Hello everyone, and welcome to BJ's Wholesale Club Holdings Inc Second Quarter Fiscal 2024 Earnings Conference Call. My name is Kiki, and I will be coordinating your call today. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] I now pass the call over to your host, Cathy Park. Please go ahead.

Good morning and welcome to BJ's Second 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 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 Factors 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. Our second quarter results demonstrate the power of our business model and our unrelenting focus on delivering value, especially at a time when members need it most. We drove quarterly comps and profits that were higher than anticipated, while making considerable investments in long-term initiatives that we believe will drive our business. For the 10th consecutive quarter, we drove traffic gains in our business. We also grew market share inside our clubs and at the gas pumps. Those short-term games are great, but we're playing a long game, and we are also seeing striking progress in our long-term initiatives. Perhaps the greatest marker of long-term progress, is our 9% growth in membership fees. This was driven by the largest member count growth in a quarter since the pandemic. We also saw great growth in premium tier memberships and strong renewal rates. Our digital business continues to grow in incredible fashion, positioning us for the future. Further, our real estate pipeline is growing faster than it has in years. These investments are heavy today, but in the years ahead we will be thrilled that we made them. Comparable Club sales, excluding gas sales grew by 2.4% in the second quarter. Our compelling value proposition led to accelerating traffic in the quarter that contributed 4 percentage points to our comp. We believe our members are rewarding us for our merchandising improvements and amazing value. As a result, we gained grocery market share in both units and dollars in the quarter. We gained share at our gas stations too with 5% comp gallon growth in the second quarter. Our gas performance compares to the single digit declines currently being reported by the broader industry. Our perishables, grocery and sundries division delivered close to 3% comp…

Thanks Bob. I'd like to echo Bob's gratitude for our amazing team members across our clubs, support center and distribution centers, whose dedication to our company and communities contributed to another strong quarter. Let us now review our second quarter results. Net sales in the quarter were approximately $5.1 billion, growing 4.8% over the prior year. Total comparable club sales in the second quarter, including gas sales, grew 3.1% year-over-year, led by gallons sold. Merchandise comp sales, which exclude gas sales, increased by 2.4% year-over-year and by 3.5% on a two-year stack. We were pleased to deliver accelerating traffic and unit growth in the quarter. Inflation was nearly flat for the quarter. Our second quarter comp in grocery, perishables and sundries division grew nearly 3% year-over-year, underpinned by growth in comp units, which outpaced the broader market. Our general merchandise and services division comp increased slightly in the second quarter, with general merchandise outperforming the rest of the divisions in this calculation. Digitally enabled comp sales in the second quarter grew 22% year-over-year and 37% on a two-year stack. Over 90% of our digital sales are fulfilled by our clubs, with services like buy online, pick up in club or BOPIC, and same-day delivery which remain meaningful drivers of our digital growth. In fact, BOPIC alone comprises about half of our digital sales today. Our digital offering is intended to deliver value by maximizing convenience. Members who leverage our digital convenience, save time with an easier shopping experience, and thus become more loyal members. We’ll continue leaning into these mutually beneficial enhancements in the future. Membership fee income, or MFI, grew 9.1% to approximately $113.1 million in the second quarter, driven by strong membership acquisition and retention across the chain. We are especially pleased with the performance of our comp…

Thanks Laura. Over the past five years, we have transformed our business by building a top notch team, taking calculated chances on key strategic opportunities, executing at the highest level, and playing the long game while staying focused on what matters most -- delivering value to our members. In doing so, we have demonstrated our ability to profitably grow our business and drive shareholder value since we reentered the public market in 2018. We are a stronger company today, unified by our purpose of taking care of the families who depend on us, and we are working to grow stronger. The rate of change in our company is very high. We have a lot of irons in the fire. These efforts significantly increase near term complexity and may require more investments in the back half, but we believe these efforts keep us poised for future success. We will grow the size and quality of our membership, we will offer an unbeatable member experience through our merchandising improvements, we will provide more digital conveniences to save our members money and time, and we will profitably grow our footprint. Above all, we will continue to deliver compelling value to our members. Thanks again for joining us today and for your support of BJ's wholesale club. We will now take your questions.

Thank you. We will now start the Q&A session. [Operator Instructions] Our first question comes from the line of Robby Ohmes from Bank of America. The line is now open. Please go ahead.

