Q1 2021 BJ's Wholesale Club Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Bj's wholesale Q1, 'twenty 'twenty 1 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 task of question. During the session you will need to press star 1 on your top.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I'd like to turn the conference call over it and it's back and free Ha. Please go ahead.

Good morning, everyone. Thank you for joining Bj's wholesale club first quarter of fiscal 'twenty 'twenty, 1 earnings conference call, Bob Eddy President and Chief Executive Officer, Laura for lease Chief Financial Officer, and Bill 1 of our executive Vice President strategy and development are all on the call. Please.

And 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 expectation 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 form 10-K filed with the SEC for a description of those risks and uncertainties.

Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors at press.

Patient of this information is not intended to be considered and isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer today's press release posted on the investors section of our website for a reconciliation of these non-GAAP financial measures for the most comparable measures prepared in accordance with GAAP with that I'll turn the call over to Bob.

Good morning, and thank you for joining us and I Hope you all remain healthy and safe.

We had another incredible quarter full of challenges overcome by our dedicated and talented team members.

'twenty 'twenty, 1 has felt a lot like 2020 in many ways, but and 1 distinct way it has become completely different.

As you know 6 weeks ago, we lost our leader and friend, Lee Delaney and and unexpected fashion.

He was fascinating and fun and will be deeply missed by our team.

And the legacy envision remain ingrained in our culture, and and how we will run our business for the future.

Personally I've been inspired by and grateful for the outpouring of love and support from our team and from all corners of the business world, including the investment community.

His first priority throughout last year, what's the safety and wellbeing of our team members members and communities that has not changed on my watch.

This past quarter, we maintained our investments and wages enhanced benefits and safety measures across all of our clubs distribution centers and home office.

Our success has been driven by the hard work and dedication of our team members and I continue to be extremely proud of their efforts.

Bj's has transformed in many ways and the last decade, and the most impactful change and it's been our ability to grow Archie and and attract and invest and world class talent.

These investments along with robust succession planning enabled our board of directors to quickly make management changes and the wake of lease passing.

Lives, which speak to the depth and strength of our leadership team.

Our board and unwavering support and guidance have been instrumental to our success.

I'm honored to be leading this growing company and great team as president and CEO.

I've been asked many times lately, whether I will change our strategy and it is important for you to know that I developed a strategy and partnership with Chris and Lee.

We worked hand in hand, together for the past 5 years.

Well I may choose to alter the speed of certain actions you will not see me alter our general course at this point, we'd have a sound strategy that should enable our continued growth.

Moreover, I've successfully built fantastic teams of people throughout my career.

Our new team is no different its comprised of seasoned and talented executives with a breadth of experience and retail and consumer industries.

Let me provide background on key members of our leadership team.

Shortly you will hear from Laura for lease our Chief Financial Officer.

Laura has been and integral part of our leadership team since he joined the company and 2016 and I've known her for many years before that.

He has played an instrumental role in driving our strategic priorities, most notably enhancing our balance sheet and being a trusted advisor to our team as they work to capitalize on investment opportunities to further our growth.

She has an idea of leader to serve as our CFO.

And technical skills with strong strategic insight.

Another key partner of mine as Paul Joe Hockey.

Paul joined US back in April of 'twenty, and 'twenty and now serves as our Chief commercial officer.

And this role he will oversee merchandising membership marketing and analytics.

Prior to Bj's, Paul was a partner at Bain <unk> company, where he spent more than 20 years advising clients on a variety of strategic and operational matters across industries, including retail consumer products and financial services and food and beverage.

His extensive experience and leading performance improvement and transformations make them instrumental as we continue to transform bj's and build on our momentum and continue to drive profitable growth.

Bill Werner who you all know very well is now executive Vice President strategy and development.

And this new role Bill will lead our real estate expansion efforts and key strategic initiatives, including our co brand credit card program and financial services.

Feels intimate knowledge of the financial side of our business pairs, well with his great vision and creativity.

We've already made so much progress on initiatives led by Bill and I can't wait to see what he and his team can do and a more focused manner.

Along with Laura Paul and Bill and their new roles just of Roche's continues to oversee our field operations across clubs distribution centers and gas stations as our chief operations Officer.

