Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to BJ's Wholesale Club q1 fiscal 2020 earnings conference call at this time. All participants are in a listen-only mode after the speaker's presentation. There will be a question-and-answer session to ask a question during the session. You will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press * 0 hour now like to turn the conference over to your speaker today button for 5 president of public relations. Thank you, please go ahead ma'am.

Good morning, everyone. Thank you for joining BJ's Wholesale clubs first quarter of fiscal 2020 earnings conference call Lee Delaney president CEO Chief Financial and administrative officer and Bill Werner Senior, Vice-President strategic planning and investor relations are on the call. 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 may see the risk factors section of our form 10-K filed with the SEC on March 19th, 2020 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 presentation of this information is not intended to be considered in isolation or as a substitute of the finance wage.

information presented in accordance with gaap

Please refer to today's press release posted on the investors section of our website for a Reconciliation of these non-gaap Financial measures to the most comparable measures prepared in accordance with gaap with that wage to call over to lease.

Good morning, everyone. I hope you and your families are safe and healthy during these unprecedented and challenging times thoughts go out to everyone who has been affected by the coronavirus pandemic home. So much has changed since we last spoke this time that Max has presented us all with challenges. I am proud of how we manage our business in this new environment and deeply thankful for the contributions of our club and distribution center phone numbers. We have tirelessly served a surge in demand for essential products while embracing new safety conditions and protocols. I also want to thank our home office team members for working hard to innovate off safety and products apply as well as their flexibility and adapting to different ways of working and also thank our vendor Partners who have been incredibly supportive of our outside demand our team member of hard work and dedication has enabled us to safely serve our communities. We are humbled by our role in these difficult times and value the trust and confidence. Our members have enough to provide them with essential products and service.

Our first and most important priority is the health and safety of our team members members and Community since the outbreak of the pandemic. We have taken aggressive action in implementing an extensive safety measures across all articles.

We have put in place increased sanitization and social distancing protocols. We have limited capacity in our clubs provided and required team members to wear a protective equipment off shut down our services businesses. Give them a close contact that they require and introduce the temperature checks for all our team members reporting to work. We have limited travel and asked nearly all home team members to work remotely. We have taken hundreds of other steps too numerous to mention and we'll continue to work with Federal and local authorities to ensure that we stay ahead of evolving safety issue of standards are key members are working hard to serve our members and we are recognizing them with well-deserved temporary hourly wage increases as well as multiple bonuses off in the first quarter. We invested in incremental fifty 1 million dollars and pay in bonuses for our team members and we are supporting team members through it enhanced benefits package including wage.

Flexible sick leave policy the loosening of absenteeism policies Employee Assistance programs and financial assistance through our employee relief funds in April. We also decided to close all our clubs on Easter Sunday to give team members a day to rest. We will continue to support team members during these difficult times and ensure that we maintain a healthy and safe working environment.

As you have no doubt already read or financial results. This quarter were strong led by a 27% merchandising sales comp and ebitda was well ahead of our plans at a hundred million dollars earnings per share increased by 165% and we generated more than $430 in free cash flow with a balance of my remarks. I will frame our views three contributing factors that led to this outside performance and the implications for our future first. We clearly have become an even more on trading competitor at consumer behaviors phone needs changed in response to covid-19 covid-19 has brought with it a new way by which we live our daily lives and the social distancing and stay-at-home measures we have taken as a society that may have resulted in dramatic changes to grocery shopping Behavior.

Grocery Goods which represents roughly 85% of our merchandise sales were an extremely high demand starting in late February and continuing throughout the quarter consumers Consolidated their trip home and bought bigger baskets to satisfy satisfy increased consumption at home needs and while needs shifted throughout the quarter from cleaning supplies the pantry loading to perishables. We offered a One-Stop activation with industry-leading value on the large size of consumers need to stop these Trends were relatively consistent in shape and magnitude across all our geographies as a result of believe. We have gained considerable share in every region across most categories in which we can be

Second or business model augmented with the capabilities we built over the last four years are particularly. Well suited for this environment. We run large clubs and distribution facilities with capacity that we operate efficiently with Focus labor and lower marginal expenses than many of our competitors. We have upgraded our operational standards with new practices in systems improvements and not built an extended speed of digital capabilities with relatively advantaged economics together the model in our improved capabilities allowed us to rapidly scale our business be unprecedented levels of demand for digital shopping invest in our team members deliver improve bottom-line performance and generate cash third our team responded with extraordinary faith and dedication late in February. We were able to identify demand signals, utilizing our new demand and fulfillment software to quickly and significantly bolster order flow and keep off.

the surge in demand

Our Merchants did an excellent job of working with existing suppliers as well as expanding our sources of Supply from new vendors, including those that service the restaurant industry or logistics and distribution work around the clock to keep a good flowing our front-line employees work tirelessly to keep the shelves stocked and members happy and our support team and the home office met an ever-changing set up and edit what we expect the supply chain environment to remain challenging in the near-term in certain categories. We believe our systems agility and capacity should continue to serve as well.

