Q4 2020 BJ's Wholesale Club Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Bj's Wholesale club fourth quarter 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 of.
Question during the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero. Thank you I would now like to hand, the conference over to your speakers day Fortune free Huh, Vice President Investor Relations. Please go ahead.
Morning, everyone. Thank you for joining Bj's wholesale club fourth quarter of fiscal 'twenty 'twenty earnings Conference call Lee Delaney, President and CEO, Bob Eddy Chief financial and administrative officer, and Bill Weiner Senior Vice President of strategic planning and Investor Relations are on the call.
Remember that during this call we may make forward looking statements within the meaning of the federal Securities laws. These statements are based on our 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 section of our most recent forms 10-K, and 10-Q filed with the SEC for a description of those risks and uncertainties.
Donnelley 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 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 I'll turn the call over to Lee.
Good morning, and thank you for joining us I hope you're healthy and safe.
2020 has been a remarkable and challenging year I am humbled by our role helping our communities through this pandemic.
Actually proud of our team members' dedication to serving our members during these unprecedented times.
Our highest priority continues to be at the safety and wellbeing of our team members our members and the communities we serve.
We have implemented extensive protocols to maintain a safe and healthy environment.
To support our team members with investments in bonuses.
On the benefits and safety measures and in 2020, we invested over $150 million in these practices.
Our performance this year would not be possible without the hard work and dedication of our team.
The unique circumstances brought on by the pandemic challenged us on almost every dimension. Our team remains intently focused on meeting short term challenges and positioning the company for long term growth.
US to deliver extraordinary financial performance and accelerate our long term strategic transformation, let me touch on both.
From a financial perspective, we delivered industry, leading results this past year, including comp sales growth of 21% adjusted.
Adjusted EBITDA of $857 million, reflecting 47 per cent year over year of growth.
Adjusted EPS of $3 at nine times or 112% growth.
Free cash flow of $676 million or 276% growth.
On a leverage ratio of one two times compared to two eight times a year ago.
In addition to the great performance, we've made transformational progress on each of our long term strategic pillars, namely rowing entertaining our membership delivering value with merchandising and marketing improving convenience with digital and strategically expanding our footprint, let me say a bit more about each.
On my membership standpoint, we are seeing great results across all key metrics. Our membership base has strengthened in size and quality. This year, we attracted new members at record levels, including on the fourth quarter, where we added approximately 80000 net members relative to the third quarter.
Our retention rate for tender members of improved to an all time high of 88 per cent and.
And we made even greater gains with our first year renewal rate.
Higher tier penetration is at 31%, reflecting a 300 basis point increase compared to the prior year.
In total our membership grew by 11, 3% on a net basis relative to the prior year.
Our cross member cohorts, we are seeing elevated shopping levels, including larger baskets and increased trips to our clubs.
In addition, our new members of skew younger and more digitally engaged.
Assortment optimization remains a key initiative to deliver value to our members on merchants matter of changing demand profile by adding dozens of additional suppliers and new relevant categories, including personal protective equipment.
We meaningfully adjusted planning to account for rapid shifts in consumer demand and leverage relationships with suppliers to receive priority for inventory allocations.
These short term actions combined with market growth and the increased need to buy in bulk led to outsized performance, where our food business grew at two times the rate of the market.
We also made significant progress on longer term simplification and expansion into new high demand categories, we reset the food business with better for you at organic options, we expanded into new categories, where we were historically underpenetrated, including fitness sporting goods household goods, such as outdoor heaters and fire tables and select consumer electronics.
On brands continued to grow with penetration increasing to 21% driven by success in several new categories like basic tableware dairy spreads at home storage.
We expanded our services offering significantly to further elevate the value of Bj's memberships, specifically, we upgraded our offerings in optical home improvement major appliances in financial services. For example, we just announced our consumer point of sale of financing partnership with citizens Bank.
This partnership of our members will be able to pay for large purchases in club or online through simple transparent and affordable installment loans by Q2 of 2021.
We are thrilled to offer this flexibility and provider members, even more payment options to conveniently shop at Bj's. We continue to believe services will be of significant growth driver for many years to come.
Our digitally enabled sales grew by 168 per cent this quarter, surpassing our high expectations. The centerpiece of our digital strategy is our recently upgraded out which continues to resonate strongly with our members are at delivers real utility, including personalized promotions improve shopping experiences and inefficient gateway to our fulfillment options.
Total app downloads exceeded $5 million compared to a little over 2 million last year with roughly 30 per cent of our membership regularly using the app compared to 12% of last year.
Our app received of higher ratings at many of our peers and we have a robust roadmap to further enhance it with new features that deliver convenience.
On a scale of adjusted basis, our digital App engagement appears ahead of many of our competitors as we're making shopping meaningfully easier and faster.
We continue to expand our digital fulfillment options Paul.
During our Q2 launch of curbside pickup we added the ability to fulfill of fresh items through both back end curbside late in Q3 more than 50 per cent of our book of orders for the fourth quarter were delivered curbside.
In recent weeks, we began the rollout of a multi phase plan on to enable our members to use EBIT payment when shopping on Bj's dot com for in club pickup and curbside pickup by spring 2021, we plan to have this payment option available to all locations and states participating in the snap online purchasing pilot.
Our efforts to expand our footprint remain on track, we have strengthened our real estate pipeline considerably enabling us to accelerate the pace of new club openings at.
After opening four clubs in 2020, we plan to open as many of six clubs in 2021, even more exciting is that we can see a path to 10 more clubs in 2022.
This progress is underpinned by the performance of our newest clubs, where we are gaining market share and driving membership growth for.