Hi, this is Maddie on for Robbie. Thank you for taking our question. Our question is what are the general merchandise trends telling you on how you are positioned for holiday? Can you talk about any trends through the quarter and any color on how back to school is trending? Thank you.

Hi, Maddie. Thanks. Thanks for your question. Look during the quarter, we are pleased with our general merchandise business in getting back to positive comp growth. As we talked about in the prepared remarks, we saw continued great performance out of our consumer electronics business, out of our apparel business, and certainly continued progress in our home business. Seasonal had a much better track record in the second quarter than it did in the first. Some of that obviously being the better weather year-over-year, and some of it was the great value that we put forward. As we look at our general merchandise business, we are very proud of the progress that we're making in providing the best assortment for our members, the best value for our members each and every day. You know, as we get through third and fourth quarters certainly as we get into holiday, GM becomes a bigger portion of our business. Back to school, back to college is not a huge business for us, but certainly the holiday season is. General merchandise becomes a bigger penetration of our overall business at that point, for obvious reasons. We are very excited about the assortment that we're putting forward and bringing in to our distribution centers and our clubs pretty shortly here, and we are hoping for great results during the back half from a general merchandise perspective.

Thank you. And maybe just one quick follow up. Are you giving yourself any room to invest in price and general merchandise?

Look, as you know, Maddie, value is what we do, right? So we’re always investing in our business. We're always investing in value, always investing in our members. And I think, that's what you're seeing, really, in the fantastic membership statistics that we have seen this past quarter, in the first quarter and in the last couple of years, as we grow the size and quality of the membership, we are growing renewal rate meaningfully, growing our premium tiers. It's all about value. And certainly, these days, value is even more paramount as folks digest all the inflation we've seen over the past couple of years. So, we continue to invest every day. We will continue to invest in the future across our business, not just in general merchandise.

Thank you, really appreciate it.

The next question is from Peter Benedict from Baird. The line is now open. Please go ahead.

Oh, hey, thanks, guys. Good morning. So, my first question is just, just kind of around the profitability view here. You talked about the change in the merchandise margin outlook. It sounds like there is some DC related stuff there. There is also some investment in perishable pricing. I'm just curious if any of that's in particular ladders in reaction to something you are seeing in the market, something you're doing proactively. Just kind of curious. Maybe a comment around the competitive environment. That's my first question.

Good morning, Pete. Thanks for the question. Look, I think as it regards what we are seeing and doing from a merchandise margin perspective, I think you can categorize it as playing the long game. We are really trying to invest, not just for a particular quarter, but for the long-term success of our franchise and building our membership and building our members positive feelings about our franchise. So, as you think about the dynamics in the second quarter and then our forecast for the rest of the year, I think you really have three things to talk about. One, investments in price and promotion. Not a surprise to anybody on this call that our members and consumers broadly have had to digest a lot of inflation over the last couple of years. They do remember what old price points are, and they are -- we are seeing a consumer that while very resilient and very happy to be shopping in our buildings, is a little bit more sensitive to price and promotion than they have been in the past. And so we are taking advantage of that and making sure that we have the right price gaps, making sure that we help our members through their shopping needs. Number two really is the strength of our perishable business, right? We've talked a lot about Fresh 2.0., we've talked about the importance of driving our members into that weekly shop mode through categories like meat and produce. We've seen tremendous gains, frankly higher than what we thought we would see in terms of perishable units, and that is providing a bit of pressure. As you know, perishables whilst incredibly important to our members view of us and their purchasing habits over the long term and their renewal habits over the…

Great. That all makes sense. Thanks. My follow up question probably around kind of membership, member growth and MFI, comp club member growth is driving two-thirds of the total member growth. I think that's what you guys said earlier. What are you guys doing differently to create that, because I'm pretty sure that has not been the case historically. So, what have you really changed in terms of how you kind of go after members in existing markets. And then related to that, the MFI strength? How does that impact, if at all your willingness or to consider a fee increase at some point, either later this year or into 2025? Thank you.