Well, none of us can predict the next few months with certainty. It is clear to us that we are well-positioned to see increased demand for the foreseeable future as the leading large format Club store with Regional Jail in the Northeast at a grocery offering above beatable value strong private label Brands robust digital capabilities in an efficient store model. We are more relevant to Shoppers can solve thousand troops than ever before it while we would like nothing more than for public health fears to subside quickly. We expect the potentially recessionary impacts in the broader economy to drive increased ad for discount grocery options.

We talked to you in the past about growing membership and engaging our members in digital capabilities and the current environment has accelerated these efforts positioning us leverage this unique opportunity to stick foundation for a multi-year profitable expansion of the business in our view the consumers need for Digital Services Advanced considerably in the last two months. We have had more members join our club and try these services and believe are advantaged economic model will allow allow us to continue to invest before I update you on the progress of our strategic priorities for the quarterback. I'd like to note that we remained committed to projects momentum and we are on track to deliver forty million dollars in savings for this year. All savings will be reinvested back into the business as previously noted. God. Let us turn to our long-term priorities.

First let's talk about digital businesses, which remains a top priority over the last three years. We built a robust digital team that drove significant progress in our omni-channel transformation off the team launched pivotal platform such as DJs mobile app buy online pick-up and club or go back same day delivery and shipped from Club to better meet members demands are often into these platforms set us up for success in the current shopping environment.

Digitally enabled sales grew by more than threefold this quarter and represented 5% of our merchandising comp sales for the quarter compared to 3% in the fourth quarter and 1.55% and last year's first quarter. We believe we have a structural cost Advantage as we continue to grow these businesses, especially in our same day delivery business, which was up more than eight-fold over last month the first quarter replied to continue to improve upon our existing capabilities and launch new offerings to Delight our members and increase the value of their membership in the first quarter. We began to walk in curbside pickup and go back for perishables in select clubs.

second

We remain focused on membership the Cornerstone of our company in a key leading indicator for the health of our business. And the first quarter. We saw a strong increase in the number of new members joining BJ's this new member growth will drive long-lasting benefits including mfi growth in the coming quarters higher average members per Club in strong comparable sales growth positioning us for six months in the near and long-term. We expect this progress to continue and will we will use this moment to attract more members in our clubs.

Looking ahead. We will continue to lead into membership Investments upgrading our acquisition tools and integrating membership marketing and analytics capabilities to continue to accelerate positive membership crowd. Probably in April. We appointed Paul sake to lead our membership marketing and analytics organizations. I'm thrilled to have Palm teams as his extensive experience in leading performance in life and business transformation will help accelerate our efforts.

Third simplifying and expanding into high demand categories remains crucial to our success as we simplify we can operate with greater flexibility and better manage our supplier to deliver the products members need as we noted on our last call we have built the Space optimization tools that allow us to Reflow space optimize productivity and allocate space based on the month. And the first quarter we were able to accelerate various grocery assortment initiatives, like expanding into better for you and organic snacks as we sold through existing Center store grocery inventory off at a high rate from a general merchandise perspective. We expect the go-for-it environment to become even more favorable as other sectors of retail come under increased pressure as evidence of our Merchants. Early engagement this quarter from several leading suppliers, who do not typically do business with BJ's

Our expansion into new service offerings such as cellular phones and Home Improvement remains on track while scaling these offerings will be later than planned due to covid-19 month. We are steadily working to enhance the portfolio with new and exciting Services Elevate our value proposition and prepare for an enhanced marketing strategy, which we anticipate ruling out this June 4th. We remain focused on elevating our marketing and keeping it relatable to members are expanded digital capabilities enable us to engage with existing and new members across all digital channels are new marketing campaign launched in the last two weeks allows us to connect and engage with current and potential members across a variety of mediums in the context of the current environment showcasing what sets us apart from other retailers, like family pack sizes in club pick up and same day delivery importantly. We remain committed to integrating and South

Find messages across all channels to ensure members have a seamless and better overall experience.

Last week, I'd like to touch on Club expansion you today. We have opened one club in Pensacola Florida and we currently expect our club in Chesterfield Michigan to open this summer The Chesterfield opening was delayed as a result of covid-19 related construction bands. We expect similar delays to impact our Park Club extension goals for the year. But hope increasing availability of good real estate will open more opportunity in 2021 and Beyond we remain confident in our ability to successfully open clubs and expand into new markets as evidenced by our success in Michigan. We will aggressively look for new real estate opportunities throughout the balance of the looking ahead. We believe we are very well positioned given the structure and strength of our business the progress we have made throughout transformation and our continued execution against our priorities.