So the two clubs we opened in the first half of 2020, Chesterfield, Michigan in Pensacola, Florida membership per club average is 20% higher than the chain.
And in our Michigan clubs of first year retention rates are well above chain wide averages. We believe we of crack the code on successfully opening new clubs and will invest aggressively to grow share and an expanded market.
Overall, we are incredibly proud of the progress we have made both managing through the challenges of 2020 and redefining. Our go forward business model against this backdrop. We suspect you will have two key questions. What should we expect in 2021 and how has your long term growth algorithm changed let me address each in 2021, we will continue.
To do everything on a power to stay on stock for members and lead into investments that will drive long term growth, all while prioritizing health and safety.
We face uncertainties driven by market factors outside of our control most notably the trajectory of at home food consumption and the overall macroeconomic environment.
These uncertainties led to a range of possible scenarios for 2021, our expectation is at current trends will continue for at least the first half of the year, but may change in the second half as vaccine distribution expand and life looks a little more normal of gun shy.
Should the public health situations fail to materially improve in our markets. We would expect a longer period of elevated food at home consumption driving our sales further.
Under any scenario, we expect our membership sales and profitability to be well ahead of our historical plants.
We have considerable confidence in our long term algorithm, which we anticipate will be well above the levels, we framed at the time of our IPO or.
Of our conviction is grounded in shifts the long term trends and our progress against our strategic initiatives. Let me elaborate on the underlying factors. We believe at home food consumption will reset at a higher level and economic uncertainty has heightened consumers focus on value.
We are of loyal grilling and higher quality of membership base that has changed their shopping behaviors to our benefit.
We'll continue to upgrade our assortment, particularly in services general merchandize at owned brands. The power of the next wave of growth and grow share of wallet with our members.
We have of relevant at growing digital business with industry, leading levels of engagement and advantaged economics, we expect dramatically higher unit growth rates as we push towards 10, plus units per year, allowing us to tap into considerably expanded addressable markets and grow share.
In summary, we have truly transformed our business by every measure we are not at the same company. We were 12 months ago, our underlying growth rate will accelerate as we benefit from long term trends and continue to accelerate on our strategic initiatives.
The short term COVID-19 related uncertainties may create headwinds of temporarily mask. These long term gains we will reset at a higher base and faster growth rate. Our team members of continue to execute at the highest level, enabling us to take advantage of the opportunities ahead and positioning the company for long term success with.
With that I'll turn the call over to Bob.
Bob.
Thanks, Lee and good morning, everyone. We delivered industry leading results. During this past fiscal year enabled by a terrific performance by team members throughout the chain, taking great pride in serving their communities through these unprecedented times I'm. So proud of their efforts and I am thrilled to share the results of their work with you today.
This past year has in many ways has been the most transformational year in our company's history.
Our team's efforts have allowed us to capitalize upon the opportunities afforded by the challenges of 2020.
We are of record membership are relevant on growing omni business, a robust real estate pipeline on a revamped balance sheet.
Bj's is a much stronger company than it was at the time of our IPO and the opportunities provided in this challenging year set us up to be even stronger in the long term.
Let's turn to our results for the fourth quarter.
Net sales for the quarter were $3 9 billion.
Merchandise comp sales, which exclude sales of gasoline increased by 16% and were driven by ticket and traffic.
Across our geographies, we continue to gain share at our members are expanding their baskets and increasing their trips to our clubs.
And the first three weeks of November comps were running north of 20% as we continued to see increased food at home trends and elevated consumer home investments.
We also experienced much earlier holiday shopping.
In the last week of November we began to see a relative slowdown given the absence of large parties on holiday gatherings.
This continued through December followed by a stronger January.
Our digitally enabled sales grew by approximately 168% and drove about five percentage points of our 16% merchandise comp.
We continue to invest behind digital platforms, particularly on both tech curbside pickup at the same day delivery, which together drove more than 80% of our digital growth during the fourth quarter.
As you know with digital our economics are advantaged versus many of our peers on the concentration of digital orders being fulfilled by our clubs further stockpot.
We operate of limited SKU warehouse environment with higher average ticket, allowing us to be more efficient.
Okay, and curbside sales tend to skew towards bigger baskets and same day delivery sales of the same margins as traditional sales in our clubs.
Most importantly, the growth of these businesses highlights our increasing relevance with our membership.
Digitally engaged members shop more categories have average baskets that are at 30% larger and make on average five more trips per year on members, who only shop traditionally or.
Our success on capitalizing on these trends bodes well for membership renewal rates is generally the more of a member of shops on spends the more likely that number is to renew.
Comps in our grocery division grew by 18%, we saw robust comps across all categories, most notably on perishables, where we saw strong growth in fresh meat frozen meals and fresh produce.
And edible grocery beverages, and salty snacks grew nicely and in our non edible grocery division paper products cleaning supplies on wellness solutions led the way.
Our general merchandise and services division saw comp growth of 9% driven by strong sales of Tvs indoor furniture, small appliances and consumer electronics.
Although we've made great progress our services business is still ramping back to its full run rate potential and represents a great opportunity for growth in the new year.
And our gasoline business, although sales were impacted by lower prices, we continued to gain market share GAAP.
Gallons sold at comp clubs in the fourth quarter grew by approximately 5% significantly outpacing overall market performance.
Over the course of the year and this past quarter, we delivered industry, leading results that demonstrate strong market share gains.
While these share gains were in part driven by demand associated with the pandemic, our execution accelerated merchandising activities and digital expansion. We're also significant drivers.
And stock up categories, such as household cleaning products, where we grew almost three times at the rate of market gross our share gains were driven by strong inventory levels on elevated member demand for these key items at a value.