Yeah, good questions. So, look we couldn't be more proud of the results we had in the second quarter. They built on top of the fantastic results of the first quarter, both quarters beating our expectations for our MFI performance. And really, we saw great results across the MFI metrics that we care most about as we talked about seeing fantastic growth in total memberships, both from a renewal rate perspective and from a new member acquisition perspective. If we are seeing MFI dollars per member grow, remember, we've talked about that as the fee increase, without a fee increase, before I get to your fee increase question, and then the team is doing a spectacular job driving members up into our premium tiers and into our co-branded credit card. And so, look, I think the strength in membership is a couple of things one, we are running a better business today than we ever have. We are providing more value than ever. We are finding ways to convince our members of that. We are showing it to them in ways that are evident just with their eyes. You can look across our buildings and see better assortments and better value. We are saving them time through our digital processes. We are doing a lot of things really well. The 9.1 was a little bit ahead of our expectations for the quarter. As Laura said, there is a lot of stuff that goes in there, timing, accounting adjustments, promotions, things like that. And so, I think that will moderate in the back half a bit. That takes nothing away from the strength of what we see in our membership franchise. As you think about the why, I mean, I think one of the great strategic unlocks we've pursued as a…

All right, fair enough. Thanks for the perspective.

Thank you. The next question is from Michael Baker from DA Davidson. The line is now open. Please go ahead.

Okay, thanks. Maybe a couple of follow ups on some things we've talked about, but the pre-opening costs of $30 million in the back half. I mean, that is almost two times from last year. Was that always the plan or have clubs been delayed or the timing at least for the preopening on the P&L. Is that different than you originally thought? I guess what I'm trying to get at is that a reason why you might be at the lower end in the back half or anything along that relative to the original plans?

Hey, Mike, thanks for the question. I think it's a good one. We are thrilled with our progress from our real estate perspective as well, and we are a little bit ahead of our original plans for the year in terms of the number of boxes that will open, as we said, and I'll let Bill talk for a minute here. We've got 11 in the next six months. We had built a few less than that into our original plan for the year and so it does provide some pressure in the back half. Again, these are great investments for the future, and so even though it pressures the back half in this year, it will bode well for the future. So, you are on the right point there. Bill, what else from a real estate perspective?

Yeah, I think, Bob, as I look out, 11 clubs in the next six months is probably one of the most aggressive kind of expansion plans that we've had in the company's history. And we're really proud of all the work the team's done. As we think about Mike versus -- I think, last year we had five clubs in the back half of last year. We'll do 11 in the back half this year. So, as you think about sequentially year-over-year, the pre-open expense, that's why that's flowing in that way. But the plan was always, as we communicated, back half weighted for this year.

Okay, makes sense. Another follow-up to a previous point, you talked about the growing pains in changing the assortment more color on exactly what that means. Is that markdowns as you change things out? Is that labor associated with those changes? And then typically what's the timing of when that pays off? Does that pay off this holiday season? Does that pay off next year? How to think about that a little more?

Yeah, sure. Look, it is a little bit of all the above. We are doing it because our members are asking us for better assortments. Our CMP process is working. It’s yielding really relevant, timely new assortments across the box in many categories. Those categories going through the CMP process are comping better than those that haven't. They are having better margin results as well. And so, we are very happy and proud of what the CMP process is putting forward, but it is requiring a little bit more labor in areas like in several of our boxes, we have reset our entire snacking assortment in the middle of the club. We've consolidated the snacking from a number of different runs and put it up front, right, near the registers, right in prime time, where we can take advantage of people's path through the club and really show off that great assortment that we have. That's an expensive endeavor to move stuff around the clubs, that's one example. And certainly, as we swap out old stuff for new stuff, we are incurring markdowns to get rid of the old stuff. We probably have a little bit more of those than we anticipated, and we are working to streamline our process of hooking the new SKUs to the old ones and bringing in the new ones when the old ones sell down in their natural course. Again all these things are, we believe are great investments for the future. As I said, all the stuff that goes through CMP is performing better, and so we anticipate these investments paying off next year. The back half, I think, we'll see some burden associated with it. But we wouldn't be doing it if we didn't see the fantastic results that we are seeing from these categories that go through the process.

Yeah, awesome. Makes sense. Appreciate the time.

Thanks Mike.

Thank you. The next question is from Chuck Grom from Gordon Haskett. The line is now open. Please go ahead.

Hey guys, this is Ryan Bulger on for Chuck here. I just wanted to ask about the general merchandise categories a little bit. It sounds like it's improving, and as you see these categories that within general merchandise that have been weaker or stronger start to turn around and rebound, I just kind of wanted to know what's really driving that improvement. Is it the macro or replacement cycle starting to turn, or maybe just innovation? Just any color on that would be great. Thank you.