Before I turn it over to Bob will have more details on our financials and Outlook. I'd like to close by saying that I am honored to lead BJ's Wholesale Club during these unprecedented times. I'm thrilled about working alongside talented and dedicated team members who are critical to helping our members get access to essential items and executing against our strategic priorities again, I would like to sincerely thank all our team members and members for their support and loyalty as we navigate these unprecedented times and continue to make progress in transforming and expanding our business with that. I'll turn off all over to Bob Bob.

Thank you and good morning, everyone before I begin. I'd also like to take a moment to thank our team members for their incredible dedication and hard work during these challenging times. I'm not as well situated to exceed expectations in an emergency such as the coronavirus pandemic that we all face.

We are a one-stop-shop capable of extremely high volumes while providing Great Value to our members covid-19 has heightened demand for our products and services and our team members managed to break through this environment embracing their important role in serving our communities as a result our performance for the first quarter was extremely strong.

Net sales for the quarter were three point seven billion dollars merchandise comp sales which exclude gasoline increased by 27% significantly exceeding our expectations and we're driven equally buy ticket and traffic are digitally enabled sales grew by approximately 350% and drove about five four percentage points of our 27% merchandising comp about three-quarters of the q1 growth in digitally enabled sales was driven by same day delivery and buy online pick-up and club or boba.

As we noted in the past we have an economic Advantage here compared to others. We operate in a limited skew Warehouse environment with significantly higher average tickets, which allows us to be much more efficient as a reminder Bobak sales tend to skew towards higher ticket items and through our partnership with instacart a same-day delivery sale has the same margins as a sale in, Georgia.

Before I turn to our divisional comps, let me give you a little color on our merchandise comp sales Cadence for the quarter for the first three weeks of February comp sales were in line with our plan off in the fourth week of February of cops accelerated to the low teens level this acceleration continue to ramp and March where we saw comp growth north of 40% for the month of March. The three highest sales days and our company's history.

April's merchandising comp was 23% driven by continued demand and increased EBT and stimulus payments importantly. That's strong. April comp number was not adjusting for the negative impact of being closed on Easter Sunday this year.

Let's now turn to our comps by business.

Beginning with this quarter. We have decided to revise our divisional reporting slightly going forward. We will be reporting comps for two divisions first grocery which includes perishable edible and non-edible grocery. The second division will be general merchandise and services which will include general merchandise and our service businesses such as Optical and cell phones off.

Grocery, so incredibly robust comp sales of 33% perishables edible Grocery and non-edible grocery all saw a comp sales north of 30% We saw very strong growth rates in all the categories. You would expect paper products cleaning Essentials, fresh meat frozen dairy fresh produce packaged goods and Beverages and as Lee noted the team worked hard on Iraq, and we've remained in stock by working with alternative Distributors to continue to provide our members with these Essentials. Overall. We feel great about our position in the grocery business as we exit the quarter.

Our general merchandise and services division saw a decline of approximately 3% as sales of a parallel decreased and we turned off our services businesses are parallel business drove the bulk of that decline. We saw Healthy Growth in other categories, including TVs and other consumer electronics small appliances and Recreational Products.

Membership fee income or mfi grew by 8.4% during the first quarter to eighty million dollars as Lee know that we saw a significant increase in new members, which will bode well for us in the future.

As you know membership fee income is a lagging indicator of the health of the membership given that we amortize the fees into the future cash mfi, which is a non amortized. Look at the cash that keeps the door presents a more current view cash NFI for the quarter was up 16% driven by 40% growth in new member acquisition over last year's first-quarter this Thursday, the new members should benefit us for years to come.

In addition despite these games in the number of new members, we maintained our higher tier penetration at 28% and more than 65% of our members are now enrolled in our easy renewal program membership is at the heart of what we do and as we attract and retain more members, we position ourselves for growth and success.

Let's move now to our gross margins, excluding the gasoline business. Our merchandise gross margin rate declined by approximately 30 basis points over last year continued execution of cpi-m as well as improved shrinking Salvage rates provided approximately 10 basis points in rate Tailwinds.

Experienced approximately 40 basis points of headwinds from three areas first markdowns. We took on a parallel inventory. We're worth approximately 20 basis points.

Next incremental distribution expenses associated with covid-19. We're worth approximately 10 basis points. Lastly as we experienced significant inflation in some Commodities like Thursday. We invested meaningfully in price in order to provide outstanding value to our members that investment was worth about ten basis points.

Both prices and demand for gasoline decreased during the quarter driving our sales of gasoline lower. However, we continue to grow market share meaningfully offsetting the divorce and sales at this location in the gasoline Market provided robust margins the net of all, that was a very profitable gasoline business during the quarter. We estimate the benefit of unusual Celine gross. Margin in the first quarter to be approximately Thirty million dollars.