Monica Schwartz, who joined the team late in 2020 as our Chief Digital Officer will continue to drive our digital transformation strategy.

Scott Kessler, our Chief Information Officer continues to ensure that we have the right technology and systems to support our business and transformation.

Lastly, our entire team is supported by Mark Griffin, our Chief Human Resources Officer, and Graham loose our general counsel.

And I'm Lucky to have such great partners with which to run this business.

I've said before that we are a much stronger and better company today than we were at the time of our IPO in 2018.

And I continue to firmly believe that.

Let me cover our financial performance for the quarter at a high level.

Our first quarter results were quite impressive we continue to see elevated consumer spending most notably and general merchandise.

And 2000, Twenty's market share gains and enjoy benefits from government stimulus payments.

We delivered a 2 year stacked comp sales growth of 22 per cent.

Adjusted EBITDA of $202 million and.

Adjusted EPS of <unk> 72 cents.

Free cash flow of of $191 million.

And we ended the quarter with a leverage ratio of 1 times.

In addition to our strong performance, we made progress on each long term strategic pillar.

Our pillars remain growing and retaining our members.

Delivering value with merchandising and marketing improve.

Improving convenience with digital and strategically expanding our footprint.

I'll provide a little more detail about each.

Membership is the bedrock of our business and where our transformation takes root.

2 qualities matter, most of and membership size and quality.

Let's first address the size of our membership we entered the year with the largest of member ship count and our history and our plan to keep total member count flat, while lapping the highest member of growth period and our history.

I'm very happy to say that we grew our membership base by 8% during the first quarter compared to the prior year.

Growth was driven primarily by record renewals.

Well as growth from new clubs.

We're very pleased with our results as we experienced the highest rates of renewal and our history on our largest class of member renewals and our history.

This year and a way like no other year renewal is acquisition.

Renewing members is far more valuable as they have higher M F I versus newly acquired members of that typically join through of discounted offer.

We also have individual data to leverage on these renewing members, allowing us to increase their engagement over time.

As we continue to renew last year's large class of members, we have an incredible opportunity and we intend to take advantage of it by differentially investing and engagement and renewal.

I should note that although the renewal of data is incredibly encouraging these are very early measurements.

And real factors could influence the renewal rates, we ultimately disclose at year end, such as timing and behavior differences.

We also.

And you to improve the quality of our membership base, we're making progress with higher tier penetration, which is at 31 per cent for the quarter.

Compared to the year of our IPO, the number of higher tier members and our chain has doubled.

In addition, more than 72 per cent of our members are now enrolled and easy renewal.

Also we've eliminated trial membership from our acquisition strategy.

And improvement in membership quality is most evident and the growth we are seeing and M. F I per member of <unk>.

Progress, we're making and membership and in terms of growth renewal and quality of members will help power our revised long term algorithm.

Our assortment optimization is key to continuing to deliver unbeatable value to our members.

Our strategy is to simplify our current assortment and order to enable expansion into new high demand categories and flex our space to meet evolving member demand.

New categories, performing well include fitness equipment and connected home.

Under Paul's leadership marketing membership and analytics will be integrated within merchandising.

Which should further accelerate our work and drive results.

This quarter, we made great progress and growing our own brands as penetration increased to 22 per cent.

This increase was driven by strong growth and summer seasonal furniture, and other home related categories as well as frozen and perishables.

Our services business remains a key priority.

Have a tremendous opportunity to elevate the value of our membership and deliver growth by creating an ecosystem of services that provide demonstrable value to our members.

We began investing and expanding our services portfolio of prior to the pandemic by bringing our optical business and house and by launching of cellular offering with AT&T.

We were pleased with the early successes, we saw our new brands and optical and our strong value of resonate with members.

Given the high contact nature of services.

Pandemic delay at our efforts to scale of these businesses, but they are both now open and growing nicely.

Additionally, we have continued to steadily enhance the portfolio with new and exciting services. We identified several long term gross segments, including financial health and home services.

We upgraded and further digitally enhanced.

Our offerings and optical home improvement major appliances and financial services.

