BJ's Wholesale Club Holdings, Inc.

Good morning, and welcome to BJA's second quarter fiscal 2025 earnings call. Joining 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 we may make forward-looking statements on this call that are based on our current expectations. forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially from what we say on this call. Please see the risk factors sections of our most recent SEC filings for a description of these risks and uncertainties. Please also refer to today's press release and latest investor presentation posted on our investor relations website for our cautionary statement regarding forward-looking statements and non-GAAP reconciliations. And now I'll turn the call over to Bob.

Good morning, everyone. Thanks for joining us today to discuss our second quarter results. Our business delivered solid results in Q2 as we continued to provide our members unbeatable value along with exceptional convenience in an environment that remains very dynamic. Our commitment to taking care of the families who depend on us is more than just a slogan. and we view the performance this quarter as demonstrable proof of the power and relevance of our business model in a volatile backdrop. Now more than ever, we will maintain an unwavering focus on the priorities that will drive value for our members, both now and into the future. Our Q2 results included comparable club sales, excluding gas, of 2.3%, led by our 14th consecutive quarter of traffic growth and our 11th consecutive quarter of market share growth. Our membership base continues to grow, and I'm happy to announce that we reached the 8 million member milestone this quarter, representing 55% growth in our membership base since our IPO seven years ago. Our digital business continues to shine and represents a generational unlock for us as we deliver value to our members how and where they want. This business grew 34% during the quarter. These results were solid in the face of a market environment influenced by both macro uncertainty as well as the unseasonably wet and cold weather to start the quarter, especially in our core northeast and mid-Atlantic markets. We saw our business accelerate as the weather improved. Our perishables, grocery, and sundries division led our Q2 performance with healthy 3% comp growth and a two-year stack that held steady with Q1. The investments we've made in both Fresh 2.0 and our category management process have driven continued share gains across our consumables franchise. We saw the most strength in perishable categories like dairy, meat, and fresh produce. The investments we've made in our Fresh 2.0 capabilities continue to deliver value for the company and our members, and we're building on these gains as we expand our efforts to our meat and seafood franchises. Our GM and services business declined 2.2% on a comp basis in the quarter, with the results being impacted by both the weather and macro factors that I noted earlier. Certain higher ticket discretionary categories in GM, such as recreation and lawn and garden, experienced double digit declines in comp sales. Our team was quick to react to these early quarter trends, and we aggressively managed orders and markdowns to ensure we exited the quarter in a prudent inventory position. I'll share more about our inventory results and strategy later in the call. Our GM business did show bright spots, validating the fruits of our transformation efforts. For example, our apparel business grew comp in the low single digits despite the weather headwinds and further built on the positive trend in this business with a two-year comp stack in the high single digits. As we step out of the discrete quarterly results and evaluate the state of our membership base more broadly, we did see members across all income levels turn a bit more cautious during the quarter driven by the uncertain macro environment. Despite this change in consumer sentiment, our members continue to count on BJs and total spending increased in total and on a per member basis with low income households demonstrating incredible loyalty. This is clear validation of our value proposition at a time when families are under a seemingly endless cost pressure. In what is an exceptionally dynamic environment, I'm proud of how our teams are laser focused on controlling what we can control and continuing to execute our strategy with discipline. We are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently, and growing our footprint. These are the pillars that will drive long-term value creation, and we made further progress this quarter. Let me now take a minute to provide an update on each. We continue to put up robust results in membership, growing total member counts, all while maintaining our strong renewal rates. Reaching the 8 million member milestone this quarter is a significant achievement with growth coming not only from the new clubs that we've added to our chain, but also from our legacy comp clubs. Growing the number of members and retaining them at high levels is an impressive feat, but we are also improving the member mix, signing up a greater percentage of higher tier members who qualify for our best-in-class rewards, both in the club and at the pump. In the second quarter, higher tier membership