Sg&a expenses were $590 during the first quarter compared to $501 in the prior-year our sg&a expense included approximately $62 total costs associated with covid-19. Let me break that total down for you into three main buckets $51 was invested in team member wages and bonuses $9,000 in safety and protective equipment and two million dollars. In other operational costs such as security please note that these costs have not been adjusted out in the calculation of our trusted even metric.

In spite of these additional costs we leveraged sg&a by approximately fifty basis points enabling great flow through to earnings.

Interest expense decreased to $22 million dollars from 28 million dollars a year ago. The decrease was driven by continued delivering and the repricing of our first lien Term Loan, which we completed during this month after January.

For the quarter, we recorded income tax expense of $26 compared to $7 in the prior year. The variance between our normalized tax rate of 27% off and this quarter's reported rate of 21% was driven primarily by 4 and 1/2 million dollars of windfall tax benefit from stock options exercised.

Net income in the first quarter was $96 or $0.69 per share. This incredible performance was 165% greater than last year's first quarter on a per-share basis.

Ebitda grew by 56% to 194 million dollars reflecting the considerable sales beat offset by Investments directly in our team members and in their continued safety.

Moving out to the balance sheet rap2 inventory ratio was approximately 97% We spun our inventory considerably quicker than last year providing strong working capital benefits off. We ended the quarter with approximately 5% less inventory than at our last quarter end.

Typically, our first quarter is not particularly cash generative as an example last year's first-quarter provided eight million dollars in free cash flow. This quarter was much different from that perspective as a result of our outside performance and working capital benefits. We generated record free cash flow of $435 for the quarter. No other metrics highlights the strength of our business office results and the accomplishment of our team better than this one in addition while we clearly did not have a need to participate in any of the programs provided under the cares act. We had a small cash flow benefit of the deferral of payroll taxes this quarter.

early in the quarter pre

Given the uncertainty and unprecedented nature of today's environment. It is extremely difficult for us to predict how the year will play out for this reason. We have made the decision to speak to you qualitatively about the trends that we are seeing currently and expecting in the near future rather than updating guidance.

We believe that our business is strong healthy and poised for growth the next few weeks and months maybe hard to predict but the capabilities that we have built and our ability to lean into growth positions wage. Well for the future,

It's our current expectation that something like the current consumer Behavior persist for a while as a result. We expect to see strong merchandising comp growth. We anticipate operating in a recessionary environment even as activity in our geographical footprint begins to resume.

Historically our business has very well during recessionary environments where value becomes even more important. We expect government stimulus to continue and when you overlay a much higher need or desire to eat at home driven by government regulation or just the basic human desire to stay safe the expectations for higher, in our business crystallized.

as we noted

Earlier our q1 exit rate on merchandise Compass north of 20% and may has not slowed while I wouldn't say that we should expect that, pray for the balance of the year. I do think that our previous annual guidance of low single-digit calms is considerably low.

Following that line of thinking we also expect to continue the to see strong growth for a membership perspective. We believe that new members will be easier to require in this environment and we will invest considerably into membership acquisition and analytics further the new members that joined this past quarter will result in benefits for this year and Beyond

Given the fluidity of the environment it's difficult for us to predict where merchandise margins will land throughout the year in addition to the benefit of strong revenues. Our CPI process will provide five games and we expect continued private label expansion.

Potential negative impacts rates include product mix near-term inflationary pressures on certain perishable categories the timing of reopening our service businesses and the contribution from our our Parish business.

We feel good about our general merchandise business as it has returned to positive comps in May.

It's also difficult to predict what will happen in the gasoline business. We do expect gallon sales to recover as the economy begins to reopen. We also expect to see margins normalized and possibly contract hello planned levels. This is often the case in. Following those with outsized margins like we saw in q1

Let me touch you on sg&a expenses as we think about the go forward run rate of covid-19 expenses in Q2. We expect to incur approximately twenty to twenty-five million dollars of incurred cost.

We will continue to manage the level of expenses with our prioritization on the health and safety of our team members and making sure we're providing the high level of service that our members expect.

As we mentioned earlier, we are on track to deliver forty million dollars or savings from Project momentum this year. All savings will be reinvested back in the business as previously noted lastly. We will move into the beat in order to continue to invest in our business with a desire to take you one's results and turn them into a multi-year growth phase for our company.

Despite these costs and uncertainties. We expect to achieve profitability for the year that significantly out Paces the high end of the growth range of our original long-term algorithm.

It's important to note that we feel extremely confident in our liquidity and ability to prudently manage capital in this environment. One only needs to look at our first quarter results to understand that our business generates strong cash flows, especially when we turn our inventories at an accelerated rate. In fact, this accelerated rate resulting in in working capital benefits that drove a significant significant portion of q1 free cash flow performs. We do not expect this benefit to fully recover in queue to further as we rebuild our inventory balance some of the q1 working capital benefits May reverse

Lastly we expect our full-year cash flows to benefit from tax.

girls provided by the cares act in the amount of approximately Thirty million dollars

We'll be opportunistic from a capital allocation perspective and adapt to our environment. As I said earlier. We have met our medium-term leverage Target given our robust cash flow generation. We are in a strong position that allows us to be aggressive in investing behind business growth in addition to considering Capital returns to shareholders in conclusion. Our business is more relevant than ever before combat or behavior Trends are in our favor and the capabilities we have built over the last four years enable us to thrive in today's environment. Our comp Trends are strong and our member growth is heartening as we look toward a brighter future we go forward from here with a team that meets the challenge every day to serve our members and take advantage of this opportunity to build our business for the long-term.

