelters. As they always do, Our team members showed up for our members and communities through this crisis. To our team members who are listening in today, thank you for your hard work. Your efforts make a real difference in our company and in our communities. I'll now turn it over to Laura to provide more details on our results and outlook for the rest of the year.