Welcome to your BJ’s Wholesale Club, Inc. second quarter earnings results conference call. (Operator Instructions) At this time I would like to turn the call over to Cathy Maloney, Vice President of Investor Relations.

With me this morning are Herb Zarkin, Chairman and CEO, Laura Sen, President, and Frank Forward, Chief Financial Officer. Before we begin let me remind everyone that the discussions we are having include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual results, events and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to economic, regulatory and weather conditions; competition, litigation and other factors outlined in the company’s annual and quarterly reports which are on file with the SEC. While the company may elect to update its forward-looking statements, the company specifically disclaims any obligation to do so even if the company’s estimates change. During this call we’ll be referring to non-GAAP financial measures of adjusted net income. Management uses this non-GAAP measure internally in reviewing the company’s performance and believes that the presentation of adjusted net income aids investors’ understanding of historical and expected financial results and the comparability of financial information from period to period. Specifically management believes that the income related to favorable income tax audit settlements and the settlement of a ProFoods Restaurant Supply lease are outside the ordinary course of the company’s business and that such income will not recur. The non-GAAP financial measures included in our press release and in today’s call are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. With that I’ll turn the call over to Frank Forward, CFO.

For the second quarter ended August 2, 2008 net income was $36.5 million or $0.61 per diluted share. This year’s second quarter results included post tax income of $2.0 million or $0.03 per diluted share related to favorable state income tax audit settlements. Comparatively our last year’s second quarter ended August 4, 2007 net income was $36.3 million or $0.55 per diluted share. Last year’s second quarter results included post tax income of $5.9 million or $0.09 per share from unusual items. This included post tax income of $3.6 million or $0.05 per diluted share related to favorable income tax audit settlements and $2.4 million or $0.04 per diluted share related to a ProFoods lease reserve adjustment. Adjusting for the unusual items in both years on a non-GAAP basis EPS was $0.58 per share this year versus $0.46 per share last year, a 26.1% increase. Net income was $34.5 million this year versus $30.3 million last year, an increase of 13.7%. For the first half of 2008 net income was $53.7 million or $0.90 per diluted share and for the first half of 2007 net income was $49.9 million or $0.76 per share. This year’s first half results included post tax income of $2 million or $0.03 per diluted share from the previously mentioned tax audit settlements. Last year’s first half results included post tax income of $6.5 million or $0.10 per share from unusual items which was comprised of the $0.09 per share of unusual items from the second quarter plus Q1 post tax income of $6 million or $0.01 per share related to the closing of our pharmacies. Adjusting for the unusual items in both years on a non-GAAP basis first half EPS was $0.86 per share this year versus $0.66 per share last year, a 30.3% increase.…

Let me begin by acknowledging the joint efforts of our field and home office team members throughout the second quarter and the first half. Their collaboration and execution were the real drivers behind our strong sales results. To recap Frank’s comments regarding comp club sales, in addition to significantly higher sales of gasoline, strong sales of perishable foods, edible grocery and non-edible grocery exceeded our expectations as consumers sought relief from inflation and a generally weaker economy. In perishables we continue to focus on quality and innovation. For example, we’ve improved quality in our cheese kiosks by replacing a number of domestic brands with imported brands from Denmark and Spain. We also raised our standards for product presentation and replenishment. We brought in new restaurant brand items from Boston Market such as organic chicken pot pies and organic butternut squash side dishes. From Panera we brought in baked potato soup, turkey chickpea chili, and chili. From Regal Seafoods we have a terrific item, lobster and shrimp dip, and Alaskan king crab and artichoke dip. We introduced new organic items under our own Rosano and Earth Pride labels, two types of ravioli, lemonade, baby carrots and salad dressing. In our grocery business we saw higher prices for commodities including flour, rice and cooking oil as well as in consumer packaged goods including paper products, household cleaners, and health and beauty aids. These price increases resulted from higher costs for energy, raw materials, transportation, and in some cases labor experienced by our vendors. Inflation is a huge challenge for all retailers as we try to manage pricing in such a way that we recoup our costs while continuing to deliver value. Our overall goal is to maintain our margin rate but it is quite a balancing act. We look at price elasticity…