Finally our hearts go out to all of those affected by the pandemic and we offer our thanks to our team members for their outstanding work during these challenging times.

Now, I'll turn the call back over to the operator to begin the Q&A session this time. If you would like to ask a question, please press star to the number one off your first question comes from Chris with JPMorgan.

Thanks gud morning guys. So my first question is on the the membership fee income growth. He talked about 16% cash in the quarter of 40% new member growth. Is that suggests that the sign ups accelerated over the quarter? I do not pick it up all the cash to get more in April versus March versus February month. And that's as you think about the year if you keep you drew the line today, you know, how would what would be your expectations for overall MSI growth and you know any comment on Kayden off the rest of the quarters would be helpful, too.

Great. Good morning. This is Lee as we begin. Let me just note that Bob and I are in different locations. And so I'll play a bit of a roll of MC. I think on this specific question Bobby. Well situated the answer just the flow and the amortization of got my fly. So you want to take it.

Absolutely. Good morning, Chris. Thanks for the question. So we certainly had had robust membership growth during during the quarter from new member growth as well as the same perspective. I think this is this is probably the first time we've talked about cash mfi in a call and the purpose of doing so was was just to give everyone of you at the exactly what you're what you're you're pointing at which is acceleration of membership growth during the quarter certainly as the course progressed. We signed up a whole bunch of new members. And as we pointed out in the prepared remarks versus last q1 40% growth in in new memberships a certainly a much higher than than we had planned at the beginning of the year and and much higher than the than the prior.

Pause membership going forward we would expect more of the same as we said in the prepared remarks. We believe that that acquiring members will be a little bit easier to do we certainly have a lot of a lot of cash to invest behind that idea and the membership team now now led by Paul Joe hockey is is dead. Sometimes to really take advantage of this this one-time opportunity to do so.

Right now I'm just trying to call.

identify girls for the year

It's difficult to predict Chris given given all the different pieces of uncertainty out there. But but certainly heading into the second quarter off, you know, we would expect a accelerated rate of of growth there at least and then we'll see how the rest of the the year plays out.

Got it. My fault question is is it sounds like you you hit your you know, your debt Target very very quickly. Probably a couple of years faster than what we thought you would be. So as you think about, you know, Capital allocation going forward great to hear that you're spending into the beat and also looking to reinvest the game chair, but in terms of the excess cash and considering sort of this the ability to open stores at this point, I should think about the next 12 months is you know, share repurchase going to be you know, the best your your number one option in terms of reinvesting that excess cash flow.

Let's start with the fact that that it's the the number one focus of our entire team to take this opportunity to turn 1/4 is fantastic performance into office many years of growth in front of us. We've got earnings to invest. We've got a ton of cash to play with and we will be aggressive in in doing so that will take many forms. As long as we go real estate is is just one of them and as you as you point out a little bit of a bump in the road from a timing perspective as Construction in key markets was was slowed down during the pandemic here, you know, we have open one Club this year in Florida. We will open Chesterfield Michigan in July, hopefully and we have to talk to other clubs under construction today. Both of those have I've experienced a little a little bit of a delay given what's going on in the external world, but they will open around the birth.

We are either late in this year or early into next year as we as we sit here today any real estate opportunities that come along and we moved from Believers that there will be many as the pandemic Fallout makes its way through retail. We will be very aggressive in trying to take advantage of those opportunities are real estate team is already out in the markets beating the bushes trying to get out in front of the opportunities Bill Werner is on the call here today. He leaves the new club identification team that team is out there understanding and mapping where all of our retail competitors are who are the ones that we think might be in trouble and that have considerable real estate opportunities off of of size that we could use and so we will take every opportunity to be to be very aggressive even within our own portfolio if if we can restructure Lisa's birth

or buy properties we we have

Certainly enough cash to play with there we will invest in growth in all other ways as well whether that's through through membership or or through any of the other wage factors, like omni-channel that that he talked about in his his performance as we get to the rest of cash. Certainly, we would expect to have some leftover. We are a bit behind our plans from a stock buyback perspective given what went on in the markets and our our paws on the buyback program. We would certainly consider going forward with that and I also consider other forms of returns of capital. We have no no firm plans at this point because we need to, you know, see how the next couple of weeks and months play out and walk together with our board to to figure these things out but I do think this is almost a once-in-a-lifetime opportunity for this company.

