BJ's Wholesale Club Holdings, Inc.

I think it's 8.32, so we'll get started now. Good morning, everyone. Thank you so much for coming out here. Welcome to BJ's first ever Investor Day. I'm Kathy Park, VP of Investor Relations here at BJ's. It's great to see everyone here in person today, and I'd also like to welcome those participating virtually on our webcast as well. Before we start... Bob reminded me to get my clicker and I forgot. So before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During our presentation today, 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, which are referenced in our SEC filings and our most recent Form 10-K to be filed with the SEC next week. Finally, please note that on today's call, we'll refer to certain non-GAAP financial measures that we believe will be useful for investors. Reconciliations to the most directly comparable GAAP financial measures are included in the appendix to this presentation, which you will find on our investor website, investor relations website. A quick overview of the agenda today. We're excited for you to all meet our talented management team who will run through some presentations for a little under two hours, at which point we'll take a 15 minute break and then reconvene for Q&A. With that, I will turn it over to Bob Eddy, our president and CEO. But before I do, we will kick it off with a video. We like shopping at BJ's because it's local. We get to get all our stuff in bulk and it's less shopping trips.

With BJ's you do climb up the ladder very quickly if you want to and you put in the work and it's a lot of fun.

We have a lot of club members that come back and I try to do the best job for them.

I started with the company back in 89 when there was less than 20 clubs. Here we are with well over 200 clubs. So I definitely picked a winner in the company that I work for.

I love my job.

Morning, everybody. Thank you for joining us here today. We're thrilled to welcome you to our first Investor Day here at our new club support center. Those of you who have been to our previous facilities will certainly notice a little bit of a difference. This state-of-the-art space represents our brand. It promotes teamwork and collaboration, and it facilitates providing the best possible support to our clubs and distribution centers. It's really just one way that we've met our cultural promise of taking care of the families that depend on us. It's also significantly more cost-efficient, I promise. It's a great win-win. I'd also like to thank everybody that's joining us virtually through our live stream. I'm sure a lot of our team members are on as well, so grateful for everybody listening in. We've got an exciting day ahead of us, so why don't we just jump in. We are incredibly proud to have announced our record fourth quarter results this morning. We grew net sales in the fourth quarter by 13% to $4.8 billion and put up an impressive 8.7% merchandise comp, driven by nearly equal gains in traffic and ticket. Our value prop continues to resonate, driving our market shares up and driving our members into our clubs. Membership fee income grew by 8% year-over-year, topping $100 million for the first time in any quarter, and we hit our all-time high renewal rate of 90% for the year. This is a huge accomplishment for us, and given its importance, you'll hear a few of us talk about it today. Our fourth quarter adjusted EBITDA grew 19% year-over-year, and adjusted EPS was also a record for Q4 at $1 per share, up 25% over last year. Our strong fourth quarter capped a milestone year for us. We leaned into our strengths against a challenging operating environment, and our members rewarded us for it with their trips and their wallets. Our fiscal 22 net sales grew 16% to almost $19 billion, and merchandise comps were up 6.5% for the full year. Membership fee income grew by nearly 10% to $397 million last year, and we surpassed $1 billion in adjusted EBITDA for the first time ever. Adjusted earnings per share also grew 21% year over year to a record $3.92 in fiscal 22. I'm extremely grateful to each and every one of our 34,000 team members. They show up every day for each other and for our members to deliver an unbeatable shopping experience. And these results are all due to their efforts. For those of you that have been following our story since we went public in 2018, you've heard me talk about our company's transformation and the investments that we've made to strengthen virtually every aspect of our business. We've grown our membership with a renewed focus on retention and lifetime value. We are delivering even more value through better merchandising and promotions. We expanded our digital capabilities to offer even more convenience to our members. And we have reinvented our club opening model to expand our chain profitably. These investments have allowed us to deliver the great growth that you see on this slide. Since fiscal 2018, we have exceeded every goal that we've set. Our net sales have grown almost 50%. Our MFI has grown 40% with tremendous gains in membership count and quality, and not to mention that record renewal rate of 90% again. And adjusted EBITDA grew about 80%, and we have nearly tripled our adjusted earnings per share over that time period. We generated over $2 billion of free cash flow cumulatively since 2018, and this has allowed us to transform our balance sheet, ending this year with just 0.8 turns of leverage down from roughly five turns pre-IPO. We've also taken some of that cash and rewarded our shareholders with it as well. Since our IPO, we've repurchased nearly half a billion dollars in shares, and we've delivered a total shareholder return of 236%. That's nearly four times the broader S&P 500 index and among the top performances in retail. As we think about our long-term financial algorithm, we believe we can build on this momentum and achieve low to mid single-digit annual merchandise comps, mid-single-digit total revenue growth. And when we add in a bit of MFI growth and a bit of margin growth, we can deliver high singles to low double-digit annual earnings per share growth. Today we're here to talk about how we do all that. First, let me step back and take you through our model, which offers tremendous structural advantages. We strive every day to operate as efficiently as possible so that we can pass more value on to our members. There are many examples of how we are more efficient than other forms of retail on this page, and let's just pick one of them like labor. We all know about the recent wage pressures in the economy. We have significantly less labor than our higher price competitors. Therefore, in an environment like we are in today, many of our competitors face larger pressures than we do. I should also take another moment to thank our team in the field who work hard every day to be as efficient as possible. And they do this because they know the virtues of our model. We take every bit of efficiency that they find for us and continually reinvest it back into member value. We'll talk today about pricing, promotion, our fabulous gas prices, and our amazing credit card offer as examples of this. Value is the most important product that we sell. We offer 25% better pricing than our grocery competitors. And in exchange for that value, our members reward us with spend consolidation, loyalty, and retention. In other words, they give us lifetime value. As a result of the tremendous advantages that our model provides and the value that it gives consumers, we continue to take share from less efficient forms of retail. The U.S. warehouse club industry has grown at a 6% rate since 2007. It's grown in good years. It's grown in bad years. But the past five years have been especially exciting, growing at an 11% rate, outpacing broader retail at 8% and grocery at 6%. Further, despite our outsized growth, the industry is still less than 5% of total retail. So we believe there is much more growth to come. You've heard me say that we are a different and a better company today built on our strategic priorities, which are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently through digital means, and growing our footprint. The successful execution of these strategic priorities is only possible with a team that embodies a culture of operational excellence and one that exercises cost and capital discipline. We're going to spend a moment on each of these things. First, our membership base is the most important and valuable asset that we have, and it has never been stronger. I'm so proud of what our team has delivered in this area. Since fiscal 2018, our member count has grown 27%, and we now serve 6.8 million members at the end of January. We delivered on our goal of our 10-year renewal rate at 90%. This is up three points from 87% in fiscal 2018. It's such a fantastic milestone for us, and Tim will talk through the math around why that is. We also ended the year at 38% higher tier penetration, up 13 points since fiscal 2018, and up three points year over year. These are our best members, and we believe we have much more headroom to grow the programs driving that penetration. As a better perspective, we have consistently grown our membership fees each and every year for the past 25 years, increasing it at about an 8% rate. I'm especially pleased with the performance over the past five years. Our efforts in improving membership acquisition, loyalty, and retention, coupled with our new club growth, have resulted in MFI growing at a 9% rate since fiscal 2018 and 10% last year alone. Also, do me a favor and focus on the renewal rates at the bottom of the chart. We've spent the majority of our history in the low 80% range. And when I think about our transformation, I think about the difference between 81% and 90%. It's the single biggest reason that I'm confident in our future. Speaking of things to be proud of, we launched our new co-brand credit card on February 27th, and it is off to a fantastic start. We are thrilled to bring what we think is the best card offering in retail to our membership with an amazing partnership with our friends at Capital One. Our credit card members have contributed significantly to the growth in higher tier penetration over the years, and the program has grown about tenfold since we launched it in 2014. These are some of our most valuable members due to their deep loyalty. In fact, our credit card members have almost two times greater lifetime value than those members that don't have that product. We'll focus on this a bit later as we continue to believe this will power our growth forward. Let's talk about value a little bit. There are many ways that members can find value with us, from our everyday low prices, further amplified by great coupons and promotions, to our own brands, to low-priced gas, to the co-brand credit card I just talked about. All these savings can aggregate up to 10 times our membership fee, which is an incredibly compelling return for our members. With the importance of value in our model, we remain laser-focused on providing the sharpest price points we can across our entire business, strategically investing in areas that matter most to our members. These intentional pricing investments improved our pricing position by 130 basis points last year against the composite of all of our competitors in mass and club and grocery. We made these investments during a period of robust inflation, demonstrating our commitment to providing value to our members. This relentless focus on value has resonated with our members, as you see on the right-hand side of the chart, driving consistent growth in both trips and spend per member across all income cohorts, high, mid, and even low. As a result, we've steadily grown our market shares by almost half a point over the past several years, with gains across grocery, perishables, and our sundries business. We believe we will continue to gain share, and Rachel will tell you a little bit about why. Shopping with us is more convenient than ever due to our digital offerings. We know that convenience drives spend, as digitally engaged members, spend about 70% more with us than those members that only shop with us through traditional means. Our digital-enabled sales have grown from just 2% in fiscal 2018 to 9% today. Our BOPIC and curbside pickup offerings have led this growth, now making up about half of our digital sales. And we are not done at 9%. We will continue to invest in enhancing the digital efforts for one simple reason. If we can save our members 25% while we save them time, they will come back to us again and again and again. On to our real estate footprint. We have a leading presence on the East Coast, operating 237 clubs and 165 gas stations in 18 states. Every single one of our comp clubs is profitable, and we are the market share leader in the Northeast and have growing shares elsewhere. And we are quickly expanding that reach. Five years ago, we were opening one new club per year, and now we are doing around 10. And our new clubs are performing better than our expectations, giving us more confidence to go faster. Last fiscal year, we opened nine new clubs and seven new gas stations. We aimed for 11. We had two additional clubs slated for last year that were delayed a little bit by the hurricane. Those two clubs in Davenport, Florida, and McDonough, Georgia, opened in the last couple of weeks and are doing fine. They're doing fantastic. So congratulations to those teams for their perseverance and for their performance so far. In addition to those clubs, we expect to open nine or 10 more this year, including getting into our 19th and 20th states with new clubs in Nashville, Tennessee and Huntsville, Alabama. We also expect to open as many as 15 gas stations during the year. We've allocated our significant cash flows over the past five years with growth and shareholder value in mind while we transformed our balance sheet. As we look to the future, we will continue to invest in growing our business and returning excess cash to shareholders while maintaining that great balance sheet that we now have. Laura will speak a lot about this later. I talked about the strategic nature of our transformation. It is important to pick the right things to do. Even more important, in my view, is who you pick to do those things. And I'm honored to be working alongside my senior team and our greater team as we continue to build our company. You'll hear from many of our world-class leaders today, and if you take absolutely nothing else away from this presentation, I hope you come away from it feeling as good about them as I do. I'd put them up against any team in retail, and I think they'd win. All right, so what are you going to hear next? You'll see that our presentations today follow the general framework of our strategic priorities and how they contribute to our long-term growth story. First, you'll hear from Paul Chihaki, our Chief Commercial Officer, who will talk about how we approach the business with a member-first mindset. Next, you'll hear from Tim Morningstar, our Chief Membership Officer. Tim joined us in 2020 from Bain & Company and leads our membership and marketing efforts. He'll present on how we've strengthened our membership, why we think those efforts are sustainable, and why we're so excited for the future. Rachel Vegas, our Chief Merchant, joined us a little over a year ago from 20 years of retail experience at great companies like HEB and Target. Rachel is charged with taking our merchandising from good to great, and she'll walk you through the key points of that journey. Following Rachel will be Monica Schwartz, our Chief Digital Officer, who joined us in 2020 from the Home Depot, where she led their online merchandising efforts. Monica will delve into our digital journey and our future opportunities to drive growth through offering more convenience. Bill Werner, who many of you already know, is the key architect behind our real estate strategy and the godfather of our co-brand credit card. He will talk about our new club performance and our plans for future expansion into new and existing markets. And finally, our intrepid CFO, Laura Felice, will come up and talk about how we can distill all this down to the numbers and what you can expect from us going forward in a little bit more detail. For those of you joining the club tour after this, Jeff Derocious, our chief operations officer, will lead that tour. He's been with us for 22 years, and he oversees our operations of all of our clubs and gas stations and our supply chains. All right, next up is Paul Chihaki, our chief commercial officer. Paul joined us in 2020 from Bain & Company. I'm thrilled to have him as a partner in our growth story. He's got a great way of thinking about the business and incredible capacity for transformation, and he's a lot of fun to be around, too. So take it away, Paul.