I want to begin by echoing Herb’s thanks to the entire BJ’s team for a wonderful first half performance. By focusing on delivering a great member experience we are succeeding in growing both our sales and profitability as well as building the business for the long term. Looking to the second half I believe that our value proposition will continue to attract more members as well as to deliver increased frequency. Because the majority of BJ’s sales is derived from non-discretionary items we have been able to generate strong top line growth in a challenging macro environment. Food and consumable items make up approximately 75% of our sales. In a recent survey conducted by the Food & Marketing Institute consumers said the price was the most important factor in choosing where to shop. With savings as high as 30% to 40% on a basket of like items against supermarkets, we are definitely the beneficiaries in the member’s search for value. And with food inflation continuing to weigh on a member’s budget we expect that home meal preparations and prepared food sales will increasingly take share from restaurant dining. With BJ’s ever growing stable of fine meats, produce and baker items members will seek us out as the preferred alternative for holiday entertaining. Our buyers have done an outstanding job of finding unique gourmet appetizer and dessert items that we will feature in our holiday entertaining guide and quarterly journal. Some fun items from mini pastries filled with lobster and shrimp, gourmet mini burgers with blue cheese, chicken and pastry trumpets, and an expanded range of specialty imported cheeses as well as three varieties of Cheesecake Factory branded cheesecakes. I believe our grocery and consumable divisions which have historically delivered on all of our members’ stock-up needs will continue their strong…

Now as we normally do, I’ll provide you with detailed guidance for the third quarter, fourth quarter and full year. However let me caution you that our guidance is subject to a greater than usual degree of uncertainty given the weak economy, the rate of inflation, and the volatility of gasoline prices. While so far this year we have managed our business fairly well in this difficult environment, the uncertainties out there give us less visibility into the second half than we would like particularly in Q4, our largest profit quarter of the year. For the benefit of your P&L modeling, in the third quarter we are planning on a total sales increase of approximately 13% to 15%, comp sales to increase in the range of 11.5% to 13.5% including a favorable impact from gasoline sales of 4% to 6%, and comp merchandise sales excluding gasoline to increase 6.5% to 8.5%. This assumes an impact from gas that is lower than in Q2 due to assumed lower Q3 gasoline prices which we have already started to see in August. Membership fee and other to increase by about 2% in dollars. Cost of sales to increase 3 to 13 basis points. This reflects an unfavorable mix impact from sales of low margin gasoline being partly offset by merchandise margins that are being planned approximately flat versus last year. The unfavorable mix impact of low margin gasoline sales is planned to be 40 to 50 basis points versus last year. This is lower than the unfavorable impact from Q2 as we are assuming lower gasoline prices in Q3. The flat merchandise margin rate reflects our assumption that the mixed benefits of strong sales of higher margin perishables will continue to be mostly offset by stronger sales of lower margin consumables and soft…

We’re really encouraged by our strong sales momentum during the first six months and are pretty optimistic that it’ll carry over into the back half of the year. We expect to see more cost increases for commodities, food and fuel in the months ahead so BJ’s along with every other retailer will have to pass these along. Our goal is to preserve our strong value proposition and at the same time recoup our higher costs. I mentioned the various factors that can impact the timing and the extent to which we’d be able to pass on our cost increases. If these factors work in our favor, we may have the opportunities to do a little better than we’ve guided. But I must underscore the word if. It’s a difficult environment out there. We are committed clearly to give the best value we can to our member on a day to day basis but we recognize our obligations to the shareholders as well. With that I’ll turn it over for questioning.

(Operator Instructions) Our first question comes from Deborah Weinswig - Citi Investment Research.

A very impressive inventory performance in the quarter. Can you talk about what happened specifically and how we should think about inventory levels going forward?

Our business is made up of a lot of products that are easily replenishable on a localized basis, domestic products and all the food products and stuff like that, high commodity products. And we have very good control and very good reordering systems and it’s not a big deal for us to adjust. It takes a couple days if you see the sales going up or if you see the sales going down. So that’s easy to do. The ones that aren’t so easy to do are anything that’s imported, anything that comes either through a distributor or a direct basis from overseas. That’s harder to do and as Laura mentioned in her comments we’re going to be extra careful about that kind of merchandise because of the sensitivity of it and the potential for it to undersell this coming year. Laura, do you want to add anything to that?