Understood that's the blessing. Thank you.

Your next question comes from Peter benedict with beard.

Oh, hey guys. Thanks for the question and congrats on the on the good execution here one membership question. And then when a pricing question just on the on the new members, can you give us a sense or maybe the percentage of those new customer who members that signed up on auto renew and and how have their kind of repeat shopping the patterns looked like I know took a short time frame, but any color on that would be helpful. That's my first question.

Sure, Peter. Thanks for the the question. So today when we signed up new members all members are enrolled in Auto renew and then need to make the choice to opt out of that. So the penetration of auto review in the new member base would be considerably higher than the 65% that we see across the overall penetration. It's really the the member in a franchise for a while would have chosen not to Auto renew that represent the Gap to to 100% and you're not surprisingly the new members were seeing our shopping at rates that are elevated versus what we might normally see that's clearly driven by the you know, increase consumption tied to the pandemic, but in terms of onboarding of those members wage, we feel we feel good their shopping at a faster rate and engaging in our omni-channel platforms as well. So, you know, good-good early momentum with that crop of numbers dead.

A good good good to hear and then with respect. I think mentioned the inflation in certain categories. You guys were kind of holding holding price and delivering value pack how your price gaps versus your some of your grocery competitors evolved over the last few months here. Just curious what you're seeing on that front. Thank you.

Yeah, we when you step back and look at inflation across the business. It was a relatively minor impact on the business or measured in tenths of a percentage Point. Although wage across certain categories. There were quite considerable changes. So on this Bob mentioned eggs a pretty meaningful increase in the price early on the quarter. We made the decision to drag the project on eggs, simply because we felt like it would be a large measure of sticker shock to our members. It was a high frequency category with kind of good price impression off and where we saw Grocery and other competitors reflected meaningfully higher price relatively quickly so felt like an opportunity for us to invest in our price impression there another place has more recently Life protein where the price of beef up for example has gone up pretty considerably we are reflecting that in slightly higher retails to make sure that we are covering our club

that is

That will be below what we've seen some other players do with everything included higher than ours. And so overall we feel you know, good about our price impression and feel like a large pack sizes a discounted grocery option and the Really Great Value we have every day is only being accentuated in this market where people need to buy more money building bigger baskets. We become a more logical destination.

Okay, great. Thanks Lee. Good. Bye. Thank you.

Your next question comes from Edward Kelly with Wells Fargo.

Yeah. Hi guys. Good morning. Just a quick follow-up on the on the membership trans. Could you give us a little bit of cadence on the on the member growth sort of like you did with sales. I'm just kind of curious if that change of pace currently looks and then if you look at these new members, what are they look like relative to their to the to the base, you know, the typical BJ's number.

Sure, thanks for thanks for the question had let me start it. Maybe I'll ask Bob to to build a little bit on it. So the piece of membership grows growth looked relatively consistent with the you know, we became more on-trend as people look to stock up and make a bigger purchases in and drive fewer trips. And so we're kind of the shape of membership Rod pretty consistently with the shape of the comp sales performance. And so we exited the quarter at a you know, a nice range of of membership growth and we seen continued membership growth on an ongoing basis. So, you know, we're excited by that and then you know, as I mentioned previously the overall dynamics of that membership grew up pretty appealing we're seeing on average slightly younger members slightly more digitally enabled members were growth in online platforms has been dead.

I have been quite strong and then we're seeing really good shopping Behavior clearly tied to to the pandemic and changes there but the overall crop of members are seeing is a seemingly quite quite positive about anything you'd have to not

No, I think you got all the right all the right topics there.

Yeah, and and just as a follow-up to that, how do we think about incremental margins return on? I mean I do remember you guys talking, you know historically about how you know, the average 25,000 miles per store. Just getting the 26s, you know, such a big deal, but but that's still only really scratches the surface on the Gap appears. How do we think about incremental margins on the whole business?

Yeah, I think you know that's one of the things that clearly benefited us throughout. The quarter is the flow through we're seeing from the growth in members and from the growth in sales rep. Yeah, we talked to you about in the past our boxes on a membership basis are at historically been less developed than some of our competitors. So we would average Slightly North of. The numbers per box versus Costco in the 60,000 plus member per box range. So we clearly have room to grow we've seen that growth with the membership base Thursday, we built capability over the last four years and have a model and that drives pretty profitable marginal growth, which is exciting to see, you know, we're very efficient at getting off a pallet of goods to the sales floor with the you know, relatively efficient labor model. So, you know, as we as we grew quickly we were able to see good flow through

Throughout the piano and leverage from the Gmail. I'm just despite pretty considerable investments in

The increase pay for our team members from you despite all of those Investments. We still socket flow through which is exciting.

Great. Thanks guys.

Your next question comes from Karen short with Barclays.