This past quarter of the business began ramping back up and we saw strong growth across the portfolio of particularly in optical and and major appliances.

As we progress throughout this year and into next we expect of services business to be of meaningful growth driver for our business.

Our digital business allows us to offer convenient access to the tremendous value of that we provide every day.

Our digitally enabled sales grew by 31% this quarter and 381% on of stock basis, surpassing our elevated expectations.

We are more relevant than we've ever been and the digital space and engagement. Among our members is most evident through the increased use of our app, which has been downloaded over 5 million times.

Approximately a third of our members use our app regularly.

On a scale of adjusted basis, our App engagement remains ahead of many of our competitors.

As we continue to make shopping meaningfully easier and faster.

Also our expanded digital fulfillment options continue to resonate with members as more than half of our bulk orders were delivered curbside at this past quarter.

Finally, our plan to enable members to use E. B T payments when shopping on Bj's Dot com for and club pickup and curbside pickup remains on track pending state approval, we expect digital and E. B T payments to become available and all eligible locations and the next few months.

Our efforts to expand our footprint remain encouraging with the support and hard work of our talented team I am confident that we will open 6 new clubs this year and as many of US 10, more and new clubs and 2020.2.

Our 'twenty 'twenty, 1 clubs are expected to open and the latter part of the year.

Including new locations and Seabrook, New Hampshire Port Charlotte, Florida.

<unk>, and New York, Lansing, Michigan, and 2 clubs and Pittsburgh, Pennsylvania, which is a new market for us.

We also expect to open 9 gas stations in 2020, 1 followed by a dozen or more gas stations in 2020.2.

Which means 3 quarters of our clubs will have gas stations by the end of 2020.2.

We're excited about our expansion efforts and our confidence is underpinned by the strong performance, we are seeing and our new clubs, particularly in terms of membership gains and renewal rates.

And our Michigan clubs and in Pensacola, Florida first year retention rates are well above chain wide averages.

This furthers our confidence and our expansion efforts as it demonstrates that our brand resonates and new markets.

Overall, we are incredibly proud of the progress we've made.

Looking ahead, we continue to face uncertainties driven by market factors outside our control.

Most notably the trajectory of food at home consumption and the overall macroeconomic environment.

In fiscal 2020, we experienced historically high comp sales and a sizable portion of our performance was driven by pandemic related shopping, particularly the need to buy in bulk and eat at home.

As the pandemic fades and consumer behavior evolves, we would expect to give up some of those sales gains and that resulted from increased food at home consumption.

While a return towards normal creates some noise and the remainder of this year and into the next.

We expect our membership trends and optimized and expanded assortment robust digital business and expansion progress will power a revised algorithm that includes mid single digit topline growth and the future.

Our confidence is reinforced by our belief that macro trends will work in our favor.

We believe that at home food consumption will reset at a level higher than historical levels.

As consumers will likely consume food at home more than they did prior to the pandemic.

Economic uncertainty will continue to increase the focus on value and demand for convenience will likely remain relevant.

Therefore, we expect our unbeatable offering a value and convenience will be a winning formula.

Lastly, our higher unit growth rates will allow us to tap into a considerably expanded addressable market.

And continue to grow share.

Let me turn the call over to Laura to give a bit more color on our results and view of the future Laura.

Thank you Bob and good morning, everyone.

I'm honored to be here this morning, and grateful for the opportunity to continue to partner with the teams transformed Bj's wholesale club.

Our strong financial performance and the acceleration of our strategic priorities are powered by the dedication and hard work of our team members, who continue to execute at the highest levels.

I'm very thankful and proud of their efforts.

And my new role as CFO and will continue to execute on the priorities that we previously laid out which include driving profitable growth executing on our long term strategy to maximize our potential and enhancing our balance sheet and capital allocation plans to create shareholder value.

Our company has enjoyed a collaborative relationship with analysts and investors over the last few years and this engagement will remain essential to our long term success.

Working with Bob and the team I look forward to partnering with you over the continuous months.

Let me now turn to the results for the first quarter.

Net sales for Q1 were $3.8 billion.

And dice comp sales, which exclude sales of gasoline and reflecting a positive 22% 2 year stacked comp.

