BJ's Wholesale Club Holdings, Inc.

Good morning and welcome to BJ's third quarter fiscal 2024 earnings 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 latest investor presentation posted on our investor relations website for a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. And now I'll turn the call over to Bob.

Good morning. Thank you for joining us. Today we reported impressive third quarter results that demonstrate the power of our model and the impact of great value and fantastic execution. We drove quarterly comps and profits that were higher than anticipated. Our business was once again fueled by robust traffic, unit volumes, and market share growth inside our clubs and at the gas pumps. We continue to invest in our long-term initiatives while growing merchandise margins in the quarter as our efforts continue to take shape. We are most pleased with the consistent strength we've driven in membership. leading to over 8% growth in membership fee income and hitting a milestone of 7.5 million members in the third quarter. Since fiscal 2018, we've grown our member base by 40%, while achieving the highest renewal rates in the company's history. We've more than doubled the number of members in our premium tiers, and higher-tier membership penetration continues to grow. We also announced our first membership fee increase in seven years. Effective January 1st, our base annual membership will increase by $5 to $60. For the plus tier, we're increasing the annual membership fee by $10 to $120 and bolstering the premium value prop to include a new added benefit of two free same-day deliveries a year. This new benefit alone is worth about three times the fee increase for our plus members. Since our last fee increase in 2018, we have invested heavily in the value of OBJ's membership. We've raised average hourly wages by nearly 40% across our clubs and DCs. We provide better rewards and gas benefits and launched a new Crowbrand credit card to deliver more value to our members. In fact, rewards to our members have gone from about $130 million in fiscal 2018 to more than $350 million in the last year. Seven years ago, our members had only one way to shop us. Today, they can access a range of digitally enabled conveniences to save time and money. We've improved our assortment in fresh and general merchandise and leaned into our own brands, which are now over a quarter of our merchandise sales. Our efforts have paid off in the form of a much stronger business that's delivering significantly more value to our members today. We plan to reinvest the proceeds from the fee increase announced today in labor and better value, not to mention the two free deliveries, in order to keep our momentum up. Comparable club sales excluding gas sales grew by 3.8% in the third quarter. The East Coast port strike last month created temporary shifts in member behavior reminiscent of the pandemic. This, along with the two hurricanes in the quarter, positively impacted our comp sales by a bit less than one point. Said differently, excluding the port strike and hurricane shifts, our results slightly beat expectations, demonstrating the progress we continue to make on our long-term priorities. Traffic accelerated once again, contributing over four percentage points to our comp, and we gained grocery market share in both units and dollars in the quarter. Our perishables grocery and sundries division delivered over 4% of comp growth in the third quarter with broad-based strength across all three divisions. Perishables led the growth boosted by our strong showing in dairy, meat, and of course produce. Our general merchandise and services division delivered approximately flat comps in the third quarter. We're pleased with the underlying progress our teams are making to sustainably grow this part of our business. Our assortment and presentation on our home and apparel categories are improving each quarter. Notably, our seasonal GM categories delivered positive comps in the third quarter for the first time in nine quarters. Members have increasingly taken notice of our elevated assortment in areas like toys and books. Our nimble teams also adapted our localization strategies to take advantage of an unseasonably warmer fall season and capture opportunistic sales and grilling. producing low double digit comps in the category. Finally, in consumer electronics, members continue to find phenomenal value in our enhanced offering with meaningful comp growth in categories like audio and video games. We are still seeing members being thoughtful in their purchasing behavior, especially around larger ticket discretionary categories, which we're accommodating with high quality items at compelling price points. Thanks to our well curated assortment, We are an attractive TV destination for our members, delivering comp unit growth once again in the quarter. As we approach the holidays, we've built on last year's success in gifting, providing more great options for everybody on our members' lists. Our toy assortment has all the top brands our members are looking for, including Barbie, Hot Wheels, Lego, Bluey, and many more. We are also delivering an assortment that includes the latest tech, including video games, audio, TVs, and more. True to our DNA, we will also be offering exceptional value on all of the holiday essentials, including seasonal decor, updated home furnishings, and items for hosting holiday gatherings. And of course, the convenience of a one-stop holiday shop alongside our grocery offering makes the treasure hunt even more valuable. Our four strategic priorities are critical to our future success. As a reminder, these priorities