penetration continued to set records, improving 50 basis points sequentially to an all-time high of 41%, and we continue to see more upside going forward. Our membership growth is the result of our focus on delivering unbeatable shopping experience. Our merchandising transformation is focused on offering the right products at the right price. A fantastic example of this is the sustained success of Fresh 2.0, which we rolled out to win our members shop and grow frequency of trips. As a proof point to the sustainable nature of this effort, I'm pleased to report that our Fresh 2.0 pilot clubs now in their second year are continuing to see perishables comp at chain levels. It's clear that this transformation has driven a significant and durable improvement in these members' behavior. We're now taking our lessons learned and applying this data-driven approach to our meat and seafood categories. Let me talk a little about what we are doing in these key categories. We're using our internal member data along with demographic data and competitive insights to inform complex fresh meat and seafood assortment decisions. providing members more of what they want and making it easier for them to shop these categories. We're also looking to be more regionally relevant to our members as we align offerings with trade area intelligence, focusing on ethnic and cultural preferences, all while we continue to deliver outstanding value and quality. In early days, we're seeing exciting results with substantial improvements in sales and salvage expense for these categories. Our focus on convenience is shown in our digital results, with growth of 34% this quarter and 56% on a two-year stock basis, driven by consistently robust BOPIC and same-day delivery expansion and rapidly increasing penetration of express pay. Our digital adoption sets new records every quarter, and our app usage continues to grow, with more than half of our active members now regularly using the app. When we can leverage the convenience of digital to unlock the value of our club, the value creation opportunity for both our company and our members is tremendous. And last but not least, our new club footprint expansion. We started off fiscal year 25 strong, opening five clubs in the first quarter. This quarter, we completed our first relocation since our IPO, opening our new club in Mechanicsburg, Pennsylvania on August 1st. Our teams did an amazing job executing the transition plan and early feedback is that our members love their brand new home. Mechanicsburg joins a class of new clubs that continue to exceed expectations with the clubs on the maturity curve comping about three times the rate of the tenured base. Looking forward to the rest of the year, we plan to open eight more clubs with our club in Warner Robins, Georgia in early September and seven more clubs in Q4. As we look out to 2026 and beyond, our pipeline of clubs remains stronger than it has been in years, and the team is hard at work both building our pipeline and planning for our future openings, including our entry into the Dallas-Fort Worth market early next year. We remain on track to add 25 to 30 new clubs in two years. As we look forward to the rest of the year, and especially the external factors that will impact our business, The tariff situation and its impact on the broader macro environment and consumer mindset continues to be ever changing. In a difficult backdrop for all parties, we believe that our business becomes increasingly relevant to consumers and we are better insulated from the impact of imports than most of our competitors. We're proud of our team members helping us chart through a turbulent environment and allowing us to stand tall for our members as we extend our value proposition. More specifically, Our teams are running a playbook that we've successfully used in the past to navigate inflation, and we are dynamically changing our sourcing according to the fluid situation. We took a deep look at our buys for the back half, we repointed the country of origin where applicable, and then we right-sized our orders to balance the impact on our business while still standing tall for our members. I'd be remiss if I did not call out that these decisions likely limit our upside versus original expectations for the year, but we always want to sell more and buying less may hamper that ability if consumer sentiment improves rapidly. We believe prudence is the better part of valor in this constantly changing risky environment. Despite some of the uncertainties I've highlighted today, as we look towards the back half of this year, we do so with confidence. We have record high membership metrics and we're building on that strength every quarter. We're steadily gaining share against our competitors, even as volatility remains pervasive. We're entering the fall season with healthy inventory levels and do not anticipate any markdown risk of significance. Our teams are energized and we are focused on carrying our momentum into the fall and holiday seasons, being there for our members when they need us most. Before I turn it over to Laura, I want to thank our team members across the organization for their continued commitment to serving our members and delivering unbeatable value while living our purpose day in and day out.