Yes, I would add that because of the way our logistic systems work much of our inventory is driven by what I would call distribution multiples so it’s a truckload, it’s a pallet, it’s a tier or a case and those multiples actually become more efficient when we’re churning better so that also helps.

And then on the private labels front, I know one of your big focuses had been continued rationalization there. Can you talk about where you are in terms of penetration and how you see that business moving going forward?

We think there is room for private label and it’s a great opportunity. On the other hand, we think that private label isn’t the end all and the be all and we’re interested in really selling a lot more merchandise. I know this probably isn’t a bright example but as an example we always sell private label potatoes and now that we switched over to Green Giant we’re seeing a dramatic improvement in our sales levels of potatoes but it’s the exact same potato for all intents and purposes but the brand helps us. So in this case we went away from the private label to a branded label. But we are interested and I think Laura can give you some information of what we’re doing there.

At the end of the day we want to put out there what the members want and I know there’s an underlying assumption that there’ll be stronger margins from private labels. That may be; that may not be. I think that the operative thing is that we’re giving them what they want. If they want Green Giant potatoes versus Wellesley Farms, that’s what we’re putting on the shelves. I know that that’s a driving metric that people like to talk about. I like to talk about what our members want.

Very impressive expense control in the quarter. Can you talk about some of the specific buckets where you maybe exceeded expectations and how we should think about those going forward?

In terms of expense control?

Yes, expense control.

A good part of the expense control really was leveraging a lot of the sales. As the sales came up we obviously beat our forecast on sales both for merchandise and gasoline by a fair amount and we really didn’t need to increase a lot of our expenses particularly in the clubs a lot. Similarly there were a few places where we saw a lot of real nice leveraging and there were a few places where we still have opportunity. But again it was a good quarter for leveraging the sales.

I think the key metric here which is not an actual metric but it’s an underlying principle is that our desire to retrain our team and to get our team to understand what their roles are in the field organization and we’ve given them a lot of tools to do that and a lot of training to do that and we’ve adjusted salary packages for a number of people in that organization, especially the big managers over the past year or so. We’ve seen a really dramatic slowing down of our turnover in our clubs. That experience is a team member now is far more productive. And because they are participating in the ordering systems in a lot of cases and in the perishable business and other parts of the business and have a lot more authority as to where to put their goods, they’ve taken a much stronger position in getting much more effectiveness out of their organization. So there’s not a straight line as we raise our sales that we have to load in all that much extra payroll. It’s a minimum amount of extra dollars for the incremental sales and that’s a real big benefit to us. It’s something that historically has not been part of the BJ’s culture but for the last year or so, two years, we’ve been trying to make it part of the culture. And Tom Gallagher and his team have done a real good job in that.

Our next question comes from Adrianne Shapira - Goldman Sachs.

My question is on your comments on inflationary pressures. I believe Frank that you had mentioned that it seems to be tough to pass some of these increases on and I was just looking for some clarification. Is that perhaps due to obviously the current environment or is it a function of competitive pressures?

I would say that we are constantly vigilant on all of our pricing so when we get price increases we have to understand when we can move and when our competition is moving and make sure that we’re doing the right thing all the time. I think it’s probably more of a timing issue than anything that we buy out inventory from the old cost to the degree we can as do our competitors and we just have to carefully watch when the member is going to see the same pricing somewhere else and make sure that they understand we’ll still offering a value. I think that’s the driving force. I would add that we have pretty sophisticated ways to manage this, systems and people. But inflationary price increases is not new to us. I would say that the size and velocity and number is really what’s unusual about this year and for what we can see in the foreseeable future we see more price increases coming in the second half.

The issue is the size as Laura mentioned of the actual increase. If somebody raises the price 10% let’s say, which is not outlandish, we’ve seen prices [inaudible] and this particular item has a 6% margin because it’s a vendor candy item or a 4% margin or whatever it might be. You can’t absorb the 10%. You’ll be selling goods below cost. That’s against our principles. We just aren’t going to be in the business of selling goods below cost. So the issue really where we find the problem isn’t in adding the incremental cost to the product and raising the price; it’s then trying to raise the same rate. The rate that we were getting on the product might shrink some considerably or not at all and it can’t. It depends what it does to the price point and what it does to the competition. That’s really where it comes to be. No rational retailer can accept these kinds of increases and expect to make a profit. They’re just not going to work. I don’t care what his initial margins are. It’s cost structure. If he’s got high initial margins like a supermarket, he’s also got high costs so he has to pass on the basic costs and try to get a rate as well. That’s really what the issue comes down to.