are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently, and growing our footprint. We have a lot to be proud of in each of these areas. Our membership momentum is incredibly strong. Our success in growing both the size and quality of membership resulted in another robust fee income quarter, and our member count surpassing 7.5 million. We continue to drive strong renewals and effective member acquisition across new and existing markets. We're also on track to deliver another strong 90% renewal rate this year, supported by our 39% higher tier membership penetration. We're especially pleased with our continued strength in our one plus credit card tier, our highest tier, which is outpacing the growth of the rest of our member base. Our one plus members are our most loyal and highest spending members. exhibiting the greatest lifetime value. In addition to our strong value proposition, we've made strategic investments to motivate this growth in higher tier memberships. Our successful conversion of our credit card portfolio to Capital One early last year was a milestone on our membership growth journey. Since the conversion, we've added over 750,000 new accounts to the program, driving substantial incremental rewards for our members and incremental lifetime value for BJs. The team is proud of the growth and hungry to drive our higher tier penetration north of 40% and beyond. We continually work to deliver an unbeatable shopping experience and great value to our members, which comes in multiple ways across merchandising, pricing, and convenience. We're going after repeat trips and greater wallet share, ultimately in pursuit of our first strategic priority, deepening member loyalty. As with most, if not all, of our strategic work, our merchandising initiatives begin with a fundamental understanding of how our best and most loyal members engage with us and how they want to maximize their value with BJs. These insights have served as the foundation for our recent initiatives in general merchandise, category management process, or CMP, and also in FRESH 2.0. Fresh 2.0 is devised from our own data informing us that members who shop BJ's as their primary fresh destination visit us at least once a week and on average have nearly 30% greater baskets per trip compared to members who don't engage with us in fresh. As a result, these members spend about eight times more per year than non-fresh shopping members. They're also more likely to be higher tier members. Our freshness initiatives are designed to encourage these behaviors across our broader member base. We've worked hard over the past year to bring excitement and even more freshness to our produce assortment. We improved supply chain velocity where it mattered. We expanded vendor relationships to increase in stocks and put new seasonally relevant produce on rotation. We implemented essential fresh training across our clubs. We upgraded our marketing and presentations. Finally, in the second quarter, we completed the rollout of our standalone coolers stationed at our front entrances to highlight incredible quality and value, drawing members into the category. Our third quarter results continue to showcase our mounting credibility and success in fresh. Our produce categories delivered low double-digit comp growth in the third quarter, almost entirely driven by unit volumes. And our NPS performance in fresh has also dramatically improved in the last two quarters. We're thrilled with the early results and are excited about the long term benefits of more loyal members driving sustainable growth in our business. Our own brands provide members with high quality products at spectacular value. We are elevating our offering where we see opportunity. Our snack nuts program, which we recently relaunched, is a great example as one of our best performing own brand categories in the third quarter. We spent months refreshing our assortment, elevating the quality, especially in our almonds and cashews, and improving the packaging for better aesthetics and functionality, all while continuing to offer our strong club value. We're just about one full quarter in, and we're already happy with the level of member engagement. Our third quarter own brand penetration in the category rose over 1,000 basis points. We're growing our own brand sales penetration each quarter and remain confident in our goal of reaching 30% over time. Our digital business is growing rapidly. Today, members can save hours on their shopping through digital conveniences such as Bopec, curbside pickup, and same-day delivery. When in our clubs, they can also leverage our digital coupon gallery and skip the lines with express pay checkout. Adoption rates in these conveniences continue to grow, driving our 30% growth in digitally-enabled comp sales in the third quarter. While our digital offerings have been available to our members for several years now, we've been constantly refining and tailoring the experience to how our members want to shop, making it even more seamless. For example, our order process has evolved to include the ability to substitute items and allow members to add items to their order after checkout. We've also enhanced how our team members are fulfilling digital orders through optimized batch orders, AI-enabled pick-pathing, and temperature control safeguarding. Our efforts have delivered gains in both team member efficiency and member experience, including an estimated 20% reduction in item cancellation rates and meaningful improvements in our member satisfaction scores. During the holidays, we typically see increased search activity across our digital platforms. We know how important it is for our members to quickly