Good morning, everyone. Bob just talked about our structural advantage as part of the club channel. I want to build on that and talk about how our go-to-market model is differentiated across retail and within the club channel. We're differentiated from our club competitors because we have a broader assortment, about two times the SKUs of our club competitors, though still curated at 7,000 SKUs. We have smaller pack sizes in the club range. We have a smaller club format at 100,000 square feet. And we have greater density, translating into more convenience in the shop for our members and greater member trips. This adds up to a differentiated experience for our members who can fully supplant their grocery store shop at BJ's Wholesale Club. Simply said, our competitors cannot do that. We are differentiated versus grocery, first and foremost, because we're 25% cheaper on products we stock, but we also offer a treasure hunt experience as well as services and fuel. We're differentiated versus mass on pricing, and I'd like to challenge you to do the following math exercise. Take your favorite mass retailer's profit margin to zero and invest all of it in price. Their prices would still be substantially higher than ours. I'd like to spend just a couple of minutes talking about who is it, the consumer, that we serve. We aim to provide the best value proposition in retail. to smart saving families. But who are smart saving families and what do they value? Smart saving families want the best for their friends and family. They're generous and they're social. They're enthusiastic budget stretchers who want to spend their money in a way that allows them to get the most out of life. As a result, they're savvy and price conscious, treat saving money as a sport, get excited about promotions and deals, are attracted to name brand products, prefer to stock up and enjoy entertaining family and friends. Thus, our primary commercial objective is to attract, engage, and retain smart saving families, period. We know that if we do what's best for our member, great financial outcomes will follow. It starts with targeting the right prospects who fit our design target, these smart saving families. We target the Smart Saving Family psychographic and demographics that we know will yield attractive customer lifetime value. We then engage them with an assortment that meets their needs. As I noted earlier, a broader assortment than our club competitors, though still curated. We also engage them with exciting promotions which are seasonally relevant and personalized and curated offers that are formulated through their highly trackable shopping and browsing behavior. We also ensure that our in-club and online experiences are fun. We retain our members first and foremost by ensuring that they get that high ROI on their membership investment, as Bob noted. In fact, during the pandemic, we invested an additional 130 basis points into price, as Bob noted, and have reaped the benefits of that in terms of member satisfaction and their personal ROI. We also ensure that we are clearly communicating back to members on how much they have saved. Tim will cover the details of these engagement strategies in his remarks. Beyond that, we work to get as many members as possible into our premium membership offering, whether that be our higher tier membership or our co-brand cards. Tim will talk about the direct relationship between these offerings and retention. And finally, we ensure that we meet members where they are, which is to say through a world-class digital experience that allows them to shop in the most convenient and immersive way possible. Monica will share how the majority of our members utilize digital assets in their shops, regardless of whether the transaction is in the club or online. In a moment, Tim, Rachel, and Monica will go into more detail on our strategic commercial priorities. But I would be remiss if I didn't first talk about one of our most strategic functions deployed in the service of great commercial outcomes. We have four analytic functions that make sophisticated use of data and exploit our perfect information on member behavior for optimal decisions in merchandising, pricing, promotion, personalization, and engagement. The first three functions on this page support the creation of promotions that accomplish what I call the ROI trifecta. An ROI for our vendor, an ROI for our members, and an ROI for us. They also develop personalized offers that are designed to engage members with highly relevant incentives to get them shopping and improve their personal ROI on their BJ's membership investment. And of course, they also help us with things like category optimization and pricing investments, as well as prospecting. These analysts and data scientists that we employ in this function are part of the secret sauce of BJ's Wholesale Club. In addition, we have a dedicated member engagement team that monitors and cultivates our most important asset, our members and their behaviors. They work to get each member to their full potential through education, incentives, and the right interactions. As we pursue actions that are aimed at profitably serving our member needs, we need to be clear on what success means for our members and for us. We measure our success through a member-centric lens. Our measures fall into four areas. Member ROI, as Bob noted, member experience as measured by NPS and voice of the member survey, their digital engagement as measured by digitally enabled revenue, shoppers and app usage, and member lifetime value. If we succeed on these measures, the financial outcomes for our shareholders will follow. Tim, Rachel, and Monica will talk in more detail about our performance across these measures. I want to close out my remarks with a brief overview of what you will hear from our commercial team today. They will share details on a set of priorities that build on our current performance and take our member experience and financial outcomes to the next level. In membership, Tim will talk about further improving our value proposition, further leveraging data to drive personalization and modernizing our core message. In Merchandising, Rachel will talk about our journey from good to great and improving our assortment for increased relevance while continuing to deliver tremendous value. She'll talk about innovation, making our clubs even more fun to shop, and she'll talk about own brands and how they deliver on the trifecta of value, loyalty, and healthy category dynamics. Rachel will also talk about our investments in talent, where she is deepening the talent pool and supporting them with world-class development and training. In digital, Monica will talk about the digital experience and how our digital conveniences are driving tremendous value for our members. She'll talk about our progress on digital penetration, driven by world-class digital engagement. She'll also talk about our plans to further elevate the member experience. They'll be followed by Bill, who will talk about our footprint strategic priorities. With that, let me introduce Tim Morningstar. Tim was my partner at Bain & Company for 20 years before he joined BJ's. While at Bain, he focused on growth strategies for a wide range of consumer companies, retailers, and loyalty-based companies, and led a number of strategic due diligences on both large and small consumer-focused brands. With that, I'll hand you over to Tim Morningstar.

Thank you, Paul. What Paul didn't mention is that in 2002, he was my very first supervisor, and here I am still working with him 20 years later, or for him, I should say, 20 years later. So make of that as you wish. As Paul said, my name is Tim Morningstar. I run the member and marketing functions here at BJ's. And as has already been said in this presentation and will no doubt be said again, our 6.8 million members are our greatest asset and our biggest differentiator. On the left-hand side of this page, you can see our five-year membership growth rate exceeds 6% per year, a rate that has remained consistent through peak COVID to today. On the right-hand side of the page, you see that MFI growth has exceeded our strong membership growth, the result of an increasing mix of members to our higher price tiers. It is worth noting that our last MFI increase is included in the 2018 number, indicating that this growth has been done without an increase in our membership price. So continuing to strengthen this asset is at the core of our strategy going forward. We put member loyalty at the core of our strategy for a very simple reason. It drives outsized economic returns. And I'll use this page to simply illustrate that point. We've done some simple math, which shows that over a 10-year time horizon, for every single point of renewal rate improvement we achieve, we retain an additional 175,000 members. Applying known member behavior to that population over the same time horizon implies that each point of improvement can increase cumulative revenues by approximately $4 billion. The other benefit to improved retention is higher lifetime value. We have learned over the years that the longer a member is in the franchise, the more they will leverage the full range of our value prop, which means the more they will spend with us, which means the more likely they will be to renew, which means, perhaps most importantly, the more likely that they will act as a brand advocate, recommending us to others. So the point we're making here is relatively simple. Even small improvements in rate have a cascading positive impact on the business. Now, as a team, we don't focus on renewal rate per se, but rather the behaviors we can drive and the levers we can pull that will lead to loyalty. One of the things that is great about our model, and we've mentioned this already, we have literally decades of perfect shopper information on our members. We are constantly mining that data to highlight concrete actions that will lead to loyalty. Let me spend just a moment to highlight a few of these by going clockwise around this circle. The first lever we lean into is participation in our higher tiers of membership. We know that if a member enrolls in a $110 membership or gets a BJ's branded credit card, we will not see just improved renewal rates, but increased spend per year. Our highest tier members generate a multiple of lifetime value versus our base program members. We look at this number daily, and that has paid off. Higher tier penetration now sits, as Bob mentioned, at 38%. That's up 13 points over the past five years. And we think we have much more to go on this. I will speak more about that in a moment. The second lever is engagement with our promotions. Our members love the value they can realize through these programs. And not surprisingly, those who engage with promotions spend the most. One way to look at this is percent of members who engage with a digital coupon. 70% of our coupons are now clipped digitally. This is up from 20% in 2019. Now, this drives loyalty because it is a much smoother way for us to deliver value to our members. This ease for members translates into increased engagement, but also improved lifts on the promotions. It's also more cost effective to exercise promotions in this way. The third lever is overall digital engagement, and Monica will speak about this in depth later today. But digitally engaged members spend and renew at a higher rate. Monthly average or monthly active users is a simple metric that we use to track this, and we see it has grown five times in the past five years to 3.2 million monthly users today. The fourth lever is our Easy Renewal program. Eliminating friction in the membership renewal process is key to driving renewals. And we've moved enrollment in Easy Renewal from 53% five years ago to 79% today. Finally, perhaps the most important driver of renewal rate is the simple value we deliver to our members every day. When we look at the savings we provide, as measured by discount over grocery store pricing, fuel savings, and all the other value we pass along, the average BJ's member can see a 10x return on their membership fee. Our model will continue to enjoy success for as long as we can deliver both this value and make sure our members see it. So as I mentioned at the top of the slide, we know that if we can drive certain behaviors, loyalty will follow. And as we will see, that model has played out. So on the left-hand side of this page, we see that renewal rates, as Bob mentioned, that for years hung out in the low 80s grew to the mid-80s around the time of our IPO and are now hitting 90%. The little row along the bottom, while not necessarily surprising given the bars, is nonetheless interesting. Our improving renewal rates have led to increased member tenure. And as we know, more tenured members are better members. The right-hand side is just a little outside validation of the numbers. Dunn-Humby released a measure of brand loyalty in our sector a couple of weeks ago, and we are proud to say that BJ's was in the top quartile, coming in 10th out of 63 total companies. That is a 12-spot improvement versus 2020, and five spots ahead of where we were last year alone. This was among the greatest improvement across all retailers covered. Our internal measures of loyalty are very consistent with this and also reflect that we've significantly closed the loyalty gap between us and other leaders in our industry. So we've come a long way as a brand and as a business, but we are obviously not stopping here. As we look forward to the next five years, we have a clear path to continue to grow this membership asset. So let me pivot to that right now and speak briefly about three key elements of our membership strategy going forward. First is continuing to invest in our value proposition. We need to always be thinking of ways to create value for our members. Second is leveraging the massive amount of data we have to create a highly relevant and well-curated experience for our members. And third, we need to ensure that we are 100% on brand message, and hopefully you guys would agree we've been. So today, we are 25% lower than grocery store pricing. We have incredible gas value, and our assortment fits a wide range of needs. Rachel will talk more about that in a moment. So on the value proposition, it is a great time to be talking about value proposition. As you know, we've just rolled out a new credit card program in partnership with Capital One. In addition to all the benefits our members will enjoy from partnering with a world-class player in this space, and in no small part thanks to the godfather, Bill Werner, this deal offers superior economics to the previous program. And our philosophy from the start has been to reinvest that value back into our membership. So let me walk you through our new set of premium membership offerings, starting with our Club Plus card. This membership continues to cost $110 and brings 2% back on in-club purchases. The news for our members here is that we've added an additional $0.05 per gallon discount to this program, where there previously was no discount on top of our already low pricing. This is something we have tested in smaller markets over the past couple of years and feel like now is the time to bring that program to the whole chain. Additionally, we've removed the expiration on awards members will earn. Not surprisingly, our members are telling us they love this program. If we move across the page, we can start to talk a bit about the credit card program. I'm losing my slides here. Okay, credit card program. And we'll begin with the OneCard, our co-brand card that attaches to our base membership at no additional cost. In addition to the 3% reward earn and 10 cents off a gallon that this card has always offered, we have removed award expiration, and move to a simple 1.5% flat earn across all outside club spend. Finally, let's hit the card I'm most excited about, the one plus card. This credit card that attaches to our $110 membership, this card, the in-club earn is still 5%, but we bumped the fuel savings to 15 cents a gallon and have added a 2% earn on all spend outside the club. This is truly an industry-leading set of benefits. So the strategy here is really not complicated. We are meaningfully investing in our value prop to trade members to higher tiers. We think this is great for us, but more importantly, we think this is great for our members. Okay, the next leg of this tool is leveraging our massive amount of data to deliver more relevant content. And this is where, in an interesting, albeit highly self-destructive way, it felt like the best way to bring it to life was to publicly expose the shopping habits of not one, but two of my supervisors. So we have Bob and Paul and just a sample of the type of data we're able to understand about our members. So we obviously have all the basics, age, income, et cetera. We're also able to model that Paul apparently has a deep interest in gardening, or at least the model he believes he should have an interest in gardening. This is something, for those of us who know him, is potentially questionable. Let's talk products. Bob, whipped cream guy and bacon. Paul likes meatloaf. Bob actually thinks we listen to him because he's the CEO. That's modestly true. But it actually turns out at $38,000 in spend, he's like literally our best member. So we'll do whatever he says. Bob is a hardcore online shopper, Paul less so. Bob clips tons of coupons. They both spend tons of money on gas. Look, the point here is we know a ton, which, while interesting, is not really worth that much unless we can effectively deploy it for sort of peaceful purposes, something I think we've historically done well, but there's so much more upside that we are uniquely positioned to capture. So let's bring that to life with four simple examples of how we're doing it. First, and hopefully this one you've all seen, we have worked over the past couple of years to blast members with their individual savings, whether it's in the app, in personalized videos that we send out multiple times a year, and postcards that come around the times of renewal. We are leading with the personalized content we are most proud of, and that is the savings we can generate for our members. A second way we use this data is around engaging members in channel of preference. A new member that has never shopped and probably hasn't opened many of our emails. So we have a bunch of triggers in place so that if you don't show up in a club after you've joined, you'll get a postcard in the mail that will encourage you to come in and shop. We also use this data to take good members and make them great. Let's say you shop once a month. We're going to send you something to try to get you shopped twice. Let's say you typically spend $100 on a trip. We're going to send something to help you spend $150. Or let's say, like Bob, you're an incredible gas member, but unlike Bob, you don't make it into the club. We can set and target these people with offers around spending a threshold in the club, which would generate a discount off of gas because we know that that messaging resonates with them. Maybe last example I'll call out is that we're always looking at ways to engage EBT members. For an EBT member that is maybe shopping in the first couple of days of the month, how do we get them to come back later in the month, and what can we do to incent them to do that? So our data is what allows us to do all of this. And by doing it this way, we ensure we get the most incrementality and the highest ROI out of this type of investment. So these are just four simple examples of the type of things we do today, and we are extremely bullish on our opportunities to continue to progress this capability. The last area I'll touch on is the focus we are bringing to our message. Our value prop, and I've said this 100 times, is not complicated. We have tried to capture this in our recently launched absurdly simple savings campaign. We want to carve out a unique space for ourselves that does not mince words around what we bring to our members. Simple savings. In new and existing markets, we want to constantly reinforce our core message. I'll say it again, 25% below grocery store pricing. Great prices on gas, a one-stop shop. It should not take work or require nuance to understand the value that we're creating. They'll actually be during the break. We'll have some of this campaign playing on loop so you can get a taste of what we're doing in the market today. We also wanted a tagline to be a genuine reflection of how we view the business and how we view our culture. We are fun. We do not take ourselves too seriously. But we remain ruthlessly focused on delivering value to our members. So as the rest of this day unfolds and you hear about all the work being done in merchandising, in digital, in real estate, et cetera, know that absurdly simple savings underlies that thinking as well. All right, enough about membership and marketing. Let's pivot to the stuff we actually sell. To lead us on that journey is my colleague and a great resident, former resident of the state of Maine. I feel like I always have to say that. Rachel Vegas, our chief merchant.