And a question on the marketing of the membership. Could you talk about how you repeat with the free trials to people that perhaps don’t sign up for the full membership and if not, where are you getting perhaps access to the new names to reach out to?

As I always said, we could give you all that information but we choose not to. We don’t comment on anything aside how we do it or what we do in this particular area. It’s very proprietary. We’ve worked a long time to find out how to do it the right way and we are not sharing it other than to say we’re having a fall trial this year.

Our next question comes from David Schick - Stifel Nicolaus & Company.

This is sort of a follow on to that question about competition and pricing decisions. Could you break it up into three pieces - the gasoline, general merchandise and food - and more specifically what you think the competitive set is thinking or how they’re pricing in those three areas?

Gasoline is an easier one to talk about because every day the price changes up or down and we buy gasoline every single day as do most of our major competitors. So you saw pricing skyrocket in the late part of June and the early part of July and then you saw it plummet so when the market goes up nobody’s making any money to speak of. When the market goes down people tend to be a little slower lowering their prices. They want to make back that which they lost going up. So that’s an ongoing battle.

Do you think there’s any change in that mentality right now?

We see our competitors as best we can see of them trying to be below the cost of the lowest operator in town which if it’s a mom and pop operator or a chain. We see them, and we try to price ourselves the same way, but nobody wants to lose money and they can’t afford to lose money. And gas which has been a huge business for us both not just because it’s a dollar higher today than it was a year ago but because we’re selling so many more gallons. More people are coming to us. Our gallon usage has been very, very high increase over the last few months in this particular category. So everybody’s got the same issues that are in our industry and to some degree of rationalization at least from my perspective of what I’ve seen over the last six weeks. In the other items, when you say commodity prices and stuff like that, we’re used to getting increases but historically we get increases of 1% to 2% and it would be an increase for the whole year. Now you get increases upon increases so the absorption of these increases when you time through your inventory and when you actually put the increases through, these are all very delicate things you’re doing and yes, against the supermarkets it’s not a problem. We can put the prices through and with an occasional exception that’s not an issue. But we have competition in other forms, the supercenters, the wholesale clubs, and we’re very cognizant of what everybody’s doing and we try to lead people up if we possibly can because we have to take the cost just like everybody else does. But if everybody sits here and says, “Hey. I’m not going to raise the price…

Our next question comes from Peter Benedict - Wachovia Capital Markets LLC.

Frank I might have missed this but did you give the gas margin impact on gross margin or the total gas impact on reported gross margin? Is that in the mid-80 basis point level? I might have missed that.

Yes, I did. It was 85 basis points.

In terms of the merchandise or the IT road map spend, how much was incurred in the second quarter of that $0.09?

Not a lot. On a post-tax basis it was under a penny.

How should we think about that going forward in 09? I mean, the $0.09 spend this year. For next year should we assume a similar amount?

Yes, I wouldn’t expect it to grow a whole heck of a lot although I think it will be of a similar type of level. We’re just about to start that planning process and we have gotten a little further along on defining it at least the next 12 months worth of activities but our best guess right now is to say it would be about the same levels. It shouldn’t go up any higher. And in fact the total investments might even come down a little bit. We’ll have to see how we plan some of the renovations budget we have for next year.

Maybe for Laura, can you talk about the prospects for the general merchandise inflation going forward? You touched on it a little bit. To the degree you’ve seen some of these general merchandise items start to hit the floor with higher prices, is the pass-through experience there any different than what you’ve seen with more commodity-type items? You’ve had more experience with the commodity inflation so far this year. It sounds like general merchandise is just starting to hit the club. Any early reads on how that’s been going?