At the same time, we're extremely pleased with share gains in new categories, we introduced including better for you snacks, which grew at six times at the rate of market growth and prepared foods, which grew nine times of the market rate.
We continue to focus on improving our perishables assortment, enabling us to grow twice as fast as the market with strong share gains on dairy fresh produce and frozen meals of this past quarter.
And our Sundries Division, where we continue to make significant progress. We grew at 13 times of the market rate with.
With significant gains in wellness solutions cleaning and baby food.
Our focus is to continue to build on these share gains and drive further growth.
Membership fee income or <unk> grew by 11% during the fourth quarter to $86 million.
The transformation of our company takes root here.
Of unprecedented levels of total members retention rate and membership quality.
We saw growth of new members renewals and favorable membership mix during the quarter.
We delivered a new all time high renewal rate of 88% for our tenured members along with increasing our new member retention rate.
By 300 basis points relative to the prior year.
Our penetration of higher tier memberships increased to 31% in easy renewal enrollment is at 70%.
As you know, we're beginning to lap the heights of New member acquisition of the pandemic back in March and April.
Well, it's obviously too early to discuss renewal rates for these members refined their elevated shopping behavior and digital engagement encouraging.
When we look at their baskets in Q4, they are approximately 19% larger than typical first year members.
In addition, they are opting into easy renewal at our higher tier programs at higher rates.
These new members are utilizing our app at double the rate of historical first year members and leveraging our digital services, including <unk> Curbside at same day delivery at more than six times historical new member rates.
Let's move now to our gross margins.
Excluding the gasoline business, our merchandise gross margin rate increased by 50 basis points driven by CPI initiatives on the mix of general merchandise sales. These gains were partially offset by increased COVID-19 related distribution costs.
SG&A expenses for the quarter were $593 million and included approximately $27 million of total costs associated with the pandemic.
These costs are primarily driven by increased labor safety and sanitation costs.
Our adjusted EBITDA grew by 36% to $205 million, reflecting robust sales growth and margin expansion on.
Adjusted net income in the fourth quarter was $97 million or <unk> 70 per share and reflected of 75% year over year growth on a per share basis.
Our earnings growth highlights the strength of our business and reduced interest expense provided by our transformed our balance sheet.
I'd like to take a moment to highlight our full year performance. During 2020, we had merchandise comp sales growth of 21% and eclipsed $15 billion of net sales membership fee income of $333 million, an increase of 10% margin rate grew by 10 basis points, despite significant price investments and elevated distribution costs.
Associated with Covid.
Adjusted EBITDA of $857 million of the growth of 47%.
And we more than doubled adjusted EPS at <unk>.
Hard to overstate the strength of this performance, but for just a bit of perspective, no that we started the year with a plan to do just over $600 million on adjusted EBITDA, our team should be very proud of.
We also generated a record $676 million of free cash flow. This year. This cash flow has allowed us to transform our balance sheet with $1 two times funded leverage versus two eight times last year.
Of this tremendous free cash flow allowed us to repay of more than half of $1 billion on debt more importantly, this reduced level of debt will allow us great flexibility with which we can invest into our future.
As we allocate capital going forward are overwhelming priority is to grow our business.
Investments to support membership omni and our real estate growth plan will be funded by these cash flows and enabled by this new found flexibility.
Our next priority is to opportunistically enhance our already strong and healthy balance sheet.
Finally, we plan to continue to return capital to shareholders and.
In 2020, we returned approximately $100 million to our shareholders by repurchasing two 6 million shares.
Evolution of the pandemic and associated member behavior government stimulus efforts and associated costs of running our business are far from clear as a result, 2021 is very difficult to forecast.
Given these uncertainties, we will not offer formal detailed guidance we.
We do hope and expect that the pandemic will fade as we progress through this year.
Based on current pandemic trends and vaccination timelines, we expect consumer demand will remain elevated through the first half of the year when compared to pre pandemic levels at <unk>.
Current shopping trends continue that would imply of high teens double digit stacked comps in Q1.
We also currently expect something that looks more like normal life to emerge as more people are vaccinated.
As that happens and more people venture back to restaurants, we expect to give up some of the sales gains experienced in 2020 that resulted from increased consumption of food at home.
At this point, we cannot accurately judge at the timing or degree of these changes.
From a membership standpoint, we expect of member count to be flat or better during 2021 at.
And expect MSI growth to be in line with historical years.
Lastly, we expect to continue to incur COVID-19 related cost for at least of first half of the year.
Note that we will also continue to invest in our business and our team, particularly on membership digital and geographic expansion.
These costs, we expect to achieve strong adjusted EBITDA and earnings growth relative to 2019.
Bj's wholesale club is a much different and better company today than at our IPO in 2018.
This is true in ways big and small, but let me focus on just a few.
At the conclusion of this fiscal year, we had nearly 20% more members about $1 million more than at our IPO.
Not only do we have more members, but the membership as of vastly better quality, we have of highest renewal rates for both new and tenured members in our history tenure of renewal rates are 200 basis points higher today than at our IPO higher tier memberships are 600 basis points higher at 31% easy renewal penetration of <unk> thousand 700 basis points higher at.
70% of disk.
Discontinue the practice of offering free trial memberships pivoting towards acquiring paid members with better lifetime values and continually engaging those members through renewal.
Most importantly, we are intent on investing heavily to retain the members gained in 2020.
We have tremendous momentum here on our intent on keeping it going.
We have a relevant on growing omni business at our IPO, our digitally enabled sales were approximately $140 million.
Today's business is more than five times that big and growing in 2018, we launched <unk> in same day delivery, but the experience was not great and we lacked key current capabilities, such as curbside pickup and the ability to order of fresh goods.