Let me give you some color on the comp cadence for the quarter relative to our internal plans.

And February comps were slightly behind our internal plan, we saw an acceleration and March and April relative to our expectations as we benefited from stimulus payments.

Strong member retention and elevated sales and general merchandise categories.

Our digitally enabled sales grew by approximately 31% and.

And 381% on a 2 year stacked basis and drove about 7 percentage points of our 22% stacked merchandise comp.

On a stacked basis, we saw robust and strong growth across all of our digital channels, particularly and Bo pick curbside pick up and same day delivery.

As you know our digital business is economically advantaged compared to many of our peers and the bulk of our growth and digital is fulfilled through our clubs.

Furthermore, we operate in a warehouse environment with limited number of Skus and a higher average ticket, enabling us to be more efficient.

OPEC and curbside sales tend to skew towards bigger baskets and same day delivery sales and have the same margins as traditional sales and our clubs.

Most importantly, gross across our digital channels and highlights our relevance did.

Digitally engaged members have higher average baskets and make more trips per year, the members, who shop and club only.

As we've said before generally the more of a member of shops and spends the more likely they are to retail.

Comps and our grocery division were 23% stacked, reflecting a negative 10% comp for the current quarter and of 33% comp and the prior year.

As expected, we saw a decline and our grocery and Sundries division as we lap the heightened demand for paper products cleaning of essentials package goods and beverage driven by the onset of the pandemic last March.

On a 2 year stack basis, we saw robust growth across all divisions, particularly and perishables, where stock comps were in the mid 20 per cent range, and we saw growth and fresh meat and frozen meals and fresh produce.

Our general merchandise and services division saw comp growth of 32%, reflecting a 29% stack comp.

Recall that our general merchandise and services division saw a comp decline of about 3% and of prior year and sales of apparel decreased and we turned off our services businesses.

Our robust growth and the quarter driven by strong sales and seasonal categories, such as patio sets apparel and home related categories, such as furniture and consumer electronics.

We also saw strong growth across our services portfolio relative to the prior year and also sequentially.

Although services represents a small portion of our business, we expect to continue to invest behind it and expect these investments to fuel future growth.

And our gasoline business, we continue to gain shares gallon sold at comp clubs and the first quarter grew by approximately 29% significantly outpacing overall market performance.

Membership fee income or M. At Phi grew by 9% during the first quarter to $86 million.

Our MSI growth was driven primarily by strong member renewals and improved membership mix at.

As Bob noted this quarter, we lapped the heights of our new member acquisition back in March and April of last year.

Renewal rates for these members outpaced our expectations and their elevated shopping behavior and digital engagement is encouraging.

We're focused on maintaining these members and moving as many of them as we can and so our tenured base and addition to our tenured members are renewing at higher rates and we continue to improve the quality of our membership base through growth and our higher tier of penetration and easy renewal program.

Let's now move to our gross margin.

Excluding the gasoline business, our merchandise gross margin rate increased by 80 basis points driven by mix of general merchandise sales CPI initiatives and private label penetration.

As a reminder, and Q1 of the prior year, our gross margins were impacted by markdowns, we took on our apparel inventory and significant inflation and some commodities like eggs, where we invested meaningfully and price.

Yeah.

SG&A expenses for the quarter were $600 million compared to $590 million and the prior year and included a couple of 1 time costs.

We incurred approximately $17 million of stock compensation expense related to the accelerated vesting of lease stock awards.

In addition included within SG&A is at $2 million.

Cards of severance that resulted from the realignment of our field operations.

Our adjusted EBITDA grew by 4% to $202 million and reflects continued margin expansion and disciplined cost management.

Interest expense for the quarter was $19 million and included a $5 million charge related to the partial pay down of our first lien debt.

Adjusted net income for the first quarter was $100 million or 72 cents per share and reflects a 4% year on year gross on a per share basis.

Our earnings growth highlights our strength of our business reduced interest expense as we continue to enhance our balance sheet.

Please note the adjusted earnings and Q1 excludes 1 time costs I mentioned earlier lease accelerated stock compensation expense severance costs and pay down of debt charges.

As a result of our solid performance, we generated 191 million and free cash flow.

