BJ's Wholesale Club Holdings, Inc.

Hello and welcome to BJ's Wholesale Holdings Inc. Third Quarter Fiscal 2024-25 Earnings Conference Call. After the company's remarks, there'll be a question and answer session. In fairness to all participants today, we ask you to limit yourself to one question and return to the queue with any additional questions. And now it's best to call over to our host, Anj Singh, VP of FP&A. Please go ahead.

Good morning and welcome to BJ's Third 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 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 a cautionary statement regarding forward-looking statements and non-GAAP reconciliations. And now I'll turn the call over to Bob.

Good morning. Thank you for joining us to discuss our third quarter results. Our business delivered strong results in Q3 and performed well in an incredibly dynamic environment. Once again, we gained share and grew traffic, marking the 12th consecutive quarter of market share growth and the 15th consecutive quarter of traffic growth. These consistent results are a testament to the value that we provide to our members each day as we are guided by our purpose of taking care of the families who depend on us. This purpose has never been more relevant as many of our members are dealing with a considerable level of unpredictability in their everyday lives. This has impacted consumer confidence, which has been at low levels for much of this year, and we are taking these conditions as a call to action to lean even further into value for our members' everyday needs. Some of our actions include incremental offers to those members that may need a little bit more help in the current environment. In addition, we're rolling out reduced delivery fees to make our most convenient shopping channel even more accessible. The combination of value and convenience is a powerful unlock for us, and this will help our members realize even more value from their BJ's membership. We've also launched a 10% discount for our team members as a way of thanking those who are on the front lines living our purpose every day. For the quarter, we delivered merchandise comparable comp sales growth of 1.8%. and adjusted earnings per share of $1.16. It's helpful to evaluate the performance on the two-year stack basis to normalize for the impact of last year's port strike and hurricane activity. Our two-year stack comp was 5.5%, an acceleration of nearly a point versus the first half. Our Q3 comp performance was evenly balanced across our two reportable divisions. Our perishables, grocery, and sundries division grew comp sales by 1.8%, with a two-year stack that accelerated sequentially to 6%. 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 such as fresh meat, dairy, and produce aided by our Fresh 2.0 investments. We also saw strength in non-alcoholic beverages and candy and snacking driven by enhanced assortment and more prominent placement in our clubs. Our general merchandise and services business also grew by 1.8% on a comp basis in the quarter. Consumer electronics comped in the high single digits on success in computer equipment and tablets. Apparel, which we've highlighted on several recent calls, continues to grow, comping in the low single digits. The offsets we saw this quarter were in home and seasonal, which continue to be impacted by lower discretionary demand and consumer confidence. as well as some of the decisions we made earlier this year to tighten our inventories in light of the anticipated impact of tariffs. Our services business also contributed to the improved performance in this division during the quarter. Looking at the behavior of our membership base this quarter, we continue to see members across all income levels remain cautious, which tracks with what we broadly see in the consumer confidence data. We saw members exhibiting value-seeking behavior including higher sensitivity to promotions, increasing purchasing of private label items, and some trade down. For example, given the high price of beef, we saw higher purchasing of ground beef versus more expensive cuts. Despite this type of behavior, member trends exhibited stability quarter over quarter across all cohorts when adjusting for the noise from the port strike. While value-sensitive members remain more exposed to the macro backdrop, we did not see any incremental pullback from them. That resilience reinforces BJA's position as a trusted destination for strong value and convenience when it matters most. The environment continues to move quickly, but our teams haven't lost sight of the fundamentals. By zeroing in on our controllables, they're advancing our strategic agenda, increasing member stickiness, making our clubs better places to shop, expanding convenience, and growing our physical footprint. These elements are central to creating value over time, and we built further momentum in each this quarter. I'll now provide an update on how those pieces are evolving. Our membership results continue to be robust, and we grew membership fee income by nearly 10% this quarter, driven by strong member counts, mixed benefits, and the effects of our recent fee increase. We expect the growth rate to show further improvement into the fourth quarter and to once again deliver a 90% tenured renewal rate for the full year. The core of our membership health is driven by growing the number of members as well as improving the mix of those members. In the third quarter, our higher tier membership penetration reached another new record, improving by 50 basis points sequentially, and we continue to see more opportunity to push here. We would not be able to deliver sustainable membership growth without parallel improvements in our merchandise. We are launching many new own brands products which are aimed at improving the member experience by offering excellent quality at an unbeatable price. Some of the products we are excited about include Wellesley Farms branded tortilla and potato chips, protein shakes, frozen poultry, and coffee pods. This is just a small list of many new high quality products that we plan to launch at amazing price points. Own Brands products have a multitude of benefits as they are typically priced about 30% below national brands while offering comparable quality of national branded items. This gives our members even more compelling value for their hard earned dollars, which in turn drives loyalty and higher lifetime value. Own Brands products also deliver higher penny profit for us, which we can use to invest back into the member experience, further propelling the flywheel that drives our business. We're excited to see how our customers respond to our improved offerings. Our efforts to continue to improve the convenience of shopping our clubs can be seen in the digital growth of 30% this quarter and 61% on a two-year stack basis, driven by strength in BOPIC, same-day delivery, and express pay. We're looking to further drive innovation by utilizing AI to deliver enhanced content, highlights, and attributes, making shopping even easier for our members. We also recently beta launched an AI shopping assistant and personalized member shopping lists. And we're looking forward to taking these live to our members soon. Last but not least, our new club footprint expansion. We opened our club in Warner Robins, Georgia during Q3. And just last week, we opened our fifth Tennessee club in Sevierville. I'm pleased to report that both clubs are off to a great start joining the class of 2025 clubs that have outperformed expectations. with membership counts 25% ahead of plan. The community reaction at all of our recent openings has been nothing short of phenomenal, and we are proud to serve these communities. Our expansion strategy has been a sustained and accelerating success, with clubs opened over the last five years delivering comp performance about three times the chain average. On deck for new club openings are Springfield, Massachusetts, Sumter, South Carolina, Castleberry, Florida, Chattanooga, Tennessee, Selma, North Carolina, and Delray, Florida. That will make 14 new clubs for the year, the most we've had in many years. We remain on track to add 25 to 30 new clubs in two years, and our pipeline of new clubs is as large as it has ever been. Speaking of our pipeline, we are excited to announce two more 2026 openings in Foley, Alabama and Mesquite, Texas. well as a relocation of our club in rotterdam new york mesquite will be our fifth dallas fort worth club opening in 2026. we've been impressed with the warm welcome we've received as we've introduced the bj's brand to the market over the past few months including our friday night life sponsorships which was capped off with south grand prairie taking home the trophy in the prairie bowl sponsored by bj's wholesale club the enthusiasm we've seen in these new markets has been awesome And we can't wait to bring the value of BJS Wholesale Club to Texas families early next year. As I look at our business, I see improving momentum. Our membership is growing in size and quality. We are making improvements in merchandising and continue to capitalize on the convenience of our digital offerings. And as I just said, our footprint expansion is accelerating and successful. While the short term may be somewhat unpredictable, I'm confident that our company is in an excellent position to deliver value to our members and make good on our commitments to shareholders. We will continue to act with purpose in building our structurally advantaged business for the long term, and you should continue to expect that we will run the business with lifetime value at the core of our actions. Before I turn it over to Laura, I want to thank our team members. Your dedication to serving the families who depend on us and your commitment to supporting one another make BJ's a great place to shop and a truly special place to work. I'm proud of all that we are accomplishing together.