I would first say that there are some items that are clearly direct comparisons with competition but less and there are also some items that are exactly the same as last year but less. So in pricing the general merchandise arena of merchandise there’s a lot more discretion. I would say overall we are experiencing inflation in most of the general merchandise categories that come from overseas and those items are just hitting the floor. Now I would say it’s a less challenging dynamic because it’s just not as fast-moving and as volatile as we’re seeing on the food and consumables side. The one thing that I would say is that I have been very consistent with the merchants on the position that the one thing we do not want to do is to remove any quality from our goods to try and maintain a price point. We’d rather take the price increase from overseas and make sure we get the right construction fabric, spec materials, whatever the case may be so that our members are not disappointed by us trying to keep it at $29.99 and get something cheaper. So that’s a big position for us and we tend to hold to that.

So since maybe a lot of these items are not as cross shopable as some of the commodity items it might be easier to pass some of this through. At least that’s maybe your early experience?

Right. But on the other hand I would tell you that I expect because general merchandise in the macro environment is so tough that the promotional environment is going to be brutal. And when it comes to hard lines, not so much soft lines, that’s the price the member has in mind is what’s in that Sunday flier.

The August sales trends so far, I guess we’ve heard some cautious comments on the back-to-school like Target yesterday. Any comments on how that’s been trending for you guys?

Our back-to-school business is a small portion of our total business but so far it’s been pretty good. That’s about all we can talk about right now.

Our next question comes from Analyst for Charles Grom - J.P. Morgan.

A quick question for you on gas. Obviously you’ve had great success in driving the gallons rate there. Have you been able to quantify any rub-off you see coming into the store?

Yes.

Can you tell us about it?

There is real data that would suggest that the stores that have gasoline have seen some better traffic and some better sales. It’s not something that we’re going to quantify.

Just to be fair, it’s just a very difficult particular piece to quantify. Certainly again as Herb said we think it’s definitely benefiting us but with so many different things going on, it’s hard to take a look at one control piece and really isolate it out.

In terms of the successful spring MARM initiative, can you give any color there on new sign-ups versus your plan, maybe renewal rates, along those lines?

We touched on all things. We were happy with our sign-ups; we were happy with our renewal rates; and we were happy with the new; so it’s all tracking as I think Frank mentioned it earlier. But that’s not just the MARMs, that’s the whole club getting behind it; that’s everybody being involved; and it’s also seeing a great experience. The 5% traffic count is really quite spectacular in our business and that’s coming because people are looking for a better value and we have the prices to give them that. And people are renewing their memberships at a slightly higher rate because they see the value that’s there and value is great merchandise at a great price equals great value. Actual individual real detail more than what Frank has talked about, we don’t talk about.

From that 5% traffic increase in the quarter, is there a way that you can sort of splice that up between new members and existing members?

It’s pretty hard to do. We know clearly how much the trial members spend. We can identify that. We have all the information but once again it’s not something we tend to share.

I would add that we did not see any significant difference in traffic after the trial ended, so the traffic is coming one way or the other.

We’re getting more people that have signed on or people that have been with us are coming more frequently because our perishable business has been a leadership department for us. Over an 11% comp increase for the quarter which is quite spectacular and that’s something that as Laura started to say, “If you don’t drink the milk right away, it’s going to go bad on you,” and they don’t leave it around so they come back and buy more and more. So we’re seeing a lot more frequent traffic. And to be able to hold the actual value transaction level at 2% a head I think is a remarkable performance especially in the quarter because the air conditioners didn’t sell well and the televisions didn’t sell well and those are big ticket items. Low traffic but big ticket items which help us. I’ve got to say that we really are very pleased with where we are without being Pollyannaish but we just think the second quarter the way we pulled it off was it was a really great quarter for us and gives us a good foundation to do a good job for the rest of the year recognizing that things are going to continue to be difficult. But our job is to make it an exciting place and I think the club’s doing a real good job in that way.

One final follow up to that. In the success you’ve had in the program and in driving the traffic, are you starting to see any sort of shift in your average customer profile through the sign-ups?

We’ve got empirical data of people that bring us office, one person’s husband said “Gee, I notice I’m finding a lot better cars seem to be in the parking lot lately,” and stuff like that but we don’t really sit down and discuss “Gee, this week we’ve got $92,000 average customer versus last year’s $88,000 customer or whatever it might be,” and remember we’ve only seen this big drive go on for the last few months. We saw our business getting much better last year but the real taking off has been since the massive inflation has come into the market place. But empirically we know that people that have money want to save money and people that don’t have money have to save money. So we’re getting both ends of the spectrum.