In addition, we paid down 150 million in debt and bought back $14 million worth of shares.

As Bob noted we ended the quarter with 1 time funded leverage.

This reduced level of debt will increase our flexibility to continue to invest and the future.

Looking ahead, our capital allocation strategy remains consistent and.

Above all else our top priority is to invest and grow our business, particularly investments to support membership digital and our real estate growth plan.

We will look to opportunistically enhance our balance sheet even further.

And as we plan to continue to return capital to shareholders through our share repurchase program.

Ultimately our goal is to ensure we have the appropriate capital structure that enables the company to succeed and the long term, while maximizing shareholder returns.

Let me now touch on the outlook for this year and provide some perspective on our long term algorithm.

2020, 1 remains difficult to forecast given the number of uncertainties, most notably related to the timing and size of the shift of our consumer behavior away from food at home.

As a result, we will continue to refrain from providing formal guidance.

That being said I will share with you our best high level view at this point.

Looking at our topline and based on our current assumptions, we would expect comps for the remainder of the fiscal year to be and the negative 10% range, implying a 2 year stacked comp and the low teens.

Our assumptions are based unexpected deceleration and food at home consumption as consumer spending reverts back to normalized levels.

From a membership standpoint, we continue to expect total member count to be flat or better during 'twenty 'twenty, 1 and for full year and mifi growth to be in line with historical years.

And <unk> growth will be weighted more towards the front half of the given year the way renewal flows should happen well.

Well, we expect to continue to enhance our membership base with new members and renewals.

These drivers will have a more significant benefit beyond 'twenty 'twenty 1.

From a gross margin perspective, while we expect to continue to benefit from CPI initiatives and private label growth. We do not believe that Q1's merchandise margin rate improvement will recur.

First we are mindful of the easy compares against last year's numbers.

Next we are conscious of the current inflationary environment.

As we have said, we always invest and price to maintain and enhance our unbelievable values for our members. So we may see margin headwinds and future quarters.

Finally, the availability of general merchandise inventory.

Could have an impact on our margins, particularly and the second quarter and potentially and the remaining quarters of the year as well.

It's difficult to guide with great specificity here, but we are confident we are able to manage these headwinds and continue to drive profitable growth.

We expect to continue to incur COVID-19 related costs for this foreseeable future associated mainly with safety and sanitation.

We expect these costs will be roughly in line with Q1, and they will vary accordingly to the situation and each quarter.

No doubt, we will continue to invest and our business and our team, particularly of membership digital and geographical expansion.

Yeah.

And while external factors are impacting our near term results. It's important to reinforce that our performance for 2020..1 continues to be ahead of historical plans and that our confidence and the long term health of our business remains the same.

We continue to expect membership trends, our assortment and digital initiatives and geographic expansion to power. Our revised algorithm that includes mid single digit topline growth and the future.

At this point I'll hand, it back to Bob to close Bob.

Thanks, Laura.

I'd like to leave you with a few key messages for.

P. J 's wholesale club is a much different and better company today compared to 12 months ago, and we are poised for more growth.

For significantly more members at our membership as a vastly better quality.

We are intent on investing heavily to retain these new members and have done a great job executing on that so far.

We are of relevant and growing digital business, which continues to resonate with our members and on a scale of adjusted basis is ahead of many of our peers.

We accelerated our geographic expansion efforts, we will open 6 new clubs this year and we see of past 10, new clubs in 2020 and beyond.

Importantly, our brand is resonating and new markets and we are seeing robust membership growth and strong renewals and new clubs.

And we've generated nearly $1 billion and free cash flow over the last 5 quarters, we've transformed our balance sheet and when we use the resulting flexibility to invest and future growth.

Next we have of World class team, leading this company with more growth on the horizon I could not be more proud to work with all of my partners on our executive team, they're phenomenal executives and my success is due to their efforts.

And finally, I'll end, where I began.

Our recent past has been full of challenges, but we've seen more progress and transformation and the last year than an end of year of my tenure.

While the next few quarters will bring headwinds that temporarily mask these long term gains.

We will reset at a higher base and of faster growth rate.

I'd like to thank our entire team for getting us through the last few weeks.