Good morning, and thank you, Tim, for that kind introduction and letting you all know I'm from Maine. I joined BJ's nearly 18 months ago, and at that time I was looking for a successful organization with a growth mindset. And what I found at BJ's was an incredible foundation of success with a growing member base and strong market share position. However, the merchandising team had spent the past few years rightfully focused on reliability and supply chain efficiency to support our members' needs during the pandemic. Now, there is tremendous opportunity now to introduce new assortment, enhance our current assortment, and bring newness and innovation to our members. Simply said, this is an opportunity to take the merchant organization from good to great. We have a very experienced and loyal team to help us do that. We know that we have millions of members who love our value proposition, and they've driven our market share from pre-pandemic levels, increasing 69 basis points in grocery, 47 basis points in perishables, and 26 basis points in sundries. Going from good to great in our non-discretionary businesses means deepening our existing member engagement by improving our freshness and localizing our assortment. In our general merchandise categories, getting to great starts with delighting our members with a compelling assortment in home, seasonal, and apparel. We can capitalize on the great traffic and high repeat visits we see in our non-discretionary businesses by showcasing improved general merchandise assortment and encouraging our members to increasingly shop those categories. We established our merchandising vision over a year ago, and it is our enduring focus. We know that our members shop many different channels to meet their family's needs, and we want to be their first choice, their first stop, by saving them money on their needs and inspiring them with the unexpected. When we provide our members with an amazing assortment at a great value and a compelling shopping experience, our members save money and find great products for them to help care for their families. To achieve our vision, we are focused on four key strategic priorities. First, our growth and capabilities begin with talent. Next, assortment and merchandising that is focused on what our member expects is locally relevant and merchandised in a compelling way that conveys tremendous value. In addition, innovation and newness is core to our success, and we will continue to introduce new product and new ways of bringing our assortment to life in the club and online. And finally, our own brands, Berkley Jensen and Wellesley Farms, represent a key part of the value proposition and drive great profitability for BJs. Our ultimate goal is to delight our members. Our member-centric approach will result in new members and outstanding retention rates. Outstanding talent has been a critical component of our success to date and will continue to be the foundation of our success in the future. Our team already has great experience in the club channel with really strong operational expertise. We're committed to providing new tools and investing in our team members to further develop their skills while also welcoming in fresh thinking and experience from other channels. In the past year, two-thirds of our leaders are new in position, either promoted internally or joined BJS from another company. We've promoted nearly a third of our merchants, more than 10% of our planning and allocation team, and we've created new roles to help further our strategic initiatives. I could not be more excited about the quality and capability of this merchandising team. It is the best in retail. We know our members choose their weekly grocery shop based on produce and meat. They are certainly choosing BJ's because of our outstanding fresh assortment and our full-service deli, which is a key differentiator in the club channel. Overall, our perishables business, led by Mike Leary, who's in the room with us today, is responsible for approximately 35% of our sales today, and we think it can be even more important in the future. Fresh 2.0 is what we call this initiative to improve freshness, and our initial focus is on produce. We began by listening to our members. We asked them what they loved about our produce department and what they thought we could do even better. Fresh 2.0 evaluates every aspect of the produce assortment and produce supply chain to enhance the quality of our product in days of freshness that our member experiences when they bring their BJ's produce home. In sourcing, we are elevating our relationships with suppliers and building direct relationships with greenhouses that can reliably and consistently produce high-quality product. We're shortening days from farm to club, leveraging team drivers and writing orders to shorten the time that produce sits on trucks and in our warehouses. We are also evaluating pack sizes so that our members still enjoy a club value. But it's in amounts that they can consume when the product is at its freshest. In many cases, smaller pack sizes means more members will try our product and they'll come back more often to replenish. We're also improving the packaging itself, increasing the transparency so that our members can evaluate the produce inside without damaging the product in it. We'll introduce these changes with more compelling displays in club and an updated signing package that conveys freshness and quality and value. And we'll pilot this experience in our Florida clubs later this spring. In addition to produce, we have seen really strong growth and a lot of relevance from our prepared foods assortment. Here, too, we're evaluating our assortment, our packaging, our presentation. Our goal will be to provide meals that are seasonally and trend right and enhanced with improved presentation and visual cues to convey freshness. Expect to see a new product as the year progresses. Our sundries and center store grocery business is at the center of the value we deliver to our members and represents more than half of our total sales. Our structural advantage and strong supplier relationships, coupled with a true member-centric approach to our assortment and strategy, enables us to deliver exceptional value on the brands our members love. It is critically important that we continue to partner with our suppliers to deliver on this promise and expectation. We've spoken to you about simplification in the past, and you will have an opportunity to see it come to life when you visit our club after this session. Chris DeSantis, our SVP of sundries and services, leads these efforts. He's also in the room today. This process is grounded in deep analytics regarding member preferences and viable substitutions. It was intended to create a more curated shopping experience to allow for better assortment navigation. Improving the visual presentation makes it easier for our members to find what they are looking for. Moreover, our curated assortment encompasses the brands and items that our members care about most, so they don't have to browse through aisles of product to find what they need. As you can imagine, this assortment is also more operationally efficient, and we pass these savings on to our members. We began this process two years ago in grocery, and we've recently completed several rounds in our health and beauty categories. The results have been very encouraging. The average SKU reduction was approximately 31%, and while we saw an initial sales dip, momentum has been building ever since in recent periods, and a more streamlined assortment enabled us to grow profit by over 200 basis points. Our market share is also performing well as we nearly doubled the market growth rate in Q4, and we're approaching our pre-simplification share. This is a continuous process. As trends change and new items are introduced, we will continue to evolve our assortment, always with a thoughtful eye to create an easy shopping experience and an efficient supply chain to allow us to offer compelling value to our members. With our pandemic focus, With our pandemic focus on a reliable supply chain and ensuring that we could meet our members' needs, the food business substantially outgrew our general merchandise business in recent years. When our members come to BJ's for their weekly grocery shop, we want to inspire them with incredible product, quality, and value in general merchandise. Some of our GM businesses are already a destination for our members, such as TVs. They know they will find a thoughtfully curated selection with the best brands and exceptional prices. However, most of our GM businesses are meant to inspire and create discovery and a treasure hunt of great brands, products, and deals. And this will be our focus in the coming year. As I mentioned before, talent is the first of our four strategic pillars. This past year, we have welcomed a new SVP of GM, Dion Evans, a seasoned leader with deep merchandising experience focused on general merchandise and food. Additionally, Dion brings retail experience in finance, supply chain, and merchandise planning. We also welcome Teresa Schmidt as the VP of Apparel and Home. Teresa is an 18-year veteran with deep relationships in the industry, a commitment to understanding our member, and a keen eye for what is trend right. The industry has long lead times, but you will start to see the impact of our new strategy starting to hit clubs this summer and more meaningfully in the back half of this year. I have had the privilege of seeing our holiday home set for Q4 and our indoor furniture set for later this year, and I cannot wait for all this new product to hit the sales floor. You can expect elevated quality, a new clean trend-right aesthetic, and importantly, amazing value. This work, coupled with a thoughtful buy strategy, will deliver high-quality sales and enhanced profitability. In apparel, we're focusing on the brands that our members love the most. We're actually exiting dozens of brands that aren't meaningful to our members. We will offer amazing value on compelling and recognizing brands, and we'll continue to pursue partnerships that matter most. You can expect to see a refreshed assortment of Levi's, Dickies, and Champion, but also new and exciting brands like Real Life and Not Your Daughter's Jeans. We're also revamping our Berkley Jensen brand in our style categories, and for the first time, introducing women's, women's active, and kids in this brand. Newness is key in general merchandise, and in addition to introducing new brands and silhouettes and apparel, we're giving toys a makeover. This holiday, more than 80% of our toy assortment will be new. In the past, we've let our relationships with key suppliers deteriorate. We had moved to a very complicated and transactional relationship with lower-tier partners. We are now engaging with all the best leaders and brands in toys, like Lego, Nerf, Barbie, Melissa & Doug, and Discovery, to identify toys that kids want at a value that parents expect at BJ's. Newness is the lifeblood of retail, and 75% of our members tell us that they expect to find innovation and newness at BJ's. This has become a key tenet of our strategy. There will be two primary areas where we bring innovation to life in our clubs. First is our destination categories. These are the categories that are among the key reasons a member comes to the club to shop. Categories like fresh, center store grocery, frozen, and sundries. Our goal is to infuse the treasure hunt into these destination categories by being the first to market with new items and brands and introducing new brands and flavor profiles. We will showcase this innovation in more prominent merchandising locations and drive awareness and demos that allow for product trial. The second area of focus for innovation and newness will be in general merchandise. As I just shared, introducing new brands to our portfolio and finding exciting new items for seasonal and home housewares and consumer electronics will be a key focus. We know that our members really appreciate and value national brands, and we will continue to offer a broader range of national brands than our competitors. That said, our own brands play an important role in delivering value to our members by offering national brand quality at even better prices. Additionally, these brands drive member engagement and loyalty through a differentiated offering, while also driving increased profitability for BJs. We're investing in our own brands because we know that members who engage more deeply with our brands are more valuable to BJs with annual spend and trips three times that of lesser engaged members and sustain their memberships an average of five years longer. Our current own brand penetration is 24%, and we have plans to grow it to 30%. To achieve this, we are investing in the business by recruiting amazing talent and enhancing our brand management and quality capabilities. As you know, Amanda Irish, our SVP of own brands, joined BJ's about a year ago with a wealth of experience in own brand development. She's in the room here as well. This past year, we launched more than 120 new own brand items, including our recent launch of the Berkley Jensen Ultra Paper Towel. The quality of this paper towel rivals the leading national brand, but offers more than $10 of savings. Among the key objectives of this launch was to expand member participation in the paper category. This new product has combined with other tactics since launch to deliver nearly 100,000 new members per month into this category who are now buying paper and who were not previously engaged in that before. Obviously not a sustainable rate, but we have really gotten the attention of our members, and they are engaging in the paper category now. Moreover, its introduction to the paper category contributed to the paper own brand penetration growth of more than 200 basis points for last year. And just last month, own brand dollar penetration was up over 700 basis points, with unit penetration up nearly 900 basis points. and the icing on top? With the launch of the Ultra brand paper towel, our own brand margin rate growth in paper year over year accelerated by 90 basis points. And for the paper towel category specifically, our margin rate is nearly double that of the national brand portfolio in this category. As a reminder, our margin rate delta varies greatly by category, so that's not applicable everywhere. This fall, we also launched a lineup of 10 Wellesley Farms frozen chicken items, like popcorn chicken and breaded chicken strips. Our members have loved the quality and the value of this product, and own brand penetration was more than 25% in the first quarter of launch. exceeding average industry rate penetration for the category. The addition of the Wellesley Farms breaded chicken products also contributed to category margin expansion of 60 basis points just in the first quarter of launch. As you've heard, we are focused on exceeding our members' expectations, and we will do so by enhancing the parts of BJ's that they already love, as we are doing in food, and refreshing the areas that will inspire them, like we will in general merchandise. And as I mentioned previously, our merchandising strategy is focused on our members, and our promotional strategy will align to this objective as well. Throughout this past year, we have been even more intentional in the allocation of our high-value space, focusing on exceptional value and seasonally relevant themes. This focus has helped us increase productivity by 15% on average for each of those sets in our high-value space this year. The approach was brought to life during our annual Thanksgiving promotion. In past years, we've partnered with our suppliers to create an offer that, when redeemed, would result in giving our members a free turkey. The event was largely vendor-centric and relied on a supplier who was willing to offer a free turkey in exchange for a promotion of their products. And as a result, our members were stocking up on product that really wasn't relevant to the Thanksgiving meal, and we were losing this very, very important food shopping trip. Despite the free turkey, the promotion had historically low engagement from our members, leading to losses in market share during Thanksgiving. This year we set out to win the Thanksgiving shop, and we shifted from one that was vendor-centric to one that was member-centric. We built a strategy that would showcase seasonally relevant merchandise in high-value space, outstanding promotions and compelling price points, and an opportunity to earn our members Thanksgiving shops during the biggest food shopping season of the year. We merchandised the floor pad with Thanksgiving meal and hosting product, partnered with our suppliers to offer great values, and importantly, structured a promotion that connected this shop to the free turkey reward in a separate trip. Our analytics team that Paul mentioned earlier helped us identify the most relevant offer, and our marketing and digital teams helped us communicate this offer in a compelling way to our members. Members who spent $150 during the first two weeks of November received a bounce back to redeem a free turkey in the subsequent two weeks prior to the Thanksgiving holiday. The execution was nearly flawless, and our members loved it. We engaged 10 times more members than were engaged in prior-year turkey promotions, generated five times more incremental sales by driving an additional trip and growing our member baskets, and grew market share by more than 30 basis points, winning the stock-up trip and the fresh trip. I will end where I began. I set out to join a growth-minded company with a strong history of performance and an amazing culture, and BJ's has lived up to that aspiration. And in merchandising, we will build on the momentum to engage and inspire our members and deliver industry-leading results. I am incredibly proud of what this team has accomplished this past year, and in many ways, we are just getting started. I would now like to introduce our talented Chief Digital Officer, Monica Schwartz, who will share more about our digital transformation. Thank you.