Sure. Thanks, Ryan for your question. Look, as I said, we are very proud of our GM team and the results that they're putting up. We've turned around this giant category in our business that is incredibly important to the treasure hunt and the emotional aspect of shopping by investing in our team and investing in our members, by showing them even better assortments quarter-over-quarter, year-over-year. This is a long-term build for our company. It took us quite a bit of time to get to where we were a couple of quarters ago, and hopefully our lowest general merchandise penetration in our history are now building back towards an even higher general merchandise penetration. We know it's important to our members. We know that the treasure hunt is important. They want to be surprised and delighted as they do their grocery shop. And when they see that great apparel item or the cool thing from one of our home categories, or certainly one of our best categories, consumer electronics, they want to be able to put that in their basket. And our job is to move it from an opportunistic business to one that generates trips by itself. And we certainly have that in some categories like CE. We've run that business very effectively over the years. We've always had great merchants there and great market share, and we are really trying to run that playbook across the business. And it starts with getting the right new products in our buildings. We didn't in the past have the right brands, the right products. Our value prop was somewhat off. The way we displayed things wasn't optimal. We’re making great strides in all of those things. It starts with having the right talent here in the building. In our club support center here in Massachusetts, those folks do the hard work of picking the items and making sure they get into the clubs in the right way. Takes a lot of investment in the field to present those things the right way. You think about something like furniture or patio sets. We've completely renovated the way that we assort those, presenting them in much more vignette style lifestyle things to show the members what it might look like in their home. We've done a lot, and yet we still have a lot to go. We need to repeatedly do these things quarter-after-quarter, year-after-year, to reintroduce these categories to our members, to build credibility with our members and keep building the flywheel from a general merchandise perspective.

Great. Yeah, no, thank you. And then just as a quick follow up on big ticket, just a little bit more color there, are you seeing any difference in big ticket spend and trends between your membership tiers or any metrics you'll get in terms of household income? I know you spoke to customer health a little bit earlier, but just any color on the big ticket side of that would be great. Thank you.

Yeah, look, I think as you think about the consumer out there, they are certainly resilient and yet value focused at the same time. As we talked about in the prepared remarks, we're seeing great purchasing behaviors across the economic cohorts that we track. There is undoubtedly more pressure on the folks at the bottom of the economic spectrum versus those folks at the top, but they're all exhibiting, as we see, a great purchasing behavior. But they are value focused. They are looking for that right item at the right price. When they see it, they will absolutely put it in their basket, and when they don't, they are a little bit more choosy. In places where we have that assortment, we have that credibility, we have those right price points, and our big tickets, like consumer electronics, they are absolutely purchasing. And where it's not perfect on one of those dimensions, they're a little bit more savvy. They're waiting for a markdown. They're waiting for promotion. And we saw some of that in our patio sets and structures this year. Those are abnormally big tickets, $2000 for a structure or shed. And in this day and age, you've got to have it right for folks to do it. So we will continue to work to provide the best assortment and the best value to our members, regardless of what's going on in the economy.

Thank you. The next question is from Simeon Gutman from Morgan Stanley. The line is now open. Please go ahead.

Thanks. Good morning. I wanted to ask a little bit about the back half change. So, the business has been managed really well, and especially this past quarter. I'm curious how much of the back half change investments that you talked about is responding to the environment that's changing versus, and I don't mean this word badly, but underinvestment, mean things that could have been preempted. So, if you can sort those two out, if it is just responding to environment versus investments that could have been made earlier in the cycle.

Hi, Simeon. How you doing? So, look, I think there is a little bit of, a little bit of both. As I said, we are trying to build our company for the long term, build our franchise and our market share for the long term. We are playing a little bit of offense here, which sometimes requires investment. And we are playing a little bit of defense too, knowing that every retailer out there is seeing very similar things to what we are seeing with very savvy, price sensitive customers. And so, when we think about providing everyday value, we won't compromise from an investment perspective. We invest all day long, all month long, all quarter long, all year long, and we will continue to do that even if it pressures the back half. Most of the change and the pressure that we're seeing is from choices that we are making that we believe have long term benefits. We wouldn't be proactively growing our perishables business at the pace that we're growing at. If we didn't think that would yield overall trips and renewal rate in the future. We wouldn't be changing our assortment as fast as we are if we didn't see the payoff in the results after we change. We could do those things on a more careful, slow methodical basis and potentially lessen the burden in the back half, but we want to position ourselves in the future for the greatest success that we can. And so, we really are trying to be mindful of going as fast as we can and investing as much as we can, because we’re very confident in our future. We don't have to look past the membership statistics to know why we are confident, but we understand that it requires continual investment and a really offensive mindset to do it.