And for continuing to push us forward.

Now I'll turn the call back over to the operator to begin the Q&A session.

And you'd like to ask a question at this time. Please press Star then the number of 1 on your telephone keypad, if you'd like to reach all of your question press. The pound key first question. It comes from Robby <unk> with Bank of America.

Yeah.

Oh, Hey, good morning.

Great quarter.

I think you really 2 questions Bob.

And the opening comments you mentioned that you may alter the speed of strategy I was wondering if he could talk a little bit more about that would that be accelerating general merchandise strategies and store growth.

And we be more than you're saying, maybe maybe a little color there and then for for Laura I would love to get a little more detail on the on.

The second quarter gross margin pressures related to the input cost inflation and and also what youre seeing on procuring merchandise.

Yeah.

Rob and good morning, thanks for the questions.

Listen I'm incredibly humbled to lead this great company and and we've got tons of growth ahead of us.

As I said on the prepared remarks, I don't envision at this point really changing the overall strategy of the company with Lee and Chris and I developed at together I think it's clearly working here if you look at.

At really any of our our results over the past few years and and that gives me tremendous confidence and and the strategy overall.

You know I think I think every new quarter brings something different and that may cause us to change 1 thing or another.

And I'll give you a couple of couple of examples where we're certainly seeing.

More inflation of.

Late getting.

Getting to your second question.

And that might cause me to.

Press the accelerator on our on our assortment changes a little bit right and.

Rationalize some skus that might be.

And <unk>.

[noise] might be inflating at a little bit more than we think they should.

For instance, certainly our real estate is a big 1 of mine as well and and putting bill and charge of that and a more permanent basis.

With his team.

Would indicate that we have tremendous confidence there what we're seeing and the men.

<unk> data and Michigan and at Pensacola, certainly reinforced that and we know that we would like to grow our unit count as fast as possible. So.

You know what.

We'll take it 1 quarter at a time and and make the decisions that we think we need to make but our strategy of sound. Our results have shown that it's working and we're incredibly pleased with with all of this this quarter are at work.

And though.

Do you want to talk about a little bit about inflation, we didn't see.

Too much of it and the first quarter, we are starting to see a bit of it and the second quarter.

And it's important to think about.

It's important to think about inflation.

Potentially a good thing and it gets a bit of a bad rap.

On a headline but and our business it can.

And it can actually when managed appropriately can kind of widened price gaps and make us look a little bit better at.

And certainly pressure consumers' wallets and anytime anytime consumers budgets are pressured they come to.

And they come to our channel and and they come and they come to us.

We've got a great tool kit to deal with inflation, although it's been a long time since we've seen a.

And this much inflation, we've got a great toolkit to deal with it and.

CPI is at the center of that we can certainly as I said earlier I choose to rationalize skus of little bit faster or we can buy and inventory ahead of a ahead of price increases we can do a number of different things and and we have a cohesive plan under Paul's leadership with our merchants to do just that and.

And we'll go forward and deal with whatever whatever and <unk>.

And our environment brings us, but it's not necessarily a bad thing.

2 of our company, we may choose to invest and price as we go out and go ahead, we have typically done that and the past and it was <unk>.

For it and to continue to show.

Tremendous value to our members, but overall as long as the inflation is a rational and reasonable it's not it's not a problem at all.

Got it thanks, so much Bob.

Next question comes from Peter Benedict with Baird.

Oh, Hey, guys. Thanks for taking the question I guess and.

And that maybe a little bit of the inflation and the mix factors on merch margin and obviously the first quarter trend not expected to continue do you think you could see outright declines and merch margins as you look over the balance of the year or just maybe we're talking more flattish as opposed to of the gains you saw at <unk>. That's my first question.

Yeah, Hey, Peter good morning.

And it's difficult to predict what we'll see through the rest of the quarter. So I'd hate to give an actual number about it are.

We are seeing more inflation as I just said.

We will invest and price to maintain price gaps.

For 2 to widened price gaps are.

So we'll see what actually happened, but I think of you know.

Ignoring inflation the general merchandise sales have been wonderful and they've been at higher rates. So theres a bit of a mixed benefit there of the services business is starting to ramp back up again and.