In the fourth quarter, approximately 50% of our bulk orders were picked up curbside and the usage of our App is twice as high as it was at our IPO.
We continue to invest in these offerings as they are the future at enable members more convenient ways to access our tremendous value.
We witnessed a tremendous acceleration of our real estate pipeline and the year of our IPO. We only opened one new club. This past year, we opened four new clubs all successful and we will open six in 2021 five of the six will be in the back half.
Moreover, we see a path to 10 clubs per year in 2022 and beyond.
Finally, we have a transformed balance sheet at year end in 2018, we had more than three times funded debt to adjusted EBITDA, we find ourselves today at with just above one times. This allows us tremendous flexibility to invest in our business and return capital to shareholders on ways. We couldnt have considered just two short years ago.
While the coming year's financial results, maybe noisy on hard to predict.
Great momentum and are pivoting from a deleverage story to a story about growth our pre COVID-19 algorithm included very low single digit topline growth.
While a return towards normal may temporarily cloud the picture, we expect membership trends and our progress on our real estate pipeline to power. Our revised algorithm that includes mid single digit topline growth in the future.
Those early signposts in membership and real estate should be easy to see concrete and powerful unlocks of future growth.
In conclusion, we are of team doing the best work Ive seen in my long tenure with the company.
I'd like to once again, thank them, all and I can't wait to report their future results.
And now I'll turn the call back over to the operator to begin the Q&A session.
As a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question press the pound or hash key. Your first question comes from Peter Benedict from Baird. Your line is open.
Alright, guys. Thank you for taking the question.
I guess first just appreciate kind of the color given all the uncertainty, but maybe you can speak a little bit more about kind of a thought process at the high teens.
On the stacks for this kind of I guess first quarter first half of the year.
Just how you are seeing.
The initial cycling of I assume that Thats, just extending what youre seeing right now, but just maybe any more color you can add on that.
And then my second question just is really more around.
How you think about.
The average spend per member here I mean, you gave a lot of detail there which was helpful. But.
So as we think of that versus 2019 levels.
Do you assume that.
Safe to assume that debt.
The members should be spending more than what they spent kind of in 2019 is that kind of the trend that youre seeing.
Alright, do you want to take that one Bob.
Sure.
Hey, Peter Good morning, Thanks for the question.
So listen we are really pleased with the way that.
The fourth quarter.
On the out.
As we said on the prepared remarks, it's incredibly hard to forecast what the next year is going to look like.
We simply tried to take.
What we saw on the fourth quarter.
Sort of.
What we would see versus last Q1, if those fourth quarter trends persist right. So just.
Very simply we did at 27 comp last first quarter end.
<unk> comp.
Q4, and so you can you can do the math from there.
None of US is very certain on how this will rollout we're very encouraged by what we're seeing under the covers and you bring up a good point with with with average spend.
The early the early read I think of is good.
But I do think well.
We'll see some some pressure on on the comps.
As we cycle the amazing results of Q1 and Q2.
Beyond that.
Just gets really tough to to understand what will happen, which is why we didn't.
Issue any guidance for the for the full year, but.
I think I think that's the right way to think about at on a stack basis. I think we built our plan off of 2019 levels and try to moderate that based on what we're seeing.
Throughout 2020.
Under the covers we see a lot of encouraging.
<unk> things, particularly in membership levels.
On the quality of the memberships, we tried to reflect that on the prepared remarks, but sort of all time high number of member of his all time high renewal rates.
Increasing renewal rates and both tenured and new new members.
Quality of the membership is amazing higher tier members continue to rise, 31% of 300 basis points easier renewals going great on across all of the cohorts.
Elevated shopping level of larger baskets trip consolidation.
Taking taking share from from all sorts of classes of trade.
So we're very very bullish about the long term of the business, it's just going to be a little bit muddy as we get through this next year.
Yes totally totally understood. Thank you for that and I guess my one follow up would just be around the COVID-19 expenses, I think which I think we're at 150 million. This year. Just can you I know you said you expect something to extend into.
And of 2001 can you give a sense of maybe how much you expect to extend and also maybe what was the COVID-19.
Kind of hit to gross margin I guess in the fourth quarter, how much of I think you said elevated distribution expense or was there any wages and stuff like that up there. Thank you.
Yes, no worries.
Yes.
And at a little bit difficult to give.
Give pinpoint guidance on because it largely depends on the state of the of the virus I do think it's fair to assume as we go through the front half of this year, we will spend.
Less than we did on the front half of last year.
As you know.
We were paying extra wages bonuses.
State of the disease.
Caused all sorts of spending in that period of around <unk>.
PPA on.
On keeping our team members safe, we will continue to do that to the degree that we need to.
Almost forever right of our team members on our members of their safety on our first priority.
I do think that will moderate versus versus what we saw in the first half.
At the back half of 2020 spending is probably a decent proxy to think about on the front half.
Of this year, but but again, it's a little bit difficult.
Is that spending has tended to vary based on the state of it.
A disease.
Sure, Okay, I'll listen Thanks, Bill I appreciate it.
Thanks Peter.
Your next question comes from Steph Wissink from Jefferies. Your line is open.
Thanks, Good morning, everyone. Lee of question for you on New unit of New market growth I think you had walked us through the plans for six new.
New units. This year 10, 10, plus 2022 and beyond help us think through the Greenfield versus big listing market penetration and then I think you referenced you've cracked the code on Bob Ma'am. Thank you crack the code can you just talk a little bit about what youre doing differently that you maybe weren't doing in the past, where your new clubs or opening up.
Much stronger much faster and it sounds like many of your at performance of your new members within those clubs is even higher than what you would've seen in the proxy cohorts will talk a little bit about new club.