find the products they want and need during this busy time. In preparation, we recently launched a new AI-powered search engine to improve search relevancy, and we're already seeing better member engagement and conversion. We will continue to adapt and enhance our digital conveniences to deliver greater value to our members. Finally, we're making great progress on our real estate strategy. opening three new clubs and four gas stations in the third quarter. We recently opened our membership center in Louisville, Kentucky, as we prepare for entry into our 21st state in a couple of months. During the fourth quarter, we will bring our total club count to over 250 clubs a year ahead of our original goal. While the recent hurricanes have caused some minimal delays in our timeline, we are on pace to open eight more clubs by the time of our next earnings call. Based on the engagement we've seen with membership signups, our future communities can't wait for us to open. We're excited about our growing pipeline, which will enable further acceleration of new club openings in the coming years. Complementing our in-club experience is our fuel business. Gas is yet another great way in which we deliver significant savings to our members, particularly our co-brand credit card holders. Because of a strong member loyalty tied to this amenity, we have strategically revisited older standalone club locations across the chain to add gas. This is why our gas station openings have outpaced new club growth over the past several years. In fact, one of the four gas sites we opened in the third quarter was in Medford, Massachusetts. BJ's very first club now has a gas station 40 years later. We're pleased that the continued share gains were delivering with nearly 3% growth in comp gallons in the third quarter. This compares to the single-digit declines currently being reported by the broader industry. As we assess the health of the consumer today, members remain focused on value, and they are increasingly relying on BJs to attain that value. We have an advantaged business model that gathers share not just in the good times, but also in times of uncertainty. Our performance in the third quarter validates this very notion, where amid some choppy events, we produced year-over-year growth in trips and spend across all high, medium, and low-income levels. Our strong value prop is resonating with our entire member base, regardless of their financial standing. Our third quarter results also underscore our team members' dedication to our purpose of taking care of the families who depend on us. I'm incredibly proud to see them go the extra mile, showing up for our members every day, especially in times of need. In advance of a storm, BJ's is often the last retailer to close, and in its wake, often the first to open, making us a reliable destination for our communities. I'd like to thank our team members who navigated the hurricanes and port strike-led spikes in demand with tremendous grace, working around the clock to support our communities and each other. Looking ahead, we are confident in our ability to sustainably grow the business, reinforced by strong membership, traffic, and unit volumes. These remain key markers of the underlying strength of our company. Furthermore, we believe our operating model, investments in our strategic priorities, and unwavering dedication to delivering value keep us well positioned for the future. I'll now turn it over to Laura to provide more details on our results and outlook for the year.

Thanks, Bob. I'd also like to thank our team members across our clubs, club support center, and distribution centers. Their outstanding dedication to our company and communities contributed to another strong quarter. Let's now review the third quarter results. Net sales in the quarter were close to $5 billion, increasing 3.4% over the prior year. Merchandise comp sales, which exclude gas sales, increased by 3.8% year-over-year. Our accelerating traffic and comp unit growth in the quarter serve as a strong testament to members finding significant value in their BJ's membership. Total comparable club sales in the third quarter, including gas sales, grew 1.5% year-over-year. An approximate 13% year-over-year decline in retail gas price per gallon was partially offset by market share gains with comp gallons growing nearly 3% year-over-year. Digitally enabled comp sales in the third quarter grew 30% year-over-year and 47% on a two-year stack. Over 90% of our digital sales are fulfilled by our clubs with services like BOPIC and same-day delivery, which remain meaningful drivers of our digital growth. BOPIC alone comprises about half of our digital sales today. Our digital offerings is intended to deliver value by maximizing convenience, thereby improving member loyalty. We will continue leaning into these mutually beneficial enhancements in the future. Membership fee income or MFI grew 8.4% to approximately $115 million in the third quarter, driven by strong membership acquisition and retention across the chain. We're incredibly pleased with surpassing 7.5 million members this quarter and the strong momentum we are building in membership. Moving on to gross margins, excluding the gasoline business, Our merchandise gross margin rate increased by approximately 20 basis points year over year, led by our continued execution of our long-term initiatives and disciplined cost management. Last quarter, we highlighted several areas of investment we are making to strengthen our business longer term. First, our perishables business continued to drive strong comp sales as we advance our fresh initiatives. While a growing fresh mix is naturally