That's a that's pretty margin dense and business as well. So we've certainly got some tailwind to think about that.

That might offset any of any inflationary.

Headwinds, we just didn't we looked at the 80 basis points and Q1, knowing that roughly half of it was due to the easy compares from last year, and we didn't want anybody to take that and extrapolated for the full year. It's it's a it's not our expectation of that would incur occur again.

But we do think and our margins will continue to be good.

No no fair enough that makes sense for Bob Thanks, and then I don't know if you guys are at.

Mid and effort to try and even sized the stimulus benefit there and the first quarter.

If you did just any more color around that and and the go forward merch comp for you.

And our extra did we hear that is the expectation and low teens 2 year stack.

And is the way youre thinking about merch comps over the balance of the year or just maybe clarify that thank you.

Yeah, you know Peter it's terribly difficult the size of the stimulus benefit throughout the quarter.

We certainly enjoyed the benefit we could we could tell immediately when the when the check started going out.

So it just so happens and it was at the time, where we started to see the great renewal and data that we've been saying all quarter at the same time. So so if I look at the Q1 results February was a little bit behind our plan of March and April were way over our plan and of those 2.

And certainly benefited from stimulus and from the membership benefit.

And so it's just a little difficult of coal pulled those those 2 things apart.

And maybe I'll, let Laura talk a bit about the guidance and we can we can go from there.

Yeah, Hey, Peter.

So like we talked about in the prepared remarks, I think we're continuing to see.

Strong business and are happy with the direction, that's going on and we'll refrain from providing longer term comp guidance.

And generally think.

That kind of the direction, we're going at.

Yes.

And <unk>.

Yeah.

I'll add a bit of texture to it and you think about that.

But the headwinds and the tailwind as we go through the rest of the year. We have we have tremendous talents to think about member of flows.

Shopping habits inflation easier compares.

We also I think we'll have some headwinds to think about and the biggest 1 to think about there is food at home.

And we took tremendous sales gains last year and for them at a share gains last year.

As a result of of of Americans eat and more food at home I would think that as the world opens up again and people get back into their offices and they go back into restaurants.

That means that food at home and retract at all.

Think of of attracts all the way to where it was pre pandemic because of.

People have gotten used to eating a ton of at home.

But I do think that that causes of a headwind as we go through the year, you'll have a stimulus rolling off you have some of the pantry deload and we saw and.

And our sundries business and the first quarter, you've got some meaningful headwinds to think about all of that gets too.

The guidance that we put forward.

None of us really knows whats going to happen and we wanted to make sure we are.

Put something out there, we are reasonably comfortable with and and.

And so that's why we gave that number.

Well at that.

And that's totally fair My last question and I'll turn it over just on the leverage 1 times and there were some comments around looking for opportunities to enhance further and.

And he's already pretty attractive right now, but just latest thoughts on where where you would like to see leverage let's say a year from now or.

And what would you be comfortable operating at just kind of thoughts My last question and then I'll turn it over thanks guys.

Yeah, Peter I'll take that.

I think where we're happy with where we are right now certainly better than what we expected I think a year ago or even going back further and we've made tremendous progress.

From a leverage standpoint.

We will certainly.

Certainly continue to invest and the business specifically our strategic priorities.

I think we'll we'll look to go after the share repurchase program like we've set out with our board and continued discussions on on where we go from there.

Okay. Thanks, so much guys. Good luck thanks Peter.

Next question comes from Mike Baker with D. A Davidson.

Alright, guys.

So a couple of well 1 again on the comps.

So low teen stocks are at.

That suggests for the rest.

And that's just down 12, and the second quarter is that what you're currently seeing and then a follow up to that would be is is is the kind of outlook. How does the current outlook today compare to when you talked in the fourth quarter at the discussion there was about high teens and the first half, which I think is consistent you know if you do 22, and the first quarter and.

Low teens and the second quarter that that's about consistent but I just wanted to wanted to see.

And how your thoughts are and now versus 3 months ago.

Yeah, Mike.

Haven't really changed all that much of it.

I don't want to get into that.

Dissect and quarters, we tried to give a little bit.