Thank you, Rachel. Good morning. Hello, I'm Monica Schwartz, BJA's Chief Digital Officer. I'm here to tell you about the role of digital at BJ's and how digital is a key enabler of our past and future growth. Paul told you earlier about our member-centric approach. Tim spoke about our value proposition and personalization as critical to membership renewal. And Rachel just outlined our merchandising strategy. We are bringing all of these elements together on our digital properties along with providing the conveniences shoppers expect. As a club retailer, BJ's wins on value. With our structurally advantaged model, we offer up to 25% off grocery plus promotions. This is our sustainable, competitive advantage and the key to our future success. However, as you know, new consumer habits spurred by the pandemic are putting an increasing premium on convenience and speed. Shoppers prefer to consolidate their shops across retailers. They want to save time on their shopping trip without having to compromise on value, assortment, or quality. Or they may even prefer to skip the shop altogether, opting for delivery. Historically, the club channel has been high on value but low in convenience. Think large warehouses to navigate, large pack sizes, no shopping bags. We clearly see the potential to change all that through digital. So as we look out to the next five years, our key opportunity to win with members is by complementing our value with industry-leading convenience through digital and operational excellence. We believe that with the convenience we offer today, plus the investments we plan to make, it will be a no-brainer for shoppers to favor BJ's over traditional grocers. So how are we delivering this convenience to our members? First, we offer a range of digitally enabled fulfillment options that serve members where they are. From free curbside, pickup to same to delivery, we offer several options in terms of service level and cost for members. Second, digital plays a role enhancing the member experience in the club. As they shop the aisles, members can scan barcodes to check the price of an item or clip coupons. My favorite app feature is the deli pre-order. I can pre-order my items from our full-service deli for a quick and easy pickup. No lines, no waiting. Third, our digital properties enable us to deliver personalized value thanks to our member data. You have seen some of this with our targeted promotions and saving dashboard. One important development to further leverage our member data has been the launch of our Retail Media Edge program, allowing our vendors to target their customers with contextually relevant messaging, seasonal branding, search results, and targeted promotions. So why do we strive to engage and serve our members digitally? Quite simply, because digitally engaged members are extremely valuable to our business. These members spend on average 70% more than club-only members. They are more reactive to our promotions, and they are more loyal, with a three-point higher renewal rate. Additionally, they tend to skew younger, join higher-tier memberships, and some take advantage of our same-day select program. BJ's value proposition, along with our digital conveniences, has driven increased connection and loyalty to our brand. Subsequently, our digital shoppers have grown to almost 20% of our overall shopper base. We must continue to capitalize on this opportunity, meeting consumers where and how they want to shop. Therefore, we are focused on driving digital awareness and retention. By expanding our digital capabilities and optimizing our operations, we will continue to deliver a great experience, retaining and growing our digitally engaged segment. In the last five years, we grew the digital business over 650% due to our constant innovation and relentless focus on member convenience. As you can see, digitally-enabled sales are now more than 9% of BJ sales. This includes sales through BOPIC, curbside, same-day delivery, and ship-to-home. While this penetration continues to grow, digital's impact on sales is far larger. Members are using digital for browsing, discovery, curbside check-in, price scans, and more. In addition, members are overwhelmingly clicking coupons on our app to redeem in-clubs. Currently, 70% of all clip coupons are digital, supporting an additional $3.7 billion in merch sales. Simply said, our digital assets facilitate over one-third of all BJ's merch sales. More importantly, over 55% of all members that engaged with BJ's last month used digital. The scale and growth of our digital influence is significant because it gives us increasing opportunities to deliver more conveniences, further improving the value proposition of our membership. For example, with push notifications, we can speak to members with targeted messages that impact shopping behavior. So how did we get to where we are today? We began our digital transformation by innovating across technology, merchandising, marketing, and operations. Our objective was to build a profitable digital business that could leverage our structural advantage to provide the conveniences our members wanted at scale. Prior to the pandemic, our investment had been foundational, building our commerce engine. The onset of the COVID pandemic caught us at a favorable moment in our digital development. Our foundational work and our focus on member convenience allowed us to roll out several critically relevant innovations. We quickly launched curbside pickup, followed by Bopic Fresh, expanded our delivery programs, and built robust tools to support online shopping. Today, we continue to innovate, iterate, and perfect our service offerings while optimizing costs. Let me bring this to life with a real world example. Same day delivery is the embodiment of a club's value with the highest level of convenience. You can get a full basket of goods delivered to your doorstep in two hours cheaper than a grocery store. We have pursued a very clear strategy to build our same day delivery program. First, we offered same day delivery on Instacart's marketplace. Next, we enabled a white label site powered by Instacart. Then, during the pandemic, we built out the same-day capability on our site and app. This powered a convenient full-service model for same-day to all of our members. However, there were still some risks and limitations with this model, including costs, delivery zones, and ownership of the end-to-end member experience. Farther promoting this convenience to our members, we launched Same Day Select, a special membership add-on. Members can get unlimited same-day delivery for an annual $100 fee or 12 deliveries for $55. This program offers incredible value to members, encouraging repeat deliveries and fostering the formation of new shopping habits. Next, to further drive the scale and profitability of Same Day, we chose to disaggregate our grocery pick service from delivery. We expanded from a full-service model with Instacart to a last-mile delivery model. This meant that the BJ's team members would pick each order, handing them to the last-mile partner at the club entrance. By leveraging our club labor, each order results in a more accurate, higher quality, fresh pick, while also offering substitutions to our members. This reduces cancellations, maximizing sale, and improving member satisfaction. Our business now supported last mile delivery with DoorDash and a full service model with Instacart. We also offer BJ's assortment on the Instacart and DoorDash marketplaces to extend same day delivery to more customers. With the low overlap between customer bases, the marketplaces drive incremental sales, brand awareness, and most importantly, member acquisition. Finally, we expanded to multiple last mile delivery partners. In addition to Instacart and DoorDash, we've recently added Brody. By working with three delivery partners, we can route each order across geographies to the vendor that offers the best price and delivery performance for that market. This new model extends our delivery coverage area while reducing our costs and risks. Soon, we will be able to expand our service to even more merchant categories. Rody is enabling us to provide same-day delivery for bulk orders and larger items such as televisions and patio sets. Another example of how we deliver convenience is our app. Our members love our app and give it a high score relative to our competitors. We believe that on a scale-adjusted basis, more of our members use our app than either of our club competitors. With over 3 million monthly active users, it represents a large percentage of our members' digital behavior. Our app drives over 60% of traffic and over 50% of digital sales. As we have released new features on the app, our engagement has increased across our club and digital shoppers. And over the past three years, our app conversion rate has increased over 350%. A highly engaged member base using our app is a clear competitive advantage as it allows us to market more directly, enables in-club digital conveniences, and supports online shopping. We will continue to win by elevating member conveniences and focusing on commercializing this business. Our enhanced merchandising will help drive basket size and conversion. Easy navigation, improved search, bundling, and filtering will allow members to shop however they want by lifestyle, by diet, with buy-it-again lists, or by fulfillment method. And as we minimize friction from the end-to-end experience, from shopping through delivery and the returns process, we will acquire new members to digital, increase their spend, and retain them. We will continue to expand our in-club digital conveniences to assist club shoppers, helping them save time, find products, recipes, promotions, and most importantly, skip lines. All this leads to a better experience with the BJ's brand, Driving Loyalty. Finally, we will continue to invest in developing personalized content and experiences. As part of this, we will be focused on scaling and growing Media Edge, enabling our vendors to leverage our first-party data to connect with our members at the right moment in their shopping journey, further increasing digital sales. To wrap up, innovation and operational focus have driven our past success. Our digital transformation powered a profitable $1.4 billion business, along with digital services that influence over 34% of BJ's March sales, supporting our highly engaged digital members. We will further invest in our digital capabilities for an easier and more enjoyable omnichannel experience. We will continue to unlock value for our members, driving the next stage of our growth. Now, I would like to introduce Bill Warner, our EVP of Strategy and Development, who is going to share our success growing the BJ's Club footprint and my personal favorite shopper, number one same-day delivery shopper.