Our next question comes from Daniel Binder - Jefferies & Company, Inc.

With regard to the pass-through pricing issues in Q2, can you quantify what that was in terms of the gross margin pressure accretive just to put things in perspective? And secondly, it looks like the other item or other line item in cash flow had a huge swing year-to-year and resulted in cash flow from operations being down about 17%. I was wondering if you could give us a little color on that? And lastly, you upped the share buy-back by $50 million which should take the back half earnings up a bit but you’ve maintained your current back half guidance. I’m just curious where the pressure is coming from if the buy-back is making up some ground for you?

I’ll answer at least the last two questions. As for the share buy-backs, our calculation says that it’s going to help us a little less than a penny so I’m not sure, it may be a little less than you’re expecting. We actually as you’ll see when the Q comes out, we weren’t really buying a whole heck of a lot in the beginning of this quarter. In fact I don’t think we bought anything in the month of May so that actually hurt us a little bit and a lot of the big buy-back was right towards the end of the quarter so it doesn’t help you as much as you might think. On the cash flow and the other, there are a couple things going on. The bigger piece is how we pay our income taxes. Generally how you pay them when you have a bad year like we did two years ago, the next year you don’t pay as much in taxes because of the timing of it. So last year we got sort of a benefit if you will from that process and this year we get a detriment to it. The long and short of it is artificially a little too much cash generation last year; a little less cash generation when it should be on a normalized basis. And then also we have been seeing some increase in some of our receivables for the credit cards particularly because a lot of it is being generated in the gasoline business which is a very vast majority of that is bought on credit. That’s upped our receivables a little bit.

It’s hard to quantify the actual dollars for the whole company on what the impact of the inflation dollars have been in terms of the cost going up. It’s something we don’t really look at that way. We look at it on an item by item basis. What’s the increase in this item? How does it affect the market place? How does it affect our position in the market place? How are we going to react to it? We don’t have any magic quotas here. We have grinding up kind of issues from the buyer right up straight to the management, what’s the right price to be at. And that’s what’s more important to us than just having some say that we have to arbitrarily do something. So I can’t really give you a quantification. If it decreases in some categories, we’re much more aware of the decreases because we feel that meaning that the selling price is actually less than it was last year. And there are items like that in GPS and in television and stuff like that. I know everybody’s got the same hang-up. Everybody wants to know the same issue. How much is the inflation? How does it affect everybody? And it’s just not done that way in merchandise. We know there’s inflation. We can tell you certain categories, certain classifications we’ve seen this kind of increase in the cost but we can’t tell you globally what it does to every single item or add it up to every single item other than to say our best guess when you take the deflation and the inflation it’s somewhere around 2% to 4% of an overall impact on our retail pricing.

So maybe even on a relative basis, not putting exact numbers to it, when we look through to the back half of the year where I think inflation’s accelerating a bit, will those price pressures from passing through be greater than what we’ve seen in the most recent quarter?

We can only reflect what we hear from the vendors when they give us the increases in advance but it’s built into the best of our judgment what we think we’ve gotten the increases and we know it’s coming and we built it into our estimates into our suggestions as to what performance is going to be in the back half.

How we build it is the merchandise rate; we were up about 30 basis points in the first quarter. We talked about it a little bit where we certainly got some benefits from cycling some mark-downs in the prior year. The second quarter we were up 9 basis points; and the third quarter assuming about essentially flat; in the fourth quarter up a little bit. That’s our best guess right now although again it’s just a very difficult analysis and projection.

Maybe help us out on that a little bit. Are you seeing a pattern with your competitors in terms of price pass-through? Price goes up, they wait X period of time, and then the prices go up and you follow? Are you seeing a fairly consistent pattern and is that how you’re basing your expectations for the back half too?