And does it change? I think some of it, you said the benefits should be felt already in the next fiscal year. Does it change your posture in how you approach investment? I was looking at your EBIT margins higher than it was pre-COVID, your gross is the same, so it looks like it's the higher sales base covering expenses, which doesn't seem that bad. But do you -- does the margin of the business lower down to allow for some of these investments, or do you try to keep the margin of the business where it is while you invest?

Yeah, I think you've got pluses and minuses running through margin, right? You have things like our retail media network that are new to us in the last couple of years that are good guys from a margin perspective, and we take those dollars and we reinvest them back in our membership. You see our ability through CMP to raise our core margin rates, and we usually take that and reinvest that somewhere like we did in our credit card program. We are trying to build a strong, long-term franchise, not really to win in any one particular quarter. So, look, I think we are making the investments we think that we can that will matter, and some of them will pay off in the short term, and some will pay off in the long term. And if they don't, we'll change course.

Fair enough. Okay, thanks. Good luck.

Thank you. The next question is from Mark Carden from UBS. The line is now open. Please go ahead.

Good morning. Thanks so much for taking the questions, guys. To start another question related to the margin, just on a 20-basis point reduction in your merch margin outlook, is that all being driven by price investments, or is there much of a mix element involved here, and is there any element of -- it wouldn't necessarily be like that, but do you feel the need to increase discounting for new memberships? Thank you.

Hi, Mark. Good morning. Listen I don't know that I have a ton to build on the margin point. I think we've hit that quite heavily, other than to say there is some mix involved, as we build perishables. As a for instance, that has a little bit of a lower ring on an average basis than a pack of paper towels or an item in general merchandise. So that can provide some margin rate pressure, just by the math of it. But really, it is those things that we've been talking about, the proactive investments we're making in everyday value and growing our franchise for the future. As you think about membership fee income and attracting new members, the tremendous success that we've seen so far is built on discounted membership fee model. As you know, years ago we transitioned away from a free trial model to a paid membership model. Most of our members come in on some sort of a deal in the first year, contingent upon participating in our easy renewal program where they pay the full membership fee in the second year. That's pretty consistent with what goes on in the club world and with subscription models all across the economy. We are continuing that. It's been very successful, and our team has been great at innovating around the offers presented with that structure, and it is really about finding the right prospective members and finding an offer that works for those prospective members. I think we'll continue to use that discounted MFI model. We will continue to push people up through the higher tiers. We will continue to renew folks at full freight in the second year. That's been a great underlying strength for us over the past several years, and I don't see a reason why we stop.

Great. Thank you. And then as a follow up, one of your largest conventional grocery competitors announced is shutting down a number of stores in your footprint. When you guys see major grocers close stores within your trade areas, do you typically see a material uptick in membership signups in those markets? Do those customers tend to gravitate towards other conventional grocers just given SKU account impact differences, just what do you typically see on that front?

Yeah, look, I think we have tremendous benefits to our model versus conventional grocer, and the biggest one is obviously value. We try and be 25% better priced than conventional grocers, and in some places it is even higher than that. I would suspect that club gaining share and BJ's gaining share weighs on conventional grocers, and I expect that when folks close their buildings, their customers, if they're not already a member of ours in our markets, they would look to us to fill some of the gap. And so, we look at it as an opportunity. We will be playing offense to try and get an additional share from those customers, and we'll play to our strengths. We try and save our members time through digital and money through the value that we offer every day, and it's usually a pretty compelling case when we face a conventional grocer from that perspective. And so, we are pleased to have this opportunity to gain more of our members' wallets that also shop conventional grocery, and we're pleased to have the opportunity to introduce ourselves to folks that don't know us, that may come over during those transitions.

Thank you. That's the end of Q&A for today's conference. I will now hand over to Bob Eddy, Chairman and Chief Executive Officer, for the closing remarks.

Thanks very much. I appreciate everybody's attention this morning. Thank you for your questions, for your support of our company, and we wish you the best as we go through the back half. Enjoy the rest of the summer. We will talk to you at the end of the third quarter. Thanks so much.

This concludes today’s conference call. You may now disconnect.