Thank you sure thanks debt for the question.
As we said on the prepared remarks, we're very excited about the possibility for much faster unit expansion at the time of our IPO. We are opening one club per year. So to do four of last year aimed towards this year and then next year is.
As a real change end.
We spent a lot of time, just getting the model right and we feel like we've we've done that and so if you looked at Michigan, we're seeing membership levels that are 20% above the chain average is.
Little more than a year end with terrific first year renewal rates I think the key underneath that is.
It is a whole bunch of work by a lot of people on the team we're applying some fairly advanced analytics to figure out what the right site selection of it looks like in the markets how do we place ourselves in.
In the right location with good distances and good demographics.
We've opened with a much more aggressive and strong marketing.
We have the right assortment from the start we've got the right in store environment from the beginning with our new signage package at the right layout.
We're enrolling far more people in the credit card.
At at opening with just a really clear value proposition, we've got higher engagement with easy renewal.
We're essentially everyone on a new club joins easy renewal and so that's that's really all working for US as we look forward. It will be a mix of infill locations. Because there are still a number of places on our existing geographies, where we see opportunity, but it will increasingly be new new markets and that's really exciting for us because there's so much of.
The country is open to us that as we push largely further west we open up meaningfully on a meaningfully big.
Big opportunities to gain share and.
We are setting our sights on six of this year and 10 next year. It takes a little time to get there to build of real estate portfolio, but we're seeing really good real estate availability given the broader world of retail.
And just really pretty unlimited potential to have a multi year unit expansion story of that where we're very very excited about.
And anything on construction costs or Capex that we should be thinking about for this year, maybe from timing of those units into the model.
Yeah sure do you want to take that outside of it Bob.
Yes sure.
So.
Not too much to think about from a construction cost perspective stuff is.
Even even though the price of lumber for instance is up.
It was up a lot.
At steel has been increasing as well.
That's that's largely offset by the cost of the real estate getting a little bit cheaper and so.
I wouldn't I wouldn't stray too far from from the historic levels of cost per per club that you may have in your models.
As far as when when the clubs.
Would come into the channel.
So for the six this year one should open towards the end of the first half of that.
That will be in new Hampshire, and then <unk>.
Five should be probably in the fourth quarter is weak.
As we just started construction on those here in the spring end of it usually takes.
Eight of nine months to get them get them done on open so.
There'll be certainly back half weighted as I look forward to the following year that same trend should hold where we get we get one or two on the front part of the year on the remainder of the back part of the year.
Very helpful. Thank you very much.
Your next question comes from Robbie Holmes from Bofa Securities. Your line is open.
Hey, good morning, guys.
My question is I know youre, not giving guidance, but could you talk about maybe give us some puts and takes to how to think about your gross margin SG&A ratio or sort of your structural EBIT margin going forward.
You know under different scenarios is there do you think there has been an up shift in.
At the profitability of Bj's.
Most scenarios post pandemic like maybe just how should we think about that.
At the puts and takes on on scenarios as we try and model on.
You're on.
EBIT margin et cetera for next year.
Yeah, Hey, Ravi it's Bob good morning.
It's a good question, it's a bit hard to answer given.
Any way you could talk about is obviously impacted by sales.
But I do think as you step all the way back.
And compare against 2019 at its fair to assume that our company gets more profitable over time.
And I would make that statement because of two reasons. One we have more members and more sales I think under any scenario of than.
Then we did in 2019.
And the <unk> balance sheet.
<unk> much less interest costs, so 2021 interest should be.
Probably almost half of what 2019 interest flow.
So some of the companies should get more profitable over time, it's a bit hard to unpack all of those things.
And I would encourage everybody.
To remember some of some of the key things sort of sloshing around through the compares against the 2020. So you take Q1 for instance.
And remember we had outsized gas profits.
At a huge bonus accrual, where we basically capped out the management team's bonus for.
For the year.
We had huge apparel markdowns for instance, as the apparel business, Bob and then really restarted in Q2. So there are all sorts of things to think about among the quarters, but I think.
The story is great when you back all the way out and think about it.
On the long term once we get through this noisy period.
Companies should be growing at a higher rate as we as we talked about and it should be more profitable as we go.
Because we are increasingly leveraging our costs.
Got you that's helpful and just a quick follow up maybe for Lee.
When you look to the merchandising changes moving forward is it more on the fresh side of the business or it sounds like you had more success in hard lines, maybe some insight on what what's in the pipeline for Bj's on the merchandising side as you move through 2021.
Thanks Robert.
It's a bit of of mix, we're seeing opportunities across across the board. So certainly on our fresh food business, which is the heart of our shop, we will continue to tighten and refine the assortment with the influx of younger members. We're seeing it's becoming increasingly relevant to have organic options natural options. Good for you options and where.
Evolving our assortment in those directions and seeing really good results.
We are equally if not more excited about the opportunity.
In general merchandise and services.
Think about our business as roughly 17%.
General General merchandise, where some of our nearest competitors are meaningfully higher.
That we're not competing in all of the places that are competitors compete and as we've moved in that direction by tightening up the rest of the assortment. We're seeing youre seeing really good results, we got into meaningfully higher assortment of fitness equipment. This past year that was obviously timely with with the pandemic and people at home.
But it's broader than that we're seeing good results in consumer electronics, and our home assortment of some of the seasonal goods.
And we're really excited about that and on services I think is an underappreciated.
Underappreciated area of upside for us where many of our competitors have quite large businesses and services at had never been a major priority for the company until roughly a year ago, where we built out a new merchandising team focused entirely on services and on set about to build of construct at entirely.
The new set of of offerings and then this past year.
Got it into major appliances.
