BJ's Wholesale Club Holdings, Inc.

Hello everyone and a warm welcome to BJ's Wholesale Club Q3 2023 Earnings Conference Call. My name is Emily and I'll be coordinating your call today. After the presentation, there will be the opportunity for any questions which you can ask by pressing start followed by the number one on your telephone keypads. I will now turn the call over to Cathy Park. Please go ahead, Cathy.

Good morning and welcome to BJ's third quarter fiscal 2023 earnings call. On the call with me today are Bob Eddy, Chairman and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Werner, Executive Vice President, Strategy and Development. Please remember that during this call, we may make forward-looking statements within the meaning of the federal securities laws. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations described on this call. Please see the risk factor sections of our most recent Form 10-K and Form 10-Q. filed with the SEC for a description of those risks and uncertainties. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release and the latest investor presentation posted on our Investor Relations website for reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. And now I'll turn the call over to Bob.

Good morning, everyone. Thanks for joining us today. As I reflect on our business this year, I am proud of how our team has remained focused on executing our long-term priorities and serving our members in an extremely dynamic macro environment. During these times, our advantage business model and strong value proposition continue to resonate with our members, who know they will always get great value at BJ's. During the third quarter, we posted accelerating membership growth, robust traffic, and continued increases in market share. These gains reinforce the underlying strength of our business, and we remain confident in the long-term prospects of the company. In the third quarter, we reported net sales growth of approximately 3%. Our merchandise comparable sales, which exclude gas sales, were flat year over year. We were pleased with our traffic trends, which grew from last year and were consistent with our second quarter levels. Critically, we are consistently gaining market share. Third-party data shows that in the third quarter, we once again gained share over each of the prior two quarters, as well as the last three years. This is an important marker of member value perception and loyalty. Our 52-week share is approximately 60 basis points above pre-COVID levels. We're taking share at the pump, too. In the third quarter, we grew comp gallons by nearly 3% at our gas stations on retail prices that were about flat year over year. Industry volumes are still down double digits versus pre-pandemic levels, and our share gains are a testament to the value that members gain from our low-priced gas offering. Our consumables business remains very healthy, delivering a 2% comp in the third quarter, as members continue to rely on BJ's as a valuable destination for their grocery shopping. We see this in our volume trends for key categories, such as fresh produce, milk, paper, and laundry, where units have trended up year over year for us in the third quarter, unlike the rest of the market. As expected, inflationary trends, while still present, were significantly lower than last year and second quarter levels. We experienced more disinflation during the quarter than we expected, particularly in our perishable food business. For example, take a category like eggs, which has been on a wild ride. In the first quarter of the year, prices were 50% above the prior year. In the third quarter, we saw double-digit percentage deflation in eggs year over year. We sell a lot of eggs and we aim to offer the best value so that we can take the ups and the downs on the commodity and pass on the best value to our members. Lower inflation is a headwind to our reported comp, but it helps our members who have coped with higher prices for the better part of the last two years. We also regularly invest in our pricing to ensure that our members are getting amazing value. Our pricing index against our grocery competitors improved by about 100 basis points in the third quarter. when compared against the same index a year ago. We continue to deliver best-in-market pricing every day and save our members money and time. That's why they buy memberships and visit us so often, and our focus on value will not change. Also as expected, our general merchandise and services comps improved as we saw a mixed shift away from summer seasonal categories and the beginnings of gains associated with our new assortments. If you'll permit me, I will simplify the story a bit and just talk about our general merchandise business, leaving aside the other components of this division. Third quarter GM comps improved by almost 500 basis points over Q2 levels, getting better as the quarter progressed. October GM comps improved by nearly 800 basis points over Q2 levels. We're encouraged by the early wins in a handful of important categories, such as toys, TVs, and apparel. In apparel, we further refreshed our presentation, showcasing a curated collection of national brands such as Carters, Levi's, Skechers, Champion, and Nautica, which contribute to our positive 5% comp in the third quarter. Our TV sales also improved through the quarter, performing better than the industry, with comp units growing in the third quarter by about 3%. With all of that said, members continue to be cautious in their discretionary spending, and big-ticket items remain particularly pressured. We are making tangible progress on our GM transformation, offering an elevated assortment at compelling price points. Our holiday gifting set is fantastic. This progress gives us confidence that we remain on the right path longer term to improve this segment of our business. While our overall consumer remains very healthy, growing macro challenges continue to pressure broader consumer sentiment. In the third quarter, our mid and higher income members continued to increase both spend and trips, as they have likely been more insulated from these pressures. Waning government aid has been a strain on our lower income members this year. These members continue to exhibit similar shopping behavior, maintaining trip frequency versus last year, as well as using other forms of tender to supplement their purchases. However, despite these underlying good behaviors, third quarter sales from our lower income cohort dipped below last year's levels. Overall, our bottom line results in the third quarter landed slightly better than our expectations, driven by continued margin improvement and strong gas performance. We reported third quarter adjusted EBITDA of approximately $275 million and adjusted earnings per share of 98 cents. Laura will walk through more of the details on the quarter later. As I step back and think more strategically about our business, I remain confident in our growth longer term. We continue to make meaningful progress on our key priorities. These four priorities are improving member loyalty, driving an unbeatable