Thanks, Bob. I want to begin by expressing my appreciation for the incredible team members in our clubs, club support center, and distribution centers. Your commitment to our company and the communities we serve has helped deliver another solid quarter showing sustained momentum towards our long-term story. Let's now review our second quarter results. Net sales in the quarter were approximately $5.3 billion, growing 3.2% over the prior year. Total comparable club sales in the second quarter, including gas sales, decreased 0.3% year over year, as the average price of gas declined low double digits year over year. Merchandise comp sales, which exclude gas sales, increased by 2.3% year over year, and by 4.7% on a two-year stack. We were pleased to grow both traffic and units in the quarter. Our second quarter comp in our grocery, perishables, and sundry division grew 3% year over year, driven primarily by strength in comp units, which outpaced the broader market. Our general merchandise and services division comp decreased 2.2%, in the second quarter with general merchandise driving the decline and services about flat for the period. Digitally enabled comp sales in the second quarter grew 34% year-over-year and 56% on a two-year stack. Over 90% of our digital sales are fulfilled by our clubs with services like Bopick, Express Pay, or same-day delivery. All of our digital offerings are intended to deliver value by maximizing convenience. Members who engage with us digitally have a better and more convenient shopping experience, and they in turn become some of our best members. We will continue to focus on augmenting our digital capabilities to increase convenience for our members. Membership fee income, or MFI, grew 9% to approximately $123.3 million in the second quarter on strong membership acquisition and retention across the chain. We also continue to benefit from the recent fee increase, which went into effect at the beginning of the year. While the fee increase is certainly a component of growing MFI, we are also improving the quality of our member base improving the mix as well as the size of our member base while keeping retention rates at high levels. We see upside on all of these levers to drive more MFI growth in the future. Moving on to gross margins, excluding the gasoline business, our merchandise gross margin rate increased by approximately 10 basis points year over year, led by disciplined cost management and continued execution of our long-term initiatives. SG&A expenses for the quarter were approximately $786.4 million and deleveraged slightly as a percent of net sales year over year. This was primarily attributable to our new unit growth and other investments to drive our strategic priorities. As Bob mentioned earlier, we continue to gain share in our gas business. Our comp gallons in the quarter were flat year over year, significantly outpacing the industry, which declined low single digits on a comp basis over that same timeframe. A reminder that gas gallons can also be affected by wet and colder weather at the beginning of the quarter as people curtail their driving patterns. Elevated market volatility in June contributed to overall gas profits that slightly exceeded our expectations in the quarter. Our second quarter adjusted EBITDA grew approximately 8% year-over-year to $303.9 million, reflecting our growing top line, increase in merchandise margins, and membership trends that remain robust. The growth here underscores the durability and consistency of our business and financial model. Our second quarter effective tax rate was 26.9%, slightly lower than our statutory tax rate of approximately 28%. All in, our second quarter adjusted earnings per share of $1.14 increased 4.6% year over year. Moving to our balance sheet, we ended the second quarter with absolute inventory levels down about 2% year over year and down 6% year over year on a per club basis. Note that we are operating 11 more clubs in our chain today compared to a year ago. While some of this decrease relates to tighter inventory buys for the back half, Most of it is us doing a much better job allocating inventory for our members. Despite the inventory declines, our in-stock levels improved by approximately 50 basis points over the same period last year and are at the highest levels we've seen in some time. For some longer term perspective, if we look at the growth in inventory levels versus net sales since pre-pandemic times, we have seen our inventories grow approximately 45% with net sales having grown by roughly 60%. Said another way, we are managing our inventories as well as we ever have. This great result is a testament to our investments in our supply chain team and the systems that supports our efficient operating model. Our capital allocation strategy remains consistent We believe 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 second quarter with net leverage of 0.4 times. Share buybacks are an integral part of our capital allocation framework And in Q2, we repurchased approximately 375,000 shares for $41.2 million. As of quarter end, we have approximately $953 million remaining under our recently renewed repurchase authorization. We will continue to take a disciplined and balanced approach to deploying our capital to maximize shareholder value. Looking ahead to the back half, We are maintaining our balanced and thoughtful approach to guidance. The uncertainty and volatility in the macro environment remains elevated and we expect it to influence costs and consumer spending patterns. But we also remain confident in the underlying strength of our business and our ability to deliver sustained growth. We will continue to be focused on the things that we can control while executing towards our long-term priorities. More specifically, as it relates to top line guidance, while we had contemplated the lack of the port strike in Q3 and the strong general merchandise performance in Q4 when we initially set guidance, we had not anticipated the tariff-related macro volatility. While we believe these to be headwinds versus our original expectations, for our full year outcome. We do not anticipate them impacting us in delivering towards the ranges shared earlier. As it relates to earnings, we similarly expect there could be some volatility as we manage investments through the back half, but our year to date earnings performance allows us to approach those investments from a position of strength while also increasing our full year earnings guidance. The result is we are maintaining our guidance of comp sales growth excluding gas to be in the range of 2% to 3.5% for the full year. We are also updating our adjusted earnings per share guide to be in the range of $4.20 to $4.35. It is admittedly challenging to provide guidance as the headlines have been changing rapidly. As we go through the rest of the year know that we will do the right thing for our franchise for the long term, which likely means investing in the short term. Our efforts to deliver sustainable growth at elevated levels are generating results and our longer term vision is on track, we remain confident in the underlying strength of our business. and believe we are well positioned to build on our momentum and maximize shareholder value in the future. Bob, back over to you.