The Werner family lives about a half hour from the nearest club, and with four kids at home eating us out of house and home, same-day delivery has been a game changer for us. Welcome. It's so great to see so many familiar faces here today. Excited to be here. We're going to talk about our footprint, give a deeper dive on the growth and the clubs that we've opened since the IPO. Then I'm going to wrap with some perspective on the future growth and how you should think about that growth from a modeling perspective. But before we do that, I want to Just take a minute to discuss our club footprint today. On the left-hand side, you'll see that our current footprint extends from Maine to Florida, expands west into the panhandle of Florida, Michigan, and Indiana. The most western markets all represent expansion markets since our 2018 IPO. You'll also notice that our DC infrastructure looks quite a bit different than what you'll remember since the IPO. Specifically, you see the addition of our perishable DCs, which became part of the BJ's operations about a year ago. It was important for our company to control the experience in both the dry and perishables DCs as we continue to grow our footprint. And we were very pleased to bring these team members supporting these DC operations onto the BJ's family. On the right-hand side, I want to provide perspective on our club share by market. The short story is, if you want exposure to the club business in the New England and the Metro New York markets, you're going to want to have exposure to BJ's equity. About one in four club doors in the southeast is a BJ's club. About every other door in the mid-Atlantic, including the metro New York region, is a BJ's. And about seven out of every ten club doors in the northeast is a BJ's wholesale club. Every investor should know that we are a scale player with share leadership in some of the most attractive markets in the United States. Finally, I'd be remiss if I didn't cover our expansion to the Midwest. We have 15 clubs today, and we are quickly gaining share as we continue our adjacent market expansion. Another important baseline for our investors to all understand is that our comp clubs are all EBITDA profitable. You will see on the chart some bars are in blue. These bars represent the profitability of the new clubs we have opened since 2016 when we reinvented the new club model. The highlighted clubs to the left of the chart generally represent the clubs opened around the time of the IPO, and the clubs highlighted on the right are some of our newer clubs that are still very early on the maturity curve. As a reminder, our clubs usually hit mature profitability in about their fifth year. Overall, we are seeing strong payback on our new club growth. In fact, the clubs on the left-hand side are now paying back almost every year over and over at this point. If you think about how we spoke about our future real estate growth when we came back to the public markets in 2018, it was that we had a lot of confidence in the work we had done on our new club playbook, but we were conservative in our long-term growth commitments as we knew it would take time to rebuild our pipeline. We now sit here today with a robust pipeline, having opened up 23 new units since the IPO, nine of those opened in the last year, and now 11 in the last 13 months. These clubs, as a group, are performing above our expectations, and we have confidence in our ability to continue to lean into new unit growth going forward. I want to spend a minute to speak about the balance of our growth. At the IPO, we spoke about our desire to continue to infill some of our core existing markets while expanding into new adjacent markets to the West. On the adjacent market growth, we have now opened up in five new markets since the IPO and now have five clubs in the state of Michigan, have backfilled into Pittsburgh, with two new units. We've also expanded to Columbus and recently opened up a club in Noblesville outside of Indianapolis, and also expanded into the panhandle of Florida with our club in Pensacola. The performance in these new markets have been solid, grounded by the work we have done to improve everything about new club openings. We're also very pleased with the infield market growth. We have delivered five new clubs in and around the New York City metro area, expanded into the Boston market, Richmond, and several markets within Florida. I will share some data with you today that underpins why we believe there is still much opportunity to continue to infill development in our core markets. I talked earlier about the work we've done to reinvent our new club playbook. Early in our transformation, we were challenged by Bob and Chris Baldwin to take an unconstrained view of how we would reinvent every aspect of the new club process, from how we acquire members in a new market to how we make sure they have the best in-club experience, to how we engage members and drive them on a path towards renewal. This innovative and entrepreneurial approach has allowed us to quickly test and learn with each new club, building on the wins for future club openings and oftentimes exporting the key learnings to other clubs in our installed club base. Our goal of the team supporting new club openings is to make the next opening the best opening in the history of BJ's Wholesale Club. The results that we are seeing are proving out that we are working on the right things to drive the long-term success of our new clubs. To put a finer point on the results, our recent new club openings have almost 16% higher tier membership penetration, 60% greater first-year sales, and 12 points greater first-year renewal rates than the clubs we opened prior to the reinvention of our new club playbook. These stats, especially the first-year renewal rate gains, are game changers when we think about the long-term new club investment case. Further, these results have improved over time with renewal rate and higher tier penetration up an incremental 400 basis points from these numbers on our most recent openings. I touched on earlier that we have seen good success in infill markets. A question we get a lot is, what's the full potential for club units in the U.S.? And I know it's a question that the investment community often analyzes. My answer to that question is always some version of either, I don't know, or ask me in 10 years. Bob talked about the growth of the club industry in the U.S. and our market share gains over the past few years. As I think about that through the new club lens, every basis point of market share we gain opens up more opportunity to infill. The more relevant the club model becomes, the more units it will support. The more convenient we become, the more members will want access to the value. So for us, when it comes to infill growth, we have transitioned from a conversation that was always around the risk that we would just cannibalize ourselves to a broader conversation around how do we build up the BJ's franchise to as many members as possible? Let me bring that concept to light through the data. When modeling a new club, we always run our return models net of transfer. For one of our recent openings, our return model met our threshold. However, because we expected the transfer to be fairly substantial, we expected the upside in the model to be limited. As we evaluated the results of the new club, and more importantly, using our data to build up in detail the member activity, we were excited for the results. As you look to the middle section, trips from existing members living in and around the new club increased substantially. Maybe more importantly, while there was transfer, our pre-existing members continued to spend at their existing club of shop while also adopting incremental trips to the new club. The result is we earned a much greater share of our members' wallets, thus driving much higher lifetime value for these members. The more important unlock may be what we were seeing from the new members. Of the new members who signed up at the club, two-thirds of their spend was at the new club. But maybe more importantly, a third of their spend was actually going to other clubs in the chain. These new members, like many of our 6.8 million members, are taking advantage of the full BJ's network and all the value we have to offer. So in the past where we always did the math of sales in the new club, less the transfer, would be the sales available to support the new club returns. Now we can use our data to evaluate the lifetime value gains from existing members, factor in new sales we are exporting to other clubs in the chain as we enroll new members into the BJ's franchise to evaluate a more holistic view of the payback and the lifetime value we can create. Now, this math doesn't mean that we're going to put a club on every corner in our footprint, but it does mean that we can continue to leverage our data and analytics to evaluate the total franchise value we can create by opening up infill locations. For our most recent infill openings, the results have been very compelling. One final point I will submit for your consideration as you think about the future for club units in the U.S. Bob shared the data of the clubs being penetrated at about 5% of total retail sales. We are big believers in the club model. That should be not very surprising from what you've heard today. And the value that we can provide. Our view is that that 5% share will be materially greater in the future. And we're excited about the unit growth created by the share opportunity in front of us. All right. So we covered off the success of the new clubs. We talked about the playbook and some of the data supporting the returns of our new clubs. Let's talk about what's next. So we're happy to announce today our next wave of openings for 2023. We announced our entry into Laverne outside of Nashville a couple weeks back. This will mark our first club in Tennessee and our 19th state overall. We'll open up a second club in the Nashville market in Mount Juliet later this year and also expand to the south to the Huntsville market, marking our first club in Alabama and what will be our 20th state. Additionally, our plans include opening up in Johnson City in the Binghamton Market, further build out in the Columbus Market in Lewis Center, and finally expansion in the Jacksonville Market with a club in North Jacksonville. In addition to our unit growth, we continue to lean into improvements in our installed club base to deliver even further value to our members. We did such a great job during the pandemic for our members in standing up convenience initiatives like curbside, enabling a full assortment for pickup and club. These convenience initiatives have become an important part of our value proposition to our members. And as we think towards the future, we are investing to optimize the club experience with better parking, better signage, and a better overall experience inside the club. We'll also continue to build out our gas program, as Bob mentioned earlier. We've seen such tremendous share growth over the past few years on fuel, and we expect that to only accelerate with all the great new benefits of our higher tier memberships that Tim shared earlier. We're going to add another 15 gas stations this year between our new clubs and also bringing gas to clubs that don't currently have a fuel offering in our footprint. And finally, we'll continue to innovate on other ways to continue to bring the value closer to our members. Our BJ's Market Test Club is seeing many of the same spending attributes as the data we shared for our infill clubs. We continue to test and learn in this club as we evaluate its potential as a prototype for future infill markets going forward. All right, so maybe most important for you guys, the models. What do you expect for us? We've upgraded our new unit aspirations based on our success since the IPO. We now expect to deliver around 10 new units per year, and as we build up the pipeline over the next few years, we expect to be in a place where our new unit growth will supplement about a point of comp in our long-term growth algorithm. It's been a long time since we've had a stacked cadence of new openings to augment our comp growth, and we're now at the place where we will start to see the benefit in the next few years. On modeling, we've updated our expectations around costs and returns for new clubs. As we've talked to the investment community over the past year or so, our balance sheet strength has given us much more flexibility to execute on real estate deals than in the past. In this period of rising costs, our flexibility has been an asset in getting several deals across the finish line. As a result, we expect seven of the next 10 clubs we open will be owned projects, as opposed to leased. This will result in a slightly higher CapEx investment this year, and Laura will tell you a little bit more about our expectations around CapEx in a bit. In terms of returns, we have updated our guidance here on expectations for the capital associated with new units. These are placeholders to help you think through your models and will be directional, as every deal will be different based on a variety of factors. The net of the math is that costs have gone up slightly, and thus our total out-of-pocket costs for a lease project have risen from roughly the $7 to $10 million that we had previously talked about to about $10 to $13 million. This would include the investment in working capital of about $1 million and pre-opening expenses of about $3 million per club. Owned projects will add an incremental $12 to $25 million based on the location and the scope of the site work involved. Despite the increased costs, our increased performance supports paybacks that are still in the same ballpark of four to five years for lease clubs and five to seven years for owned clubs. We will continue to evaluate the overall capital portfolio as we go forward and potentially leverage sale leasebacks when appropriate to manage our total new club cash investment envelope. We are excited for the growth and how it will support our long-term growth going forward. And I'm very excited to turn it over to my friend and our CFO, Laura Felice. Laura has been such a great partner as we've planned for our growth, and we're lucky to have her as part of the team. I'm happy to now turn it over to Laura, and she'll bring it all together for our financial expectations going forward.

Thanks, Bill. I'd like to personally thank everyone that joins us here today, both in person and on the webcast, to hear our story. I know that many of our team members are also tuned in, and to them, I'd like to reiterate my gratitude for their dedication and hard work, which continues to show in our financial results. I'd like to start with some of the highlights from our fourth quarter earnings, which we reported this morning. We delivered another record quarter, with net sales up 13% year over year to $4.8 billion. Fourth quarter comp sales were 9.8% and 8.7% excluding the impact of gasoline. As we saw in our third quarter, our comp sales were equally driven by the basket and traffic growth. Inflation's impact on our Q4 comp was flat compared to Q3 as the magnitude of input costs increases began to moderate in the quarter. Comps in our grocery, perishables, and sundry division grew by approximately 12% in the fourth quarter, underscoring our continued relevance with our members, particularly in the grocery and perishables business. On a three-year stack, our fourth quarter comps were 31% in this division and sequentially flat from the third quarter. Our general merchandise and services division comps declined 5% in the fourth quarter as members remain selective in their purchasing behavior. Comps in this division were up 2% on a three-year stack as discretionary spending continues to normalize towards a new higher base over the past two years. In our gas business, our comp gas gallons grew 11% in the fourth quarter compared to overall industry declines. This growth was comparable to the level we experienced in the third quarter, as our gas margins again tended higher than our expectations and resulted in gas profits that outperformed our internal plans. Membership fee income, or MFI, grew 8% to $101.8 million in the fourth quarter, reaching nearly $400 million on an annualized basis. We are thrilled to report that our first year renewal rate, tenured renewal rate, easy renewal penetration, and higher tier penetration all reached record levels this year. Moving on to gross margins, excluding our gasoline business, merchandise gross margin rate improved 30 basis points year over year, which was better than our expectation due to improved inventory management throughout the quarter. Our fourth quarter adjusted EBITDA grew by 19% to $271.3 million, reflecting our sales growth and our outsized gas profits. Finally, adjusted EPS was $1 per share, up 25% year over year. As we look back and assess our fiscal 2022 performance, we exceeded our top-line expectations driven by our value-focused efforts leading to membership and traffic gains across the business in the height of heightened inflationary backdrop. Traffic is an important part of our 2022 story, as Bob shared at the top of the presentation. Our member value proposition has never been stronger. We have grown market share, and we believe there is still room to go. Our strong top line was partially offset by merchandise margin pressures, most notably in the front half of the year, as well as rising interest rate environment, offsetting our balance sheet deleveraging efforts. We had a great year in our gas business. Members visited us at the pumps more often, and this was coupled with elevated profitability led by market volatility. The combination of the strength in both our core merchandising and gas business led to 21% growth in adjusted EPS for fiscal 2022, well above our original expectations. We remain confident that our advantage business model focus on executing our strategic priorities and commitment to delivering great value to our members will continue to drive strong results in our core business. As we look ahead to fiscal 2023 with the understanding that there is still a significant amount of uncertainty in how the macro environment will take shape this year, as well as its influence on the U.S. consumer. Starting at the top of the P&L, we expect our fiscal 2023 comparable club sales, excluding gas, to increase by approximately four to 5%. We expect continued strong traffic at our clubs as members fulfill their household needs with us at an amazing value. Inflation is still pervasive, but the rate of growth is moderating and we expect relief as the year progresses. As such, we expect the comp to be highest in the first quarter with the sum moderation in the remaining quarters of the year. In our gas business, we are modeling slight growth in comp gallons coupled with normalized yet structurally more profitable gas margin than experienced in prior years. As Bob and Tim discussed earlier, we launched our credit card program last month. We believe this program brings an enhanced value proposition to our members and will serve as another catalyst to grow and strengthen our membership base over time. At the same time, we also acknowledge that it's the early days, post-launch, and it will take us multiple quarters to complete the transition, which may temporarily impact our membership KPIs, including higher-tier penetration. That being said, we expect MFI to grow five to 6% this year, as we will benefit from strong renewal rates and membership acquisition from our nine to 10 new club openings, in addition to the two we just opened in February. On our merchandise and gross margins, recall that last year we worked through unforeseen supply chain challenges. particularly in diesel costs, which negatively impacted our merchandise margins. We also adapted to a dynamic operating environment caused by excess inventory levels industry-wide, which further pressured our margins. We expect last year's headwinds to become tailwinds this year, and as a result, expect about 40 basis points of year-over-year merchandise gross margin rate improvement in fiscal 2023, with the first half improvement outpacing the second half. Our focus on growing our own brands will also contribute to this improvement. On the SG&A line, we expect pressure as we will continue to expand our footprint and reinvest in our strategic priorities. Unit expansion is important to note as new clubs leverage as they mature and provide a drag to SG&A as they ramp to full potential. The growth profile weighted to own clubs also elevates depreciation levels. Given the current rate environment, we also expect our quarterly interest expense to run at levels closer to our fourth quarter exit rate. Despite the significant year-over-year headwind from the outsized gas profit levels last year, we believe we can deliver EPS of about flat year-over-year. This includes a 53rd week benefit of low teens range per share. Finally, we expect net CapEx in fiscal 2023 to be approximately $450 million, about half of which is slated for new club openings. As Bill mentioned earlier, we expect the mix of new openings this year will be skewed more heavily towards owned versus leased, driving the higher number year over year. We are a stronger company today on all measures of the business. My colleagues spent the better part of the morning talking through the strategic priorities. Each of these pieces discussed are individually important, but in the aggregate, drive a powerful model for long-term growth in our business. The execution of our strategic priorities reinforces our long-term average annual growth targets, which are as follows. low to mid single digit growth in our comparable club store sales growth excluding gas, mid single digit total revenue growth, and high single to low double digit EPS growth. The building blocks to deliver mid single digit total revenue growth are comp sales new club growth, a gas business that is stable and steadily grows over time, and continued strength in our membership base. Tim discussed our efforts driving loyalty, including personalized marketing and compelling offers such as our co-brand credit card. Rachel provided a glimpse into our merchandising efforts and how we're focused on talent, assortment, innovation, and our own brands to deliver great value and the best shopping experience. Monica talked about our progress in digital growth. Collectively, all of these efforts are expected to drive growth in annual comp sales in the low to mid single digit range, excluding gas. Bill discussed our footprint expansion strategy and how each cohort of 10 new clubs per year ultimately contribute $500 to $600 million of annual sales at maturity. As we discussed in the past, it's nearly impossible for us to predict the gas business with even the slightest level of precision. And so we have assumed that slight growth primarily driven by new openings and sustained market share volumes with stable profits per gallon earning profile. We expect to maintain MFI growth at about the mid single digit growth rate driven by continued member growth and sustained strength of member quality and renewal rates. As we work down the P&L, We expect the largest contributor of EPS growth to be driven by top line opportunities. We are confident in our ability to incrementally improve merchandise gross margins over time as we continually work to create efficiencies in our supply chain, as well as tackle margin accretive strategies, such as growing own brands penetration, which Rachel touched on earlier. Finally, we expect to continue to lean into our share repurchase program. As we pursue footprint expansion, we expect SG&A to delever slightly, but to be partially offset this, we will continue to maximize operating leverage through scale and by leaning into the structural efficiencies inherent to our business. As we look for opportunities to automate and make our business more efficient, we will continue to invest in our team members. As a result, we expect our EPS to grow in the high single to low double digit range on an average over the longer term. Over the past five years, we have generated nearly $4 billion of deployable cash. That is the combination of our operating cash flow and the net proceeds from our IPO. We spent about half of that to reduce our debt, and as a result, we have significantly strengthened our balance sheet from about five turns pre-IPO to less than one turn as of the fourth quarter. This has provided us with crucial flexibility today to reinvest in our business. We expect to maintain this strength by keeping our net leverage in the sub-one-time range. We spent most of the balance reinvesting in our business, including about $1.2 billion of maintenance and growth CapEx, as well as the acquisition of our perishable supply chain last year. We also return capital to shareholders with nearly $500 million of share repurchases over a five-year period, including $152 million worth of repurchases in fiscal 22. That's about 5% of our market cap today. We have approximately $319 million remaining on our authorization. As we look to the future, while our capital allocation priorities have not changed. Given the progress we've already made on our balance sheet, we expect the focus, our capital allocation efforts towards, first, reinvesting in the business, and second, returning excess cash to our shareholders in that order. In closing, here are the five reasons why we believe BJ's makes for a compelling investment opportunity. One, we have structural advantage inherent in our business in the form of membership, operational efficiency, and we operate in an industry that continues to take share across the retail landscape. Two, we have a loyal membership base that continues to grow in size and quality. Three, we have a differentiated shopping experience in the club space focused on fresh value and convenience. Four, we are profitably expanding our footprint. And finally, five, we remain committed to a prudent capital allocation strategy focused on maximizing shareholder value. We are extremely excited about our future and remain confident in our ability to drive value to our members and our shareholders. Our member value proposition has never been stronger. We will now take a quick 15-minute break and reconvene in here for Q&A.