<unk>, new way, we've added meaningful offering and cell phones, we have totally retooled our home improvement offering.
We talked on the call about our pay later options and we think the opportunity for growth. There is just enormous and we're very excited about what we're seeing now to be fair a lot of that is driven by in club exponential shopping where we would have.
In our optical business.
We would have people come in and try on glasses and that wasn't happening as much during the pandemic. So we've been rapidly building out infrastructure and we would expect as some of the pandemic related restrictions fade that that business will be particularly well poised for growth. So it really is across the board.
That sounds great. Thanks, so much.
Your next question comes from Edward Kelly from Wells Fargo. Your line is open.
Hi, guys. Good morning, Thanks for all of the color today.
I wanted to first ask about about membership at retention, obviously at some big renewals coming up Youre optimistic about.
Retaining a lot of these members you've mentioned investment into that can you just provide a bit more color around sort of what youre doing to.
Try to ensure that of lobbies. These.
Members of our sticky and then maybe just go back and remind us about how these guys are shopping like how often are they coming to the store with the baskets look like at what does that cash.
Selling you about.
Pension.
Sure. It's a great question at thanks.
Thanks for asking at Youll remember it was about this time last year. When there was a meaningful change in consumer related behavior tied to the pandemic. It was.
Just a few days from now when the National Emergency was declared the NBA cancel their season, and we began to see of meaningful influx of members at that time that was well ahead of what we would we would normally see and so that that first COVID-19 cohort of members.
It's really important to us.
The early data.
<unk> is quite encouraging and we're fortunate because we have a whole slew of metrics to look at so we look at shop right how much they're spending what their basket size looks like are they engaged with us digitally.
Which membership tiers of they enter.
Bold and credit card higher tiers do they have are they included in easy renewal are they're engaging with us on promotions or their demographics favorable and really across the board. It's very encouraging so on the prepared remarks, we talked about baskets up 19%.
App usage at double the rate of normal new members Bubeck curbside same day delivery at six X the rate and so these are very engaged members.
The sharp rate looks relatively similar to what you would normally see on a world of kind of broader trip consolidation. So.
Across the board, we are quite hardened and we appreciate that these numbers are coming due for renewal in a period where <unk>.
<unk> pandemic related shopping behaviors are still largely holding across our footprint and there is likely to be another infusion of of government stimulus soon and so those two things along with the underlying shopping behavior would would bode pretty well for a strong renewal rates, but we'll find out we'll find out shortly over the course of.
For the next few months, what that looks like but as we sit here today. The signs are all quite promising.
Great and maybe just a follow up on new stores, New store commentary, obviously very encouraging what are you seeing in newberg and long on city, so far and then.
Just a question around how youre thinking about.
The financing of new stores versus sort of company owned versus lease.
And of generating the cash your stock's really cheap.
How are you thinking about balancing spending there relative to the options around sort of like returning cash to shareholders.
Sure, Let me take the first half and I'll turn it over to Bob for the for the second half of that that question. So newberg in long Island City opened at the very end of last year at within the in the last couple of weeks. The early performance of those clubs is.
He is quite encouraging we're seeing really good shopping results good good membership.
Results and we're excited about the potential for both of those.
There are a little bit more of an infill set of locations. Although there is white space for us both in and around the boroughs of New York and Long Island City, and then a little bit more.
A little bit further north.
With newberg, but we're.
We're excited about at those markets and we will obviously have much more of momentum included from them as we progress into this year with with just their opening on the back half.
And Bob you want to take the question around them.
Just kind of structuring and financing.
Sure.
Question on on how we are pursuing all of these things.
I hope everyone's noted at the bullish tone here on the tone of aggressiveness on wanting to really grow quickly.
The way we're attacking the real estate growth profile is is that way we are effectively.
Doing any type of deal that will get the the.
On the new buildings open quickly.
And if that means that.
It's a lease great. If it means of purchase great. If it's on a ground lease on the building great.
The fact that.
We are seeing so many opportunities.
Fact that we have a newly transformed balance sheet allows us so much flexibility to go to market.
So we will we will do any deal that makes financial sense.
In any structure.
I think that means.
Realistically that we end up buying more buildings buying more land on building buildings than we have in the path and so.
There will be of.
Fairly meaningful pick up in Capex this year as we currently.
As we buy more buildings as we go.
But we've got the cash flow and the balance sheet to do that.
I suspect that continues.
Go forward as well.
US we use the balance sheet of little bit more than we have.
Using exclusively Lisa so that makes it a little faster usually makes the deal a little bit more accretive to us as you take on the developer's margin in the middle.
But if the quickest way to do two of new store that we're attracted to at the lease we will still do that.
Did you give capex guidance Bob.
If I heard that.
We did at.
We didn't give guidance because we.
But on certain of its actually what will get done given COVID-19 delays on all sorts of stuff, but I think the.
The best way to think about it.
Yes.
<unk>.
Two more clubs.
Then the last year plus.
Plus increasing investments across the across the chain behind digital and other.
Other investment so it's not a game changer.
In our view, but it is more spending than we spent last year.
Thank you.
Okay.
Your next question comes from Kate Mcshane from Goldman Sachs. Your line is open.
Thank you good morning, Thanks for taking my question.
My first question was just on any thoughts or insight into.
Where some of your market share gains are coming from just based on where youre seeing the strength and some of those categories and then the second question was just focused on inventory.
Inventory at looks like it was.
Up double digits, just wondered if you are where you need to be when it comes to inventory going into the next couple of quarters.
Sure. Thanks, Keith for the question.
On on the share gain side of it.
We're really excited by by what we're seeing so we saw share gains.
Every market that we compete in from from Maine down to Florida.
Across almost every category and we think <unk>.