Thanks for taking my question. I was wondering actually if you could give a little color on ticket and where that standing now in terms of code. And then I was wondering if you could just I know you said that you're seeing slightly younger demographics. I think on the new signups but maybe a little more elaborate a little bit more on that and just to throw a number there. It looks like you'll probably close to eight million members. Yeah, it could be about eight million members as of now and still growing is that fair? You want to take off the question?

Sure apologize if you can hear my landscapers outside my house, but happy to take that question. So so we talked to my prepared comments em, you know, the 27% for the quarter was pretty equally driven between ticket and traffic and you probably heard us to talk about, you know, historical ticket somewhere in the $9,500 range. So you can you can do the math on on it from there, you know, so that takes it to somewhere near a hundred and ten per month a ticket pretty pretty sizable growth during during the quarter and similar results so far into into two months. I think your your total members number is a is a at least on a paid basis a little a little bit high, but certainly we're we're we're seeing great growth and dead.

Into into may as well.

Okay, and then well, I guess anything on the many more color on the demographics other than you need to excuse slightly younger. But any other color you could get their money I would have the membership growth we're seeing is is really across all of our geographies which is encouraging and that was true of our sales performance as well. It was surprisingly uniform and surprisingly strong across the the business and in terms of the new membership enrollment month, you know in terms of the new members specifically as I said, they're a little bit younger on average a little bit younger for us is still people with families. So it's you know, it's not people in the early twenty years older than that, but relatively young for the our franchise a meaningful higher portion signing up digitally and engaging with our digital platforms and then considerably higher wage.

Early shopping Behavior than we would normally see.

Although that does the business, you know beyond that. We're still you're just getting to know these numbers from an analytic and from a qualitative standpoint. So we may have more to say on future calls, but the early read is is quite positive. Okay and our ability to acquire these members in a digital way has really took a jump. We've talked to you about numbers that were in the, you know, ten twelve percent range and passed quarters and and this this this result in q1 was almost 30% off members acquired digitally so so incredible progress from that standpoint as well.

Okay, great. And then you come into the 3/4 of the growth with same-day delivery and OPEC. Actually, can you just get more granularity on display off?

Do you want to take it off?

Sure, and we saw we start tremendous growth in in all things digital during during the quarter as we talked about 350 ish percent growth individually in sales vast majority coming from same day delivery and and both backed and I believe the correct me if I'm on the same day delivery was off about 8 fold from from the previous previous Watermark. So that was that was the predominance of that number.

Yeah, yeah, that's right. I think you know as we talked to you in the past we do think we have an economic Advantage Advantage when it comes to on these sales, right? So I think about the simple formula bigger pack size of leading to figure Rings, even though we have lower percentage margins. We have higher dollar margins and we're picking in an investment of 7000 skis versus a hundred thousand seats for you pick your other Mass merchants or grocery that competitor and so we were very excited to see the commercial growth in in same-day delivery and buy online pick up in in club. And as I mentioned we've already started to Pilot including curbside delivery and then inclusion of Freshly Baked Goods as well. And so we're going to continue to lead into on the is a real differentiator for us in the engagement in this quarter was was fantastic.

Great. Thanks so much.

Your next question comes with Bank of America.

Oh, hey guys. Thanks for taking my question, you know maybe for you. I was wondering if you could just tell us how you're thinking about the reopening phase and anything you've seen in regions where restaurants just opened or you know discretionary retailers start reopening stores. I'm just curious how you're thinking about, you know, how that could change the Dynamics you're seeing now and how you would be planning for that?

Yeah.

It's a great question and something that we've been thinking a lot about you know, our footprint is essentially Maine to Florida and as far west, as you know is now Michigan and I've done the the reality is the bulk of our footprint is still under pretty considerable stay-at-home orders. And so if you think about our concentration and the Mid-Atlantic and the Northeast Georgia in particular, we remain under those orders and we will likely be that way at least for an extended period of time in in large measure, but you know in our businesses invest South including in Georgia, we've been watching this closely cuz it is, you know early indicator of how demand will change so far. We haven't seen meaningful change or deceleration right in the business. It would appear that people continue to consume significantly larger quantities of dead.

Food at home. They haven't ventured back in large numbers to restaurants and I think you know a number of the office jobs stay at home. So as you think about schools closed office is closed fewer people out in about during the day you're seeing large quantities and I think you know, even as restaurants begin to open they'll do it with limited off Cassidy's and so, you know as we look at that as that whole mix it's really hard to predict what you know, what demand will look like going forward but as we said in the prepared remarks, it's hard to see their not being elevated demand for the foreseeable future even as the the world begins to open back up and that's part of the reason we gave the intro quarter collar on Q2 and that we're not seeing a Slowdown in next. We felt like giving a little bit more about the current state of birth.

This would be an important and help you, you know take through the potential future results, which were were quite excited about it's really helpful and just one follow-up any color you can give us on the impact from the stimulus checks hitting and how you guys think about how much that is supporting cost.