Okay, let's get started with Q&A. So just a... Okay, everyone. I was trying to be natural. Clearly, it didn't come across naturally. So just a few housekeeping rules. Please raise your hand if you'd like to ask a question. And Pete Frangie, our VP of Corporate Communication, who's standing in the back, and I will be walking through with mics for the benefit of those who are listening to the webcast. we are asking you to please make sure you wait for the mic before you state your name, your firm, and your question. Also, in fairness to all participants, please limit your questions to one question and one follow-up. All right. Okay, so first question.

Thank you, Kathy. Robbie Ohms from BVA Global Research Center. My first question is general merchandise. Can you talk about general merchandise same-store sales expectations for 2023? But also, you know, you gave a great long-term outlook. How should we think about general merchandise comp expectations longer term versus food and consumables and grocery? The presentation, you mentioned some, you know, really interesting things about the general merchandise side, but I feel like in the past there was a little more thought on, oh, we can catch up to other players in general merchandise, this seemed a little more leaning on the food and fresh side of BJ. So I was hoping you guys could address that.

Maybe I'll start off and Rachel and Laura can fill in. So general merchandise, first, thanks for your question, Robbie. Thanks, everybody, for being here. I hope you enjoyed the presentation. As Rachel said in her prepared remarks, fresh right now drives the trip, and it's an incredibly important part of our business. But general merchandise can and will be better and bigger over time. It's an incredibly important part of the Wholesale Club theater. It's an incredibly important part of the treasure hunt that you see in the Wholesale Club industry, where you come in to buy your paper towels or things. laundry detergent, and you walk out with a television or a set of tires or a mattress. It is something that we, frankly, have not been as successful at in the past, and that is very key to the next future period of our growth in our company. So we do think it will grow as a percentage of our sales over time, and we haven't set a formal goal of any kind, but we are – Incredibly excited about what the new general merchandise team has under wraps, and you'll start to see that at varying points during the year. We definitely expect comps in GM to grow as we go forward through the year, as we go forward through the year. So Q4 should be better than Q1, for instance. And we're excited to show that stuff to our members. It's very meaningful. Those members, our best members, not only shop our food and grocery businesses, but they participate in our GM assortment as well. And so this is a big strategic. initiative for us for the next several years, and I'm thrilled to see. I know more than you, obviously. I get to see a little bit. They don't show me everything, but I get to see a little bit, and it's really a lot of fun to see what they have. Our merchants style out for some holiday gifting stuff for this coming Q4 last week, and I'm probably not the best judge of anything in there, but I was really psyched. There were things that I own and want and great value and all that. So big expectations for the team, but they've really started to do some great things. Why don't I hand it over to Rachel and Laura to talk a little more.

I'll jump in quick on the comp piece just to add a little bit more color on that. So we expect it to improve over the course of the year. The only additional thing I'd add in there is remember the lean times on general merchandise. It takes time to get that product into the system. We, Rachel, have spent a lot of time building the talent. That new talent has been here for about a year. So I would expect when you go into the clubs now, you'll see some of that assortment, the new assortment, and more of the new assortment in the back half.

Yeah, Bob and Laura answered that very well, and I think that's right. We're very committed to general merchandise, as evidenced by the investment we've made in great talent, and we do have really long lead times, so we're not quite at the one-year mark for our new team members, and with that, the real newness will start this summer. What you'll see, I think, today is probably more of updates in how we present a lot of our general merchandise assortment, And then in the back half, you'll start to see a lot more newness coming to our sales floor.

Thank you. Why don't we go to Kate? Everyone go to Ed first? Go to Ed first, then we'll go to Kate.

Thank you. Sorry.

I'll just do what I'm told.

Two questions, I guess. Laura, to start. It's Ed Kelly, by the way, at Wells Fargo. Your 23 guidance comps, I think, were probably better than most of us expected. I think your gross margin, merchant margin guidance was better than most of us expected. But you're still with sort of like flat, you know, year-over-year EPS growth, including the extra week. And I think if we all took a step back, we probably thought that that would be better on that comp and margin guidance. So maybe just a little bit more color on what you're expecting from the fuel side and the level of conservatism there. And then within OpEx, you also talked about new store ramp, some drag associated with that, maybe just a little bit more color on those line items.

Yeah, thanks for the question, Ed. There's two things I'd say. One, as we thought about our comp sales build for the year, the thing we're most excited about are our membership items. stats that we've seen and continue to see and the traffic that's showing up in our clubs. We factored that into our comp sales for the year and our expectations. I talked a little bit about in my prepared remarks We think it will be weighted to the first quarter, and the remaining quarters will kind of even out in the back half. So I would make sure you think about it in that context. I think the March margin improvement that we've set for the year, that's really a reset. We're going to take back kind of what we gave away this past year and reset our levels. You pick up on the most important point, which is my second point, on the gas business. So that's a pretty big unwind from this year as we think about the volatility that was in the gas business, which we talked about quarter over quarter over quarter this year. It kind of was the same story. That volatility provided a lot of excess gas profits there. I don't think I can predict that. I pretty clearly said that I can't predict that. So we've kind of stripped that back. What we do think is that we will keep the comp gallons that we grew. We grew that in the fourth quarter 11% from a comp gallon perspective, despite the industry being down. So we think we'll retain those gallons and grow them a little bit next year, but not the profitability that we saw this year.

Just a quick follow-up on that then related to, you know, OPEX. The investment that new clubs, right, well, how that layers in, but also is there anything underneath of that that you would consider a bit outsized, whether it be labor or something else from an OPEX standpoint that's creating some drag there?

Let me just build on the gas point for one second before we go to OPEX. You know, gas is not necessarily about making money for us. It is definitely a profitable business. It was a wildly profitable business last year relative to historical norms. But gas is about providing member value. It gets people in our parking lots. It is the most visible commodity out there. Everybody knows the price of gas. They may not know it to the penny, but they know a good one and they know a bad one. And we have the best ones in town now with up to 15 cents off if you use your co-brand credit card. We have gained incredible share over the past couple of years. I think our two-year gallon stack in Q4 was like 28% or 29% while the market was flat or down, depending on which metric you look at. Our members are reacting to what we're doing in the gas business. We will continue to operate it in that fashion. With that said, gas is getting a little bit more profitable structurally, right? It's very hard, as Laura said, to predict any one quarter or any one year, especially the last three or four years. But I do think where we normally saw 7 to 9 cents per gallon profit in our gas business, that's more in the low teens in a normalized environment. In this past year, we were over 20. So that incremental delta between 12 or 13 and 20 comes from the excess volatility that we saw. The delta between 7 and 9 is the entire industry getting a little bit more profitable. We were talking a little bit at the break about this. That is really, I think, industry-wide as it's more expensive to build a station and more expensive to operate a station. People that run stations are getting a little bit smarter about pricing gasoline to cover their cost, right? But our aim really is to provide that member value, to have the best prices in town. Those of you that will come with us on the tour, you'll see a gas station over in North Row, Massachusetts, does over 10 million gallons a year. Incredible stats, sort of eight or so times what a normal C-store would do. That is emblematic of what we're trying to do in the gas business, right? Put a great price on it, get people in our parking lots, they come into our stores and buy our food and our general merchandise. And so I just wanted to say that. You know, OPEX is under a little bit of pressure as we build the clubs. It's not unexpected, right, from what Bill said. As we open new clubs, they scale over five years from a revenue perspective, but we don't typically – you know, descale the cost base in the first couple of years as it ramps. We want to provide a wonderful experience from day one, and our teams in the field have done that. And so our cost base comes in higher, and our revenue sort of grows into the cost base. And so as we continue to add more and more clubs, you see a little bit of that pressure coming through. That will be true this year. It will probably be true next year until we kind of have a full run rate in. You know, there's certainly some other things growing, depreciation, as Bill talked about, as we grow owned clubs, that will grow a little bit. And we will continue to invest in our team members, right? I talked a little bit about the cultural point, and one of the first things I said was taking care of the families that depend on us. That is not just our members. That is our team members. And it is part of why we're here is to take care of them so that they take care of our members, right, in them. Go back to the name of this building, right, the Club Support Center. We're here to support them so that they support our members. We are paying them more today than we paid a couple of years ago. We will pay them more tomorrow than we do today. So we've built in some money to do that. That is in recognition of what we're all seeing in the labor environment. It is also in recognition of the fantastic job that they're doing serving our members too. So I think that should address your question there. All right, now Kate.

Hi, thank you. Kate McShane from Goldman Sachs. Our first question is just around commentary about markdown pressure. It didn't seem like you called that out in the fourth quarter, so we were curious about that. And then our follow-up question is just about guidance. Where does guidance go if there is a membership fee increase this year?

So we did have some markdowns in Q4, but certainly not an abnormal amount. I think the markdowns Laura talked about, and I'll hand it off in a second, were really earlier in the year. And everybody knows this story, right? Nearly everybody in the industry had too much inventory. We had a little too much, not a lot too much, but still that combined with the fact that Many of our competitors were marking down tremendously. In order to stay competitive, we did so as well. And so particularly in first quarter and second quarter, we had a pretty significant amount of markdowns. And that I don't think will reoccur this year, which is wonderful. It's not something we're used to doing. We will invest all day long in pricing, but sort of investing in that scenario we don't love to do, obviously. We feel much, much better about our general merchandise inventory in particular in terms of the levels and the quality at this point. And so we should get that back in the lap this year. Want to build on that a little bit?

No, I think you hit everything on Markdown. That's specifically why we didn't call it out in Q4, because there wasn't a whole lot to speak of. The team was really diligent about making sure we had the right level of inventory and the right assortment for our members, and that kind of came through. Remind me what your second question was? Oh, fee increase. So next year, you rightfully call out, next year does not consider a fee increase in the guidance we gave. So it is X, a fee increase. As we sit here today, we don't think we're going to do one, or we would have put it in the guidance, but we will continue to evaluate it over the course of the year.

Yeah, I think that's right. We have a few things to consider. Number one... Just the incredible membership results we shared with you all today, they are built on value, built on attracting the right quality of our members, engaging them and getting them to renew. And as we like to say, we've sort of had a fee increase without a fee increase over the past five years. So getting over $60 in average MFI per member was a big hurdle for us, and we're thrilled to have done it. and getting to 90%, obviously. We've talked about that a million times today, given its importance. We have that in our mind as we think about this issue, too. But the overwhelming thing we think about is the competitive impact of doing it, the impact on our members of doing it in the face of the inflation that they've seen it, and most importantly, getting our co-brand credit card transition done and set and and going forward in our members' eyes. We are off to an incredible start on that, and we don't want to do anything to disrupt it. It's very, very important to us. It should power our growth going forward, and that is the thing we think about first from a membership perspective for this year. Who want to go next? I'm going to go to Baker, Mr. Baker.