margin rate dilutive, we are committed to growing our fresh business due to its favorable influence on long-term member behavior. Second, we have made considerable progress on executing CMT, which as a reminder is our end-to-end assortment planning approach to deliver a member relevant assortment that drives profitable sales and market share growth. At this point, we have rolled out CMP across all of our key grocery and sundries categories, and the initiative is yielding our intended results of better member engagement and share gains. As a result, we're driving structurally better margins too, contributing to our merchandise margin performance in the third quarter. SG&A expenses for the quarter were approximately $733.6 million, primarily driven by our new unit growth and other investments to drive our strategic priorities, as well as an expected increase in accrued incentive compensation. We also benefited from the net impact of legal settlements of approximately $20 million in the quarter partially offsetting the SD&AD leverage as a percent of net sales. Our third quarter adjusted EBITDA grew 13.5% year-over-year to $308.3 million. As a reminder, our calculation no longer includes pre-opening and non-cash rent expense add-backs. All in, our third quarter adjusted earnings per share of $1.18 increased by approximately 18% year over year, reflecting the underlying growth in our business. Strong gas profitability also contributed to overall profits that exceeded our expectations in the quarter. Excluding the effects of the port strike, hurricane, and net impact of legal settlements, our third quarter results were slightly better than expected. Let's move on to our balance sheet. We ended the third quarter with absolute inventory levels up 3% year over year and flat on a per club basis with nine more clubs in our chain today compared to a year ago. I'm especially proud of the team's work in the third quarter in allocating the right amount of product to the right clubs at the right time. Despite the inventory challenges caused by the port strike-led demand, we improved our in-stock levels by approximately 70 basis points over the same period last year. Our capital allocation strategy is consistent with our historical framework. We believe that the best use of our cash is applying it towards profitably growing the business. As such, investments to support membership Merchandising, digital and real estate initiatives will continue to be funded by our cash flows and enabled by our strong balance sheet. We ended the third quarter with half a turn of net leverage. Returning excess cash to shareholders remains an important part of our capital allocation strategy as well. In the third quarter, we repurchased nearly 680,000 shares for approximately $58.2 million. With our existing share repurchase program expiring in January, we announced today that the board has approved a new $1 billion share repurchase program effective February 1st, 2025. We will continue to take a disciplined approach to deploying our capital to maximize shareholder value. Turning to our outlook, we are raising full year fiscal 2024 guidance to reflect the third quarter results. We expect our fourth quarter 2024 comp sales excluding gas to grow between two and a half and 3%, bringing us above the high end of our original full year guidance range. This remains consistent with our original expectations of getting closer to our long-term algo comps by year end. We continue to navigate an uncertain economic backdrop, but expect our strong value proposition to drive traffic and market share, especially through the holidays. In the fourth quarter, we have also embedded a little bit of unwind in port strike led sales from the third quarter. We are proud of our achievements in membership, which has performed better than our expectations and our long-term algo this year. We expect to end the year strong despite continued moderation in the year-over-year growth rate and minimal impacts from the fee increase in the fourth quarter. We anticipate that any fee increase related MFI will be invested back into our value prop consistent with our philosophy. Our fiscal 2024 merchandise gross margin expectations remain unchanged at approximately flat year-over-year as we execute on our long-term initiatives while investing in the business. Consistent with the first three quarters of the year, we are planning SG&AD leverage for the fourth quarter of fiscal 2024 as we invest in growth initiatives, particularly in unit growth and new club sales ramp over a multi-year period. While these investments have tempered our earnings power in the near term, we have high conviction that this is the right thing to do for the long term. A reminder that we are also laughing variable compensation tailwinds from the fourth quarter of last year. Subsequent to quarter end, we opportunistically repriced our $400 million term loan to provide for a 25 basis point reduction in our spread, the equivalent of approximately $1 million in annual interest savings. We are planning for an effective tax rate of approximately 28% in the fourth quarter. Finally, we expect adjusted EPS to range from 78 cents to 88 cents in the fourth quarter and $3.90 to $4 for the full year of fiscal 2024 at the high end of our original range of 375 to $4. Please also recall that we are lapping a 53rd week from the fourth quarter of last year that contributed approximately $350 million of net sales and 10 cents of earnings per share. Longer term, we remain confident in the underlying strength of our business and believe we are well positioned to deliver sustainable growth to maximize shareholder value. Bob, back over to you.