The consistent pattern is the inconsistency of what’s taking place. It’s crazy but that’s what it is. We don’t think of just wholesale clubs as our competitors. We’re concerned about the supercenters; we’re concerned about some supermarket chains that are very powerful and very competitive in local areas; and then there’s the vast performance of the rest of them. This has never been done at this level and my time of working in the retail business and it’s a subject that we don’t discuss more than 50 or 60 times a day almost to a point that we’re all nauseous about it. We understand what we have to do for our market share, for the experience of our customer, what we have to do for the stockholders. We understand the balance of what we have to do here and we believe that the other companies, any rational company - now if you’re talking about a company that’s on its last legs, they’ll do something that’s irrational thinking they’re going to get some big value out of it but in reality that’ll just give them a quicker way to go out of business. Guys that have higher costs, they want a 10% off sale. If a supermarket chain decides to motto on 10% off, his costs are so much higher he still knows it’s close to what we are and the basket of the same kind of merchandise. Our value instead of being 35% may be only 25% at that particular moment. The customer is not going to wait for the 10% off sale with them when they can come to us every day and get a great value. So we understand what has to be done; it’s just not very explainable on an easy basis or there’s not just one line I can say, “This is what we do and how we do it.” It’s done differently in every single classification of merchandise.

Our next question comes from Robert Drbul - Lehman Brothers.

Two questions; the first one for Laura. As you look to the back half of the year, are you seeing any new brands? Are there categories where there are new opportunities that you hadn’t seen over the last year from a product perspective?

Yes. I think that the restaurant brands are coming to us pretty enthusiastically bringing items and ideas and concepts that we can put into particularly the perishable area. I think that’s really exciting. I think it probably reflects some of the softness in their business but also the fact that they want to be where the consumer is. So I feel really good about that. In general merchandise I would say we have some slight migration to better brands. I wouldn’t say it’s necessarily dramatically different than a year ago. I can’t really disclose things we’re working on now but that would be about I’m seeing it right now.

And a quick question for Frank. In terms of the consumer spend, Target mentioned yesterday that their credit card trends as a percentage of the total spend, the cash was probably going up neutral to going up. Can you maybe talk about any trends like that that you guys are seeing?

On the credit side there really hasn’t been a whole heck of a lot of change. It’s been very consistent for us specific to credit cards. I’m not sure what other types of areas you’d like to know. Anything else specific?

We don’t own our own credit card portfolio. It’s not like the [inaudible] used to do and some of the discount stores do now. We don’t have that kind of [inaudible].

We certainly can see our consumers are buying debit versus credit versus cash. If I was really stretching to give you something, I mean debit cards are up a little bit but again it’s not a huge deal.

Our next question comes from Mark Wiltamuth - Morgan Stanley.

I wanted to focus in a little bit on gasoline. We’ve done some work backing into your numbers and it looked to me like your volume increase was up 25% to 30% in the quarter. I just wanted to see if that is correct. And do you think that was just members rushing to you because you do have a lower price or did you change any of your merchandising on the gas price in the quarter? And then on the new member sign-ups, did you see more new member sign-ups in the stores that have gas and do you think that was one of the drivers to people coming to you?

We don’t disclose the gas sales other than to say the gallon usage was up substantially as well as the price point was up substantially and that’s why you saw the big impact on our total comps. We still believe that gas is another reason for a customer to be a member or for a potential member to be a member because gas is a driver, has been for some period of time, and will probably be for some time in the future. So we saw sign-ups in all clubs moving in the right direction. It wasn’t one club with gas doing effectively better than another club. Most of our clubs have had gas for some period of time now. It’s not like we’re adding in a whole bunch of new things to our full clubs. We can only add one full club. Deptford, New Jersey’s getting gas this year. If we could add 50 clubs to get gas that have been around a long time, that would I think have another reason to shop us and we’d probably get more sign-ups and actually more business. It’s hard to get gas put into existing clubs because of regulations and stuff like that. It’s a very important part of our business. We recognize it as a price proposition with the consumer and the member. It’s a plus but we can’t quantify for you what the plus is.

On your comments on the fourth quarter, you said there’s a lot of uncertainty on the fourth quarter outlook and just hard to get visibility on what’s coming up there. Is the uncertainty more on inflationary issues in the food side of the house or is it on the discretionary spending you expect in the general merchandise categories? And what have you really assumed for general merchandise sales in the fourth quarter?