Thank you. Mike Baker from DA Davidson. Yeah, hometown, exactly. So people sometimes compare you guys to that company out in Seattle. One thing that I've always been interested in is that your margin's actually a lot higher than theirs on a trailing 12-month basis on EBITDA. You're like 5-4. They're like 4-3 or something like that right now. Why is that, and what opportunity does that give you? Can you invest more back? Is that opening more clubs, investing more back in price? And I think As part of that, your guidance suggests that your margins are going to even go up from here, I think, with the, you know, what is it, high single digits to low double digit earnings versus mid single digit comps. I assume that's EBITDA margin improvement in there. So if you could just, yeah, talk about that. Thanks.

Yeah, so certainly we're very happy with our performance, right? We shared some great statistics with you today. We've been able to figure out how to leverage our business in a much more effective way than we have before. at least in the early part of my tenure. And I don't think that goes away. I do think you point out a great luxury that we have, and that is one of flexibility, right? Our business is all about lifetime value. We invest every single day to do that, come back to that 130 basis points goal. pricing improvement that we made this year in the face of the crazy inflation that we all experienced, that is due to that flexibility and due to our commitment to providing value to our members. And so we will look to satisfy all of our constituents as we go forward. First and foremost, our members, because they take care of us and they take care of our shareholders for us. And then we'll look to optimize any particular number on the P&L. But if we do the first thing right, the second thing takes care of itself.

I'm going to give my follow-up to Peter.

Okay.

Peter Benedict.

Peter Benedict Barrett. Thank you, Mike. Following up on that, so 130 base points of pricing or price gap improvement, I guess, in 22, inflationary environment. How do you see that in 23 and then? in the event that we move to an absence of inflation or deflation, how do you manage that or how do you think about that?

Yeah, I mean, Laura talked a little bit about how we see the building blocks of comp and we certainly see less inflation in this new fiscal year than we saw last year. Obviously, that wanes throughout the year as we start to lap the big numbers in the front part of last year. I would say what we're seeing today is consistent with that. We're still seeing net inflation. Some categories are up, some categories are down, but generally a tick lower today than we were seeing a quarter ago or two quarters ago or so on. That may pressure comps, and it may pressure margins as we go. We will hold our value sacrosancts, but the thing that I point out to you is managing margins is a muscle that we have developed very well over the past five years. Think about last year as one side of that trade. In the face of massive inflation, huge cost increases coming from our suppliers, We managed to figure out how to solve that problem and invest in price. Very, very cool thing to do. I couldn't be more proud of our merchandising team and our analytics team and everybody else for getting that done. But those of you who have been following our story for a while remember the CPI project, right, where that CPI stands for Category Profitability Improvement. That is probably the single biggest enabler of our longer-term transformation over the past six or seven years. When we started that project, we were not buying for resale very effectively. And now we are. We're buying very, very well in relation to how our competitors buy. That has enabled us to drop some margin to the bottom line, but also to invest in all sorts of things all over the building. And it starts with the analytical capability of our analytics team and our merchandising team. We now have embedded this in part of our core competencies of our merchandising team. outside the team now, it's all together. This is something we do very, very well in analyzing a category. What should be on the shelf? What can we do to grow sales? What can we do to balance margin tradeoffs? How do we deal with pricing issues? What do we think will happen from a member perspective when things move in and out of our assortment? Seven or eight years ago, we were kind of just a bunch of math geeks trying to apply some data to Now we have a very robust capability of managing our assortment, managing our pricing, managing our margins. And so I do think it will be something we have to work on and focus on as we go forward, but we are very good at this, and it doesn't scare us, what we're seeing today. How about let's go to Simeon over here at the right side of the room.

Thanks. Simeon Gutman, Morgan Stanley. Respect to the godfather. So two questions. Maybe first on merchandising. I don't know if it's appropriate for Rachel. We talked about skew, deep proliferation at one point. Today it was, I guess, having more skews was talked about as a strength. So was that strategy not working? Where does it stand? The second question is, if you look at this business's sales run rate, versus IPO or previous. There's not many that it's profoundly changed the way this has. So what wasn't working then, what's working now? I'm sure there's a lot of things, but I wanted to ask it in what wasn't working as opposed to all the things that are.

Yeah, maybe I'll take the second question first and try to hand it off to Rachel to talk about simplification a little bit. So I'm the company historian on the team, I think, other than Jeff. Jeff's been here a little longer than I have. I would tell you strategically we have come an incredible distance in focusing on finding the right member, engaging that member through great Great pricing, great value, great promotions, great digital offerings and convenience there. And when we engage them the right way through all those things, they come back to see us over and over again. You can take any one of those things seven, eight, ten years ago, and we weren't doing it as effectively as we were doing today. We just talked about not buying as effectively. That meant our pricing wasn't as sharp as it is today. We didn't have a digital business to speak of, so we weren't all that convenient. We didn't have personalized offers. We were focusing on getting the absolute highest number of members, not the right members, the ones that liked us, the ones that we know how to engage. We have come so far on all of those points and more, but it all comes back to member value. We want to be as efficient as possible, provide as much value as possible, And that has worked, and we'll continue to focus on all of those things going forward. One of those ways that we've done it is simplification, right? We carry more SKUs than our club competitors do. And in some places, that makes a heck of a lot of sense, right? You've heard about the strength of our food business and our grocery business. Our perishable food business has many more SKUs than our club competitors do. That drives trips. They can do their weekly grocery shop with us when you can't, in my opinion, in our club competitors, as good as they are. We're just trying to do it a little differently than they do it. But in some places, that extra choice doesn't make sense, right? We showed pictures of oral care up there. There are only so many mint toothpastes you need. And so we can save some space, save some labor, and we can present a much more clean assortment to our members. They shop it better. It creates sort of winners and losers from a SKU perspective, so we can use it to negotiate better. There are a lot of benefits to it, but the thing that – The thing that I like is we can take the resulting white space and allocate it back to general merchandise as well and get into different growthier categories too. So why don't I hand it over to Rachel. She can sort of fill in the gaps there. That's the overarching story.

Yeah, I think Bob said it extremely well, actually. Our initiative in simplification is about creating more opportunity for categories to grow or new categories to come into the business. And so we're constantly evaluating that experience of how You shop our aisles. You shop in a giving category to make sure we have a highly curated assortment that's relevant for that category. We don't have SKU count goals. We're just really focused on bringing what matters most to our members in every category. And then to Bob's point, like, we constantly are evaluating the productivity of every category to say, oh, does a category – Need more space? Does a category need less space? And what other categories might our members want to shop from us? So it is a balance that is a constant part of the merchandising cycle, but we are proud of the breadth of our assortment for the reasons Bob referenced and Paul referenced earlier. It drives the trip. We have a very relevant shop, and the more frequently our members come, the more likely they are to renew, and it's a virtuous cycle. we will continue to build upon that. Great.

We'll go to Paul.

Hey, thanks, guys. Paul Lejue, Citi. I'm curious, if you look back relative to when you first gave your guidance for F-22, how much of the upside this year would you attribute to the core business versus just excess profit from gas? So that's kind of one. And then second, looking forward at the merch margin guidance for next year up 40 basis points, how much of that is coming from just general merchandise, not having the markdowns on general merchandise versus any change that you're expecting on the consumables side?

Yeah, thanks, Paul, for your question. I'll take it, and maybe, Bob, if you've got anything to fill in, you certainly can. On the question about gas, right, and as we look back to the guide we gave last year, so we said 325 for the full year from an EPS perspective. We showed up at 392. I would say it's tilted towards gas profitability that kind of contributed to that access. There was a piece of it that was our core merchandising, so what happens in the box. But I would say... what happened in our core business was a little bit differently than we set out at the beginning of last fiscal year, right? So more sales, less margin, SG&A largely how we thought it would play out. But as you think about that delta from the 325 to the 392, I would weight it more towards gas. And then your second question, Paul, about March margin improvement for the coming year, that 40 bps of improvement year over year. I would say less of it is GM. GM is certainly part of the story, but there are a lot of things underneath it as you start ripping it apart. So there are things like own brands. Rachel talked a lot about own brands. We will continue to lean into that. We you'd know that that's margin accretive. So that will be some of the story. GM is some of the stories as we lap markdowns, particularly in the first half of last year. But there's also a big piece of it that's supply chain unwind, which I tried to talk to in my prepared remarks. So think about import containers, right? Those prices went straight up. They came straight back down. that's a small piece of our business. We import a very small piece, but it's something. Diesel costs, all of the supply chain costs, kind of the backlog of inventory, we think that will unwind this coming year.

The only thing I'd add on to that, Paul, you know, we're not trying to be coy in not giving you a number on how much the gas business beat by. It certainly was, I'd call it two-thirds of the difference there. The thing that makes it hard to give you a really precise number is we consistently and constantly spend into the beat, right? So last year was probably the biggest year we've ever done that. Those of you who have covered us for a long time have heard us say that 100 times. anytime we have a quarter that's going really well or a year that's going really well, we are reinvesting value into the member all over the place. And so we don't necessarily keep track of all those investments. And so when we beat in the gas business, for instance, we are spending on our members. We're spending on our team members. We had a wonderful time giving our team members discounts on fuel last year, and we'll probably continue to do things like that. in spite of what happens in profitability in the gas business. But we will take every bit of opportunity that we get to reinvest into our membership because our members give us back their lifetime value for that. You want to, Chuck?

Thanks for everything today. Chuck Rahm from Gordon Haskett. Question for Bill. About 15 years ago, BJ's embarked on a pretty aggressive store growth plan that didn't go so well. So I'm curious, as you embark on this part of the journey, how are you going to monitor that progress, particularly as you go into markets that you've never been before, Tennessee, Alabama? I think that's an important part of the story here.

Yeah. And this comes back a little bit to Simeon's question in terms of the difference of the company in terms of back in the IPO. What were we not doing then that we have today? And I would say it comes back to three things. It's kind of talent. Data and culture. So, you know, in terms of the team, there is an army of folks now that we have behind the scenes working on everything about new clubs. So we've invested in a new club success team. So as we've expanded, one of the things I talked about earlier, too, how we've built on every new club opening to make the next club opening the best one we've ever done. One of the learnings early on when we went to a club like Roanoke in Virginia, It was like 200 miles from our nearest club. And even though it was still technically maybe our footprint in Virginia, it was kind of out on an island by itself. And when we went to open that club, there were a lot of learnings from a training perspective because it didn't have that safety net nearby. Right. So one of the things that we've kind of invested in is like is as we expand into new markets, it's really important that we export our culture in terms in terms of how we open up clubs the right way, how we take in a new market, what will be many team members who don't really know us or haven't known us before and give them the experience that a team member joining in New York or Boston or wherever our core footprint would be. To have that same type of experience. So we've invested in a new club success team. So we've effectively replicated an entire club leadership structure. And their single job is to work with all the new clubs to coach, train, import the talent to make sure that they can execute exactly how we execute everywhere else in the chain. So that's kind of the talent side of the house. I wouldn't underestimate the culture side of the house either in terms of around this building, new clubs used to be managed as one of 200. Now they're managed as the most important club we have. And we have an entire team, whether it's the operations team, whether it's the logistics team, whether it's the merchandising team, we have talent throughout the organization specifically dedicated to make sure these new clubs are getting the attention they need. And again, we talk about the first-year member, right? One of the headwinds you have in a new club in a new market is every single member there is a first-year member. So that comes with a different renewal rate. It comes with a different spend rate. So the singular focus there is to get that cohort of members we sign up to their renewal so we can get them on the path to maturity. And then the last piece is the data. We have more data available to us today than we've ever had before around trips, household attributes and demographics, shopping patterns with some of the cellular data out there that we can use. So, you know, I think, you know, as we've gone into markets like Detroit, like Pittsburgh, like now Columbus, you know, we'll go to Nashville. We feel very confident in terms of putting the clubs in the right place, making sure we have the right people monitoring it, and then giving the members the right experience to make it really successful.

I might add on to that just a tiny bit to say the new clubs – are also experiencing all the things that we've been talking about today all at once in their finest form, where you take a couple of examples that we've talked about already, simplification, right? The new clubs have a fully simplified assortment already, where in the balance of the chain, we are kind of ratcheting it down over time because you're always taking away somebody's favorite skew. We try not to do that too much. And digital is another great example. We built and installed curbside in two weeks, and now it's 50% of our digital sales. We never built the infrastructure inside these clubs to allow them to... efficiently store and refrigerate product and make sure that they're getting out to the parking lot in an efficient manner. And so some of our clubs will look kind of haphazard that way. They've outgrown the initial shot of capital that we put in there. So Bill's team will be revamping our entire chain this year from that perspective to really present that experience the cool way that it's presented in our new buildings. You'll see one version of that today on our tour that should be what you see everywhere when you travel our clubs later in the year, where it is one cohesive place where it's stored, where you come to check in, you can pick up your product there, It's in a convenient place and to the members. And it's actually in an efficient place to our team members as they try and do curbside deliveries. Right. We are some places using existing doors and some places cutting holes in the wall to install new doors, put in the parking spaces right outside those doors because footsteps matter in our business. Right. Go back to that efficiency point. We want to take every opportunity we can to be efficient, to reinvest in value. And so whether it's those two things or many of the other things we've talked about, those new clubs are getting the best of the best, and we're taking the lessons that we learned from those clubs and bringing it back to the mothership over time too. Let me go to Rupesh.