Sure, I think you know there's there's two factors that are are likely supporting comments kind of in terms of an economic impact and that's the stimuli facts as well as increase in any PT food stamps and we certainly saw late in the quarter into qu qu and acceleration in some different categories. So as above mentioned general merchandise went from a negative comp in qq1 to being caused us in Q2 and we saw your relatively significant growth in work from home categories, but also some potentially more discretionary catalog is like electronics and TBS and we would imagine that there are certainly an impact from from stimulus checks that are impacting the business it's dead.

quantify exactly what that is because the overall

Shape of Demand on his remains elevated in in relatively consistent, but I think it's right to assume. There are some benefits flowing through from from stimulus checks and took got you that's helpful. Thank you so much.

Your next question comes from with Gordon. Hi, Scott.

Play some morning congrats on a great quarter BJ's in a long time about you know, suppliers off quickly don't deal with they're starting to knock on your door. And if you look back at history of Costco, it's obviously something that's helped them over the past ten or fifteen years. So just wondering if you can maybe just amplify on that a little bit for us off.

Sure, I think it's a combination Chuck us knocking on their door and and then knocking on our door, you know, as you think about or a general merchandise business in particular, you know, we've been fortunate to remain open when large sections of specialty retailers mall-based retailers. The department stores have been closed and so many of the vendors who Supply those channels have had their own challenging Dynamics and you know in that in that world, we become a potentially attractive Outlet either for opportunistic buys or for ongoing relationships. And so we have certainly adds a general merchandise team to push it engage on this measure because you know, it's likely true that a lot of the the other players particularly some of the Dead

General more financially leverage players May struggle if demand does not snap back pretty meaningfully. And so as those businesses come under potential distress, it creates an opportunity for us to engage with companies that that may not normally choose to self a club or sell to us specifically and so, you know, that's a potential silver lining in this for us as we may get access to so many categories some new brands that that would be new and exciting for our members.

Okay, that's that's great to hear and then just the circle back on membership again, you know the 40% growth just just is there a way to put that number in perspective maybe if you look at the past, you know for a fact that the the average has been for the membership growth and then you know, I think there's been a lot of retailers that I've seen a surge and and in customers and if you guys clearly wage there's a fee attached to it. So the stickiness you would think would be good. But just wondering what steps you guys are going to take to to cultivate those relationships going forward so you can keep them match not for just a month, you know, that's two to three quarters, but but but for multiple years.

Sure.

Let me let me start and then I'll ask about the comment on it as well. You know forty 40% is it's really strong and we're very excited about you know, that growth, you know, the challenge for us is I mean a lot of places we've been in the market for a long period of time some people feel like they know us and so it's always the biggest challenge to get people to walk through the door and see how we've changed the the business that we have on the platforms that we have new assortments that we've changed lots of things about the the environment and a pandemic has created an extra motivation to walk in the door that is above what we could drive simply by traditional marketing and public, you know, the the trick once you get into locking the doors to get them to shop in to shop early and that's been impacted as as well. And so we're hopeful that you people signing up for a year-long.

Membership and shopping early affords us a nice opportunity to engage those members on an ongoing basis and convince them of the value of of our franchise. And so we'll be looking at the whole, you know, all the levers we've developed. So engage people from Edison omni-channel standpoint try to get them enrolled in our credit card offering to save even more money promote to them to get them for different elements of the business and against the backdrop of a potentially, you know recessionary environment. Um, we think people will be looking to save money and so forth, you know some of the challenges of shopping in a club a little bit longer trip and a little bit bigger pack sizes are sacrifices people may be more willing to make and that's certainly than history of the company when there's been resolved environments we tend to outperform

Okay, and then just one quick file for me would be just curious how big of an opportunity real quick with with fresh could be for you guys. I'm sure you age because sooner or anything you can learn for sure what those you know Target's announced that they're going to start doing that in the next several months. So just curious how big of an opportunity that could be. Thanks.

Yeah, we we we think it could be a pretty meaningful opportunity in the test clubs where see really strong engagement in terms of the number of baskets that have fresh good in them clearly introduces an extra operational Challenge and you need to keep the goods refrigerated and be even more disciplined in terms of pickup time making sure that people don't abandon the pocket but the early Dynamic has been has been quite favorable and so we're working to get the operational model right and then you know with that we gave us an opportunity to to scale it. And so, you know, it's Bob described. We would look to leave into that in this environment in terms of you know on the Investments and other Investments we can make

Right. Thanks a lot.

One day I had to call back to leave Delaney for closing remarks.

Great. Well, thank you everyone for your engagement. You know, we're we're clearly excited about the quarter but more so for the potential signals, it sends for our faith. So thank you for your engagement. Thank you for your questions. And please stay healthy and safe in the Saint environment. We'll talk again soon.

That concludes today's conference. Thank you for your participation. You may now disconnect.