shopping experience, delivering value conveniently through digital, and growing our footprint. Let me spend a few moments on each. I'm incredibly pleased with the progress that our teams are making in strengthening the size and quality of our membership. We currently serve over 7 million members, with member counts growing nearly 6% year over year in the third quarter. In fact, new paid enrollments in the third quarter were the highest we've delivered since the height of the pandemic, with successful acquisition efforts across our new and existing markets, as well as our digital platforms, which now contribute to half of our acquisition. Our co-brand credit card, which presents an outstanding way for members to get even more value, is also attracting new members and incenting existing ones to upgrade into higher tiers. We're pleased to have maintained our higher tier penetration at 38% in the third quarter with pronounced growth in our one plus tier. Members in this highest tier have historically exhibited the greatest spend and strongest loyalty. which we believe will contribute to us holding our record 90% renewal rate this year. We will continue to invest into our membership value prop to further strengthen member loyalty and lifetime value going forward. Member loyalty is dictated by the quality of the experience we provide. As such, we are continually working to improve the member experience through our merchandising, digital, and in-club conveniences, and of course, great value. Getting these elements right is crucial to our success year round, and it's especially important as we head into the holidays. During our investor day earlier this year, you heard us talk about our member centric approach to last year's Thanksgiving shop. We built our strategy around presenting seasonally relevant merchandise in our high value space for an easier shopping experience, leveraging our data to identify the most compelling offers and marketing these offers in an impactful way. A great example is our turkey promotion. Members love the way that this program stretches their dollars, and we are continuing the tradition this year. Members who spend $150 or more in early November receive a bounce back offer to get a free turkey before the Thanksgiving holiday. Between our usual 25% savings on their basket and the free turkey, they can save the equivalent of their entire membership fee with this one promotion alone. As you know, general merchandise transformation is what's especially new and exciting this holiday season. I previously mentioned that GM is an area where we can make a profound impact in showcasing value to our members, yet it's less than 15% of our business today. We believe we have significant opportunity to profitably grow this division over the next few years. We are early in this journey, but I believe we have the right talent, strategy, and focus to drive this growth. I'd encourage you to walk our clubs this holiday season and see the changes. It's meaningfully different and a better experience from prior years. Nearly 90% of our toy offering is completely new this year. This is a category that we typically set earlier than the rest of holiday, and early reads have shown that 8% more members are shopping the toy category at BJ's this year. We're seeing great reactions to our featured brands, which include Lego, Disney, Hot Wheels, and Barbie. Approximately 80% of our holiday home assortment is also new, where we've invested in quality and enhanced the value. We're making our treasure hunt stronger, too, with highly curated, trend-driven giftable items, such as retro video game station, Sur La Table kitchenware, and a home movie theater pop-up kit. Finally, we are enhancing the way our general merchandise is marketed and presented in our clubs for a better member experience. We've taken the member mindset to deliver cohesive storytelling across our marketing platforms, cleaner pathways in our clubs, and the right timing of offers throughout the holiday season. This holiday season marks an important step forward in building our credibility in this space. These efforts remain a crucial part of our long-term growth strategy, and we will continue to innovate to realize the significant potential we see in GM. Our own brands, Wellesley Farms and Berkley Jensen, provide our members with high quality products at meaningful value. Members who engage in our own brands spend more, visit us more often, and are better members. We are strengthening our offering and our members are taking notice. We've previously discussed the profound impact that it's had on our paper category. In the third quarter, our own brand sales and sundries were up 20% year over year, led by paper. Our own brand strategy is also playing a key role in our general merchandise transformation as well. In apparel, we cleaned up the assortment, upgraded the quality, and expanded into children's and women's. We also put extra care into the presentation, highlighting key features and making the items more appealing for our members. These efforts resulted in a 700 basis point increase in own brands apparel sales penetration in the third quarter. We believe our own brand sales penetration is on pace to grow to 25% for the full year and remain confident in our goal of reaching 30% over time. Our digital comp sales have grown double digits all year, up 16% in the third quarter alone, and digital now comprises over 10% of our business. This holiday season, we've made it even more convenient than ever to shop with us, reducing friction and applying greater personalization in our approach. We're making progress on our automation efforts as well. By the end of this month, we will have our fully autonomous AI-powered robots in all of our clubs. The benefits of this automation include in-club inventory tracking, pricing precision, faster restocking, and more efficient and accurate buy online, pick up in club and curbside orders. We will continue to lean into investments that make our business more efficient and convenient while delivering outsized value to our members. Finally, we remain pleased with the performance of our newer clubs and we are further growing our footprint. The clubs that we've opened in the last 12 months are ramping nicely with LTM sales collectively running over 30% ahead of our plan on the back of strong membership growth. Just last week, we entered our 20th state in Madison, Alabama. I love the energy and the enthusiasm both from the community and our team members. We expect to open five more clubs in the fourth quarter, bringing us to nine new clubs for the fiscal year. I'd like to close my remarks with sincere gratitude for our team members who remain dedicated to our members and our communities, especially as we head into the busiest time of the year. I'm especially proud of the work our team has done to partner with local food banks and schools in both new and existing markets to help our communities thrive. To our team members who are listening in today, thank you for your hard work. I'll now turn it over to Laura to provide more details on our results and outlook for the rest of the year.