Every competitor just given our industry leading cause.
<unk> results for the year end for the quarter.
Some of that is clearly related to just the entre nature of buying in.
In bulk in a pandemic and its flowing to us at the club stores.
But some of it I think really does tied to the progress we've made against our strategic pillars and so.
If you think about.
Our gains on membership we've had really nice gains of membership at a high quality, we think that will be at that will be sticky going forward. We've made a number of changes to the assortment, which have positioned us well in new categories and so that's helping to drive share gain by just competing in places we haven't competed before.
With the new club openings at a higher rate even last year, we're getting into new places, where we haven't been before which is which is structural share gain and then the digital side of it is really encouraging. So we're seeing just incredibly strong digital engagement, we've talked before about <unk>.
An advantaged set of economics, there, where we're essentially picking in a warehouse with limited SKU.
And we highlighted on the call of the kind of the App engagement is just the centerpiece, but our app is delivering good day.
Delivering real utility with shopping list and personalized promotions and coupons access to all of our fulfillment options like like curbside.
Other than to pay in clubs through the App.
On the usage rate there is great. We're talking 5 million downloads with 30% effective monthly usage of that App. If you were to compare that with with scale competitors.
On any kind of adjusted basis, we have amazing app engagement that is that it's well ahead of.
Of some competitors, who get a lot of credit for being quite on the enabled and so we think that's sticky and is helping to drive our share gain and so just across the board while some of the share gain is on.
It is clearly tied to buying in bulk and pandemic behaviors. We do think of lot of the share gain is tied to.
Some of the progress we've made on initiatives end.
At the tough thing is just on dissecting those.
Those two factors and we're going to stay focused on on what we can control.
On the inventory side of things.
You've clearly we had a bit of an inventory build.
Against a year, where we were never in the quite on the in stock position net debt, we would like and so we spent time repairing that in stock position and then also just being really thoughtful about some of the upcoming large seasonal businesses that are largely sourced out of Asia.
In particular, particularly China.
Have heard about some of the container shortages at some of the port shortages and we wanted to make sure with kind of Chinese new year smack at the end of our fiscal year that we were well positioned and so we made a number of aggressive buys leaned into inventory to both plug holes.
Our our in stock position, but also position us well for kind of the spring.
B season coming up in summer season coming up end.
In that regard, we ended up being a little bit heavier.
In an inventory, but we did at to support the business going going forward, which we thought was the right call.
Thank you.
Your next question comes from Chuck Grom from Gordon Haskett. Your line is open.
Good morning.
Congrats on a really great year.
I wanted to ask a question from a little bit of a different angle I think you guys added around 700000, new members and cash.
Calendar 2020.
If we're talking to you guys a year from now I guess I'm curious what percentage of those would you be happy with each of you retain them as long term shop.
<unk> and then.
Bob just on the guidance for <unk> growth of if I look back.
Average number five dollar gross from 13 to 19 surround.
Around 4% is that a good proxy for the next couple of years I think you guys sort of historical so I just wanted to just sort of frame that up.
Okay.
Sure let me start on the membership side.
It's a good question I think.
We have done.
Think of nice job improving renewal rate ticking, the 10 year renewal rate to 88% I think really important as you think about that metric remember.
The definition is such that it really reflects progress through the middle of last year. So we're looking at renewals through the midpoint of the year with a six month lag thereafter, and so our hope would be we can continue to make progress on renewal rates.
Since IPO.
Improved about 100 basis points per year, we're very relevant we're making good progress with our credit card penetration of our higher tier penetration and my hope would be.
With with.
With continued increased relevance with all of the progress we're making on the strategic.
Priorities that we will be able to continue to make gains there, but this year will be it will be a pretty important one for us too.
Yes.
To demonstrate.
Demonstrate that trend and so.
We did stop short of issuing guidance because it is it's very hard to say what exactly that will look like but where we're very focused on.
On maintaining that.
And Bob you want to kind of weigh on and take the second part.
Yeah, I think Chuck.
Truck you centered on exactly where where we work.
What we're trying to get you to that historical years MFA growth statements. So.
I do think.
We are bullish for all of the reasons. We just we just stated but again, it's a little bit hard to hear.
At what might happen in sales.
Repaired remarks, basically said, we expect membership fee.
Membership count to be flat or better.
And that would imply something in the neighborhood of 4% MSI growth.
For next year.
At the flat level of it if it's better it's better and we're certainly going to pull every strength of trying to try and make it better as we go through this year.
Got it.
And then just a follow up.
Curbside has been really really successful for you guys. Just wondering if we could compare the basket size of somebody that purchases curbside to somebody that comes on the store how does the other.
Merchandize margin compare.
How that's evolved over the year. Thanks.
Basket size is bigger.
Across the digital platforms, so anybody that.
Pages with us on both of our curbside or same day delivery tends to buy.
A lot more in those in those baskets than they do a fee.
So that's great for our for our economics obviously.
There is a little bit more cost of corporate transaction of our curbside transaction for us, but if we can offset that with.
Got it thanks, and good luck guys.
Your next question comes from Mike Baker from D. A Davidson your line is open.
Hi, Thanks.
So I know, you're just starting to come up against those new members of signed up really independent of a book, but I think you try to get people to renew before they get to 12 months right don't you sort of go after them after 10 months or so so that would have been.
A couple of months ago already so any I noticed in the near term short term question, but any any sort of color into how that has progressed as you try to get these.
Got it from first signed up during the pandemic to renew.
Yes so.
<unk>.
The renewal rate really really happens at the one year, Mark and so I when people enroll in easy renewal.
There can be a little bit of pull forward because it typically would take a lot of the trigger on the first of the month.