Rupesh Parikh, Oppenheimer. So just on merchandise margins, as you look longer term, there seems to be a focus on expanding margins, at least in the outer years. Just want to get a sense of how you're thinking about price investments within that guidance.

Look, I think price investment is always part of our story. We've said that all day. Value is really important to our members, and we're committed to delivering that to our members every day. It's not specifically in the Merch Margin Guide for the future. We do think Merch Margins will expand. The bigger part of the story, Rupesh, is we will continue to grow out own brands. We'll continue to invest in things like our general merchandise business, and we think those over time will deliver incrementally from a Merch Margin perspective.

Okay, great. And then maybe just one follow-up question. So on the credit card, we've seen with other companies when there's a new partnership, typically there's a financial benefit, lower interchange fees or higher bounties. It seems like here you are reinvesting in a member of value, but is there also any financial benefit that BJ's is keeping anything significant within your guidance this year or even in the intermediate term?

Why don't we let the godfather handle that? And maybe let Tim talk about how we're trying to enroll our members in this whole program to get the best possible result.

Yeah, I'll start. And again, not to go back to Simeon's point on what was broken, but The journey on where we started with credit card becomes an important part of where we are today and then where we're going. So when I joined the company in 2013, we had about 100,000 members in the credit card. And again, culturally, if you went to the desk at the club, they would say, oh, yeah, there's a credit card. Don't worry about it. It's not important. And now today we have an entire team of people in the field who are like chomping at the bit. We haven't turned on acquisition yet as part of the transition. That'll turn on later this month. But they cannot wait to talk to our members about all the money they can save with the new product we're going to have. And it really goes back to this idea of what did we do? We took all the money that we got from the credit card and said, what should a club business do? A club business should bring their membership base to its vendors, negotiate the best damn deal possible, take all that value, reinvest it back into the member value, and then deliver an unbelievable experience. So we started to do that in 2014 by increasing the value prop substantially then. And now we came to the market again a couple of years ago. The transition to Capital One started actually back in the summer of 2020, if you can believe it. because we now had a critical mass of 1.5 million members of the program, there was a much larger critical mass of value for the best banking partners in the world to compete for. And as a result, it allowed us to take the incremental value that's in the program and create a value prop that we feel really excited about. When you think about the top end card, a 2% always on reward is the best there is out there. It's top of market. And then we're going to slap on top of that $0.15 on gas plus $0.05 back in store, which, again, top of market for a club store's value back. Like, it should be amazing. And so as we thought about, you know, the value that was created and should it come to us or should it go to our members, the answer is always no, it should go to our members. And so, you know, as we think about that, you know, if we can take the, you know, if the reason why because we invested all that value back to our members takes our renewal rate from 90 to 91 to 92 at some point in the future, right, and Tim shared some math earlier about the incrementality of what the value that creates, Like, that's the value we need. The value we need is lifetime value value. It's not the value in any given dollar from the bank. But maybe, I don't know, Tim.

BetterCard members deliver 2X LTV. Bob said at the beginning of his thing, that's a great use of funds. As the membership guy, I'll take more. I'll take it all day. It's a great destination for investment. Chris? Chris?

Thanks. Good morning. Chris Horvers, JP Morgan. So I was curious on the potential membership fee increase whenever it does come. How do you think about doing 5 and 10 versus like a 10 and 20? You've added a ton of value since 2017, gas, the credit card, digital, and all that. So Amazon did the 10 and 20. Sam's is still below you at this point. Costco's in line. So can you talk about how you think about that decision matrix, basically. I have one follow-up.

Yeah. Maybe I'll start and hand it over to Tim. So we haven't, as Laura mentioned, we haven't built a fee increase into our guidance for next year. My personal opinion is we will not do one next year. But I do think one is in the offing at some point. And Chris said it in his question. We provide our members a ton of value, more value today than we did yesterday, particularly more than five, seven, or ten years ago. And... We've got to consider that in the overall economic mix, what our competitors do, what we're doing with Cobrand. And so I think our first priority is to provide the right value. Our second one is to get Cobrand up and stable and running, and our members using the cards. And so I don't think we'll do one this year, but we could in the future.

Tim, how would you add on to that? I mean, 5 in 10, 10 in 20, to me that's a math problem. We have perfect data on our acquisition. We know what it costs to acquire a person. We know how many people will give up by charging more. When the time comes, we'll look at the data and make a call. I don't know if we have a philosophical approach to how big or how small more is. We're going to look at the data, and it will tell us what to do.

Then on the price gaps, you've reinvested a lot this past year. And I think that's a big change of what it was like you constantly trying to provide more value. So can you talk about how your price gaps have changed? Have they have they expanded versus grocery? You know, if reads, you know, some people do pricing service and shows maybe was a little above Costco, a few percentage points, has that gap narrowed? So just, you know, overall, and then any comment on what the current pricing environment is like. Thank you.

Sure. So again, we talked about 130 basis point improvement. That was against a composite of all of our competitors. We have an incredibly robust price tracking team. They track well over 50,000 data points a week against club, against mass, against grocery. We improved against everybody this year. whether it's in club or whether it's in mass or whether it's in grocery. We have improved the most, I believe, against grocery. They go back to the structural advantages of the club business. They have three, four times the labor that we do. So when wages go up, they have to price up more than we do. I'm sure they've seen that pressure this year. We've definitely seen that pressure, but in a lesser degree. We have improved against everybody, and we'll continue to do that. It's a key differentiator against what we would do in the past, right? When we didn't have so much flexibility in our P&L to do so, and when we didn't quite frankly, have the same commitment to doing so. We know that value is the most important thing. It drives the entire flywheel. And so every bit of investment that we can, we throw back into member value. I don't know what you'd say, guys, Paul and Rachel, about the current environment and what you're seeing out there.

We've certainly improved across every class of trade that we compete with. We have incredibly sophisticated models, whether it's inflation or the coming deflation, to be what I think is the best in the world at figuring out how much our vendors' cost base has changed and working with them as partners to squeeze out any sort of excess windfall. And We've industrialized that process, as Bob said, since the original CPI days. So we have almost an infinite capacity to calculate how commodity prices are impacting a box of corn flakes, if you will, and work with our partners to go do that. And Rachel and her team brought a lot of upgraded capacity in working with our vendors and working our categories to make sure that we have the right approaches to provide that value. I'm immensely confident in our ability to continue to invest in price while supporting the margins that Laura laid out.

Nothing to add.

I want to go to Corey. Hi, thanks for having us. Corey Tarlow, Jefferies. So I have two questions on market share. Where do you see most of your market share coming from ahead? You talk about your marketing campaign. I think it's absurdly simple savings. And you talk about the discount to groceries. Do you see grocery as a really meaningful shared donor to BJ's as you look ahead? And then, Bob, you talked about your core customer, finding the right customer, not going after every customer but going after the right customer. Who is that right customer for BJ's, and how has that customer profile maybe changed a little bit over the last five to ten years?

Yeah, maybe I'll farm these questions out to the team. So maybe, Tim, you can talk about our – that acquisition strategy, who we're going after, how we're going after them. And Rachel and Paul, you can answer the first question.

So in terms of sort of who our member is, I mean, young families that live near the club. I mean, people and families that are sort of their highest caloric intake when... when food and value is the most important to them, are the members that we want. And so that's where we'll lean in to invest. And so that's been the case. I can't speak to what it was like five or ten years ago, but I doubt that's changed drastically over time. So that's the type of member we're going after. I think you had a question about sourcing share and where we source share from. Our message and our messaging resonates across Grocery and GM, we talk about grocery store pricing when it comes to food, but our GM assortment is also an incredibly important part of that. So I would say we have taken and continue to take share from traditional grocery players, as Bob shared, but we expect to take share in harder-to-measure categories like GM as well. I'm not sure if there are a couple other questions in there, other thoughts on that.

Yeah, I mean, directly come at it. continue to take share from grocery. I love your term, share donor.

We very much thank our grocery competitors for their reliable donation of share every year, year in and year out. Our expectation is that we'll continue to do that. We talked about the weekly shop. We want to win that weekly shop. Who are we winning it from? We're winning it from our grocery competitors. Then we want to fill out that basket with GM and other items. I don't know if there's anything you want to add.

I think we're taking it for more than grocery, too. If you look at the numbers, I think we've taken share from math and even from some of our club competitors in certain markets, too. It's a nice recognition of our model, first and foremost, that we can take share from everybody, but of our performance and our better value, too, that we can deal with our club competitors much more effectively, too.

I want to add on one more thing to that. So two things for consideration. I talked earlier about same-day delivery, right? So I'm far away from the club. I'm getting a $100 basket delivered to my house for cheaper than I could go to the grocery store and buy it myself. Like the 25% difference offers up this huge structural advantage for us to invest into convenience to break down what was groceries' primary structural advantage of their convenience. And same thing, think about something like Bopik, right? If your club is right next to a grocery store, why would the people at the grocery store be doing Bopik there when they could be doing it across the street for 25% less? So when you think about how that structural advantage and what Monica and her team have done with all the great work on the digital side just breaks down, right? Convenience was grocery's biggest asset. Well, that's going to go away in the future. So where are the dollars going to go? They're going to go where the value is the best. So that's, again, why we feel really bullish about it long term.

That's great. Really helpful. And then I guess follow-up for Monica. So digital, I think, is now around 9% of the overall business. Where do you think that that can go longer term? And then what do you see as some of the lowest hanging fruits for you as you continue to enhance the digital channel as we look ahead?

The way we really think about digital is how is it driving value for overall member propositions? Where they convert and actually purchase is irrelevant to us. We want to make sure that we're giving whatever capabilities they need for that. So we think there's a lot of still runway to grow that penetration, but more importantly, the penetrations we talked about earlier, which is using digital to service you and continue to grow your business and your support.

That's great. Maybe we've got time for maybe one more. How about Oliver? No.

Hi, everybody. Thanks. Oliver Chen, TD Cowan. You have a lot of awesome digital capabilities. As you think about customer lifetime value, how would you prioritize the lower hanging fruit and the top three items? And then second, on the journey ahead with automation, what are your thoughts about micro-fulfillment centers, sortation centers, AI and inventory management, and how that may manifest in the roadmap ahead? Thank you.

Yeah, maybe, Jeff, you can talk a little about what we're doing from an automation perspective. Jeff, as I said earlier, runs our supply chain and our clubs and fuel stations, and has started a project to introduce automation into our clubs. You'll see some of that today on the tour, and it will get into our distribution centers in the future. So why don't you take that one?

Thanks, Bob. Yeah, so in the club side, we'll be rolling out robotics across the entire footprint. And these are robots that basically will help us eliminate manual tasks. So think of shelf scanning. Think of checking price accuracy. They'll also help identify out-of-stocks. So when something's not available on the shelf. From the DC side, we're actively testing this year automated forklifts, different fulfillment capabilities, automated pallet building, automated container offloading, and then also some technology to help with management of pallets. We have a lot of pallets within the network. So what I would say is that we're going to test and learn, but then once we have an unlock, just like we're doing with in-club robotics this year, we're going to move fast. The other things that that does from an efficiency standpoint, think of the pick paths. So think of Volpik and Curbside. Well, we have team members picking those products within the club to deliver a really fast service for that curbside experience. By knowing exactly where everything is in the club, we can optimize those pick paths. So we're thinking about it holistically, looking across first team member experience, right, to make sure that their time – is being spent on the most value-added activities, but then also what efficiency do we get and then invest that efficiency back into the member value. So more to come there, but we're very focused on automation and a lot of the advancement that's happened across the industry over the last several years.

It's so important, as we've talked about, investing that back into our membership. Jeff talked about the pick paths for our team members that go through our clubs and pick orders. My son, Will, a 16-year-old kid, thinks he is the world's best picker of products. And as he will tell you, he's been in our club since he was born. He's a very good picker. I probably wouldn't say that to his face, even though he might be listening. And so we're going to have a challenge between the robot path and Will to see who can pick faster. It'll be interesting to see. It'll be really cool technology, and those of you who have followed us forever, did you ever think we'd have robots? Nope. Really, really neat way to do it. I think that's something that's... The second. Oh, so I... Lifetime value. Yeah, lifetime value question. Sorry about it. I missed that one.

Yeah, can you wrap up the question? What are some of the top three incremental LTV opportunities we've talked about?

Yeah. Yeah, I mean, I... Higher tier penetration, engagement with our promotions, and digital engagement with our digital assets. I mean, those are the levers we pull. Yeah.

Not to mention Cobra. The higher tree penetration, I would put in that. Yeah, fair enough. Perfect. Listen, thank you for joining us today. That's all the time we have for questions. Appreciate it. I think you've heard a great story today. I hope you'd agree with that. We are incredibly excited for our future and can't wait to see you guys on our tour this afternoon and then in the future as we hopefully continue to report even more progress in our ability to provide great value to our members and grow our business going forward. So thanks for being here today. Why don't we end the webcast there?