I can’t give you the exact number but I believe strongly and am optimistic that our food categories, non-food edibles and our consumer kind of products, those continue to drive very strong. I think our perishable business is going to be quite powerful. But it is certainly anybody’s guess as to what’s going to happen to the discretionary part of the business which is the general merchandise. Now it’s not going to fall apart. It’s not like people aren’t going to buy a shirt or aren’t going to buy a tie or aren’t going to buy a basic printer if they need it for the computer. So we’re not talking about a business that’s all of a sudden - make believe it’s running on 100 or all of a sudden it’s going to drop to 50. That’s not what we’re talking about. We’re talking about a nuance. It might drop to 95; it might drop to 98; it might to drop to 93. And in some categories it will go to 104; in some categories it might get down even more. The ones that will go down more would be the ones that have deflationary pricing in them but that’s only maybe in TV. And we’re selling a hell of a lot more GPS’s at a substantial lower price point so that our actual sales in the GPS category are way ahead. But how long that can go on I don’t really know. So that’s why we’re being cautious. If you remember at the beginning of the year, we gave out some estimates of what we were going to do in the first quarter and that was tack, why am I going on the line to give this kind of number. We know now why we shouldn’t give any numbers because we’re seeing a whole - we beat the numbers by the way - but now we’re in a situation where the fourth quarter is out there and normally we would have said, “Hey, this is the third quarter. We’re not going to talk about the fourth quarter under these conditions.” But we felt the conditions are so unique we had to give you some guidance as to what we thought so we’re giving it our best shot. We reserve the right to tell you and we will tell you if we see something different happen as it goes along. When we make the third quarter if we see something different, we’ll tell you. But right now this is our best shot. Not a conservative; not a liberal; a reasonable estimate based upon our experience that this is where we think we’re going to be.

Our next question comes from David Strasser - Banc of America Securities.

Last quarter I think you had guided to about a 3% to 3.5% increase in membership fee dollars and it came in a little bit below that. I know you sounded that you were pretty happy with the way the membership goes. Where was that discrepancy?

Actually we guided for the quarter at around 1.5% to 2%.

For the year then - 3% to 3.5%.

No, that wasn’t our guidance. Our guidance has always been about 2% to 2.5% or 2% to 3%, something like that. So we’re pretty much right in line with what we had originally expected. A little bit better in the second quarter but not a lot. Remember, with the way the accounting of membership fee income is it gets deferred over 12 months. It’s awful hard to move it a whole heck of a lot either way.

Okay. I’ll go back to the transcript back to see what it said.

Our next question comes from Joseph Feldman – Telsey Advisory Group.

Just a quick kind of philosophical question. I was just thinking, as you look further out and maybe into next year as we get through this kind of economic downturn, I guess the question is more how you guys go about retaining the customers that you’ve captured now because of this downturn? So the incremental customers, once you have them obviously the membership keeps them for about a year you’d think but how do you get them to keep coming? Have you guys started to think about that at this point?

It’s in our D&A to provide the consumer, new member or old member, with the very best value at the very best quality. And when you come to our club and you buy a piece of meat or you buy produce and product and you buy whatever it is at the value you’re getting, chances are you’re not going to change your shopping habits that quickly. You’re going to get used to that shopping habit and it’s a way to save you money. And every day, day in and day out, our prices are so much better than the traditional supermarket. So we don’t think we’re going to lose much of that penetration. If anything, they’re going to tell their friends and we’re going to get more penetration. Number two is I don’t believe this is going to change very quickly. I think there’s going to be inflation or a long period of time. It may not be at the same level. It may be worse or better, I don’t know. But I do know that once the consumer gets used to shopping our environment and if we have the fun exciting items that make it a really good experience, not just a food shopping experience, we’ll keep them forever. We know our actual renewal rates once they get in for a year or so, they end up being 84% or so, a very high renewal rate. So we’re not concerned about that issue at all right now.

My folks just handed me a little bit of information that I think David did mention. We did say 3% to 5%. Just the nuance there is that MFI was pretty much right on but it was the other piece which was a little below our expectations. The MFI and other. So sorry about that.

That concludes our question and answer session.

Thank you very much. We’ll talk to you soon.