And so we're not we're not renewing.
At that 10 month marker earlier, what we are doing is looking very intently at all of the shopping related behaviors to understand.
All of our people visiting the clubs are they using our digital services are they spending.
Their shop to include a broad variety of categories and were giving them.
As appropriate targeted incentives too.
To foster the behavior that will lead to renewal rates and so there is a large focus on making sure that the people are engaged they're shopping that starts earlier than the 10 month, Mark we're kind of constantly monitoring that through the lifecycle of of the number.
But the real the real.
Renewal rate is.
At the at the 12 month Mark shortly.
Shortly earlier, so we're just entering that that window now.
And so we don't have a lot of kind of quantifiable results other than the early indicators, which as we said across the board are quite promising.
Okay that makes sense and I really really hate to ask another really short term question, but you did talk about at a year ago. So I guess I'll ask you in your first quarter call last year, you said the fourth week of February was up on the low teen level.
And then I think you started to accelerate through the first week of March so as recycling up against that I mean can you talk about are we.
Sort of on pace with that high teen stacks.
Comment.
At the end of February and early March or is that more of what you think might happen as we as we progressed through March.
Hey, Mike.
Realizing you had to ask that question.
That's why we gave Q1 guidance and not.
Any texture in February we're trying to.
Cover the whole quarter with that texture that we gave rather than any one week with them within the quarter. There are just too many things.
Washington back and forth with them within the quarter to really make one week are reasonably.
Reductive metric and so.
We think the high teens stack is the right way to think about it and we'll see what happens as we as we go through the quarter.
Well fair enough. So since you didn't really answer that on slide one more in if your high teens stack that means down seven 8% are at 9% even in the first quarter what happens to your cost structure in the first quarter can you do more SG&A due lower hours do you somehow adjusted two eight to a negative comp.
Listen, we certainly try and target our cost structure two of the rest of our business end.
You have all of the extra Aeneas things that we're lapping as well that you need to consider.
No.
So simply put if we are.
We've got less shopping we would have a slew of slightly less labor on more shopping we would have slightly more of labor, but this is a fairly fixed cost.
Heavy business so.
So I guess, what I would what I would say is.
It's a bit tough to to give you an answer to that question as well.
As we.
We've learned to be nimble throughout the entirety of last year, we will need to be nimble as we go through this year as well on and.
And Thats and Thats, what we will do I think.
All of these short term questions.
Mean.
Yes.
To you all of these short term questions are just noise I think the thing that people should focus on is the long term.
Transformation of this business more members more sales more margin it should be structurally more profitable.
Versus 2019.
As we as we go forward.
And we will invest behind all of those notions right. We are we're in a little bit of of weird period here, but the entire management team here is very bullish on the state of our company on how we will how.
We will grow from here.
Yes, I think that.
Makes perfect sense, and it's pretty clear that the long term I think it should be better which is why I focus on the short term, but thanks for the color appreciate it.
And your final question comes from Chuck Cerankosky from Northcoast research.
Good morning, everyone.
Good morning, everyone. Congratulations on the year.
Wanted to get into a little bit.
Faster club growth.
What new markets can you talk about at this point at.
And how have you re staff to increase the staff of your real estate Department.
So we've certainly at.
And at some capacity across the.
Your organization Chuck.
To deal with it.
Going from <unk>.
All of our clubs at the six clubs is not of her herculean lift.
Go into 10 clubs is a little bit more and so as we as we continue to make progress against this this incredibly important strategical, we'll certainly invest behind that.
As we have invested behind digital of membership and all of the other things that are key to our success of theirs.
There is not much.
To worry about from a structural cost increase behind the real estate.
What could you talk about any of the new markets you'll be entering.
Specific cities for instance.
Sure. So so as Lee talked about at his in his remarks.
There'll be new markets and existing markets as we go forward.
And this year will be will be a mix of of those.
I mentioned, New Hampshire is the first first club.
And then.
We should we should be getting into a new market. This year in Pittsburgh undoubtedly that's been in the press. So so many of you have probably seen that our.
We're excited to get into that market. It's been that's been lacking from our Pennsylvania assortment for a long time.
And as we go forward into the new year at will be more new markets and it will be as of generally well.
<unk> March from there and so we're very excited we're seeing all sorts of good deals come across our transom.
Our team is working hard to keep up at the mall.
And when you enter a new market like Pittsburgh do you want to enter with more than one location.
Mediately as you did in Michigan, and then how 'bout distribution capacity.
How are you thinking about debt.
Sure every market's a little bit different Chuck, but certainly in a big market like Pittsburgh, We would love to enter with more than one club.
We will open two clubs there this year.
And hopefully more of in the future.
And distribution capacity right now is being.
It's not a lot of limiting factor sort of outsource, Mississippi is where you'll get a little bit of trouble.
And so as we as we move westward.
We may have to consider how we do that but right now we're comfortable servicing all of our new club needs out of our existing distribution format.
Thank you and good luck for fiscal 'twenty one.
Thanks, Chuck Thanks Chuck.
There are no further questions at this time I will turn the call back over to the presenters.
Great well. Thank you everyone for your for your time today on your interest in the company.
I hope going forward you all remain healthy and safe during these continued trying times.
I hope today is on even though.
This year is a bit tricky to predict as we lap the incredibly strong performance of last year end some of the Covid related shopping behaviors may change.
We do hope that you came away with a sense for how bullish we are on the long term prospects for the business as you think about all of the things we're doing to drive a different long term algorithm between membership the digital assortment that we're offering.
The product assortment and then the new club growth.
We're all very excited about our prospects for the years to come and look forward to.
Hopefully seeing you all in person in the not too distant future take care everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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