And more in terms of of color.

This quarter, just just as we looked at what was out there for consensus and the back half of <unk>.

You know.

Not not a tremendous amount of has changed.

You know a lot of the rest of the year well it will depend on what happens from a food at home perspective, where.

<unk>.

I'm incredibly pleased with what we saw in Q1, and so I wouldn't take the guidance and and read into the early part of Q2, it's been it's been tough.

I wouldn't really.

Think about at that way I would just think about it we are.

Just trying to be honest about of what.

What we think might happen as the world starts to open up again.

<unk> from <unk>.

3 months ago is really of the stars.

Speed with which we've gotten people vaccinated the speed with which we are no longer wearing masks for the 4 of US are sitting here and our conference from here.

Masks for the first time, and a year and a half and we think that may spur.

Speed peoples.

Yes.

Behavior change along a little bit.

I don't I don't think of.

I don't think that's a giant change from what we said just of just a couple of months ago and.

I think the most important point and this discussion is please don't confuse the short term with for long term.

Uh huh.

For the short term is going to have bumps and at its going to be.

And more about what happens with food at home as the World Reopens once we get through this noisy period all of those tailwind for that I talked about with Peter's question come into play from the membership alone should should power us to have much better comps and we did pre pandemic you layer and the real estate.

Growth at that.

Bill and team are putting putting up and thats power, even even more comp growth and so once we sort of re baseline we feel like this company grows at a much faster comp rate than it did pre pandemic that we can leverage the business better that we generate more EBITDA that we can buy back more shares because we are much more cash generative.

Today than we were.

Just a year ago and and.

And all of that powers incredible financial results as we get as we get sort of into the future.

Yeah that that that that's very helpful. Thank you 1 follow up on the.

Renewal of members, who signed up last.

And it was probably last March and April and I suppose what we're looking at you said it was better than expectations, but I guess the question is what were the expectations or more simply how can you talk about the renewal renewal rates of that cohort relative to the historical first year renewal rates, which you usually and the 50 to 60 per cent range.

Thanks, Mike.

We had fantastic membership for and our results in Q1, and there's really no no other way to.

<unk>.

You pointed out where we were historically, we went into the quarter thinking we would do much better than that.

Of the setup was pretty optimal to renew that giant and class of members where.

And we were still and that piece of the pandemic of stimulus dollars came in exactly when.

When we started to renew those folks and sort of of setup couldn't have gotten any better and and frankly the data that we're seeing couldn't get much better either it.

It was very very very very good it is a.

Very very very very early as well and so we just want to temper, our own enthusiasm and and maybe yours hopefully yours.

With that at that point that it's that it's a bit early we're looking at.

And what we call zero day of renewal rates right on time renewal rates.

And my my membership expires on March 1st I renew on March 1st and those are the best renewal rates, we've ever seen and our history.

We typically disclose at year end of <unk>.

Different metric, which is of lagged metric and for 6 months post view of of.

The year, so what we disclose at.

January year end is what happens to folks that were due to renew by July lagged all the way to.

And to January and that sort of evens out any timing differences or behavior changes are or what have you. So so this is incredibly encouraging data, but it's very very early data and and we don't want to get out over our skis on at.

But at as I said on the prepared remarks, the best renewal rates we've ever seen.

And the biggest class of members we've ever seen.

Yes.

That's first year of his 10 year renewal rates were at were great as well of member behavior was great as well throughout the quarter. So.

Lots of too.

To anticipate and to be to be happy about.

But again, it's it's a bit early.

I appreciate all the color.

Sure.

Next question comes from Chuck Grom with Gordon Haskett.

Hey, Good morning, Bob Hope you guys.

And we're doing well and I mean and Theyre just.

Couple of questions from me, 1 clarification and and 1 bigger picture of first on the clarification for.

<unk>, you said consistent with historical levels and that's around 3.5% just wanted to see if that.

Number makes sense and then.

Again on the guide.

I just wanted to make sure. So you guys are saying that down 10% on the core for the remaining quarters and then for the full year. The 2 year stack would be and the low teens just wanted to just clarify that of the first of all.

Question.

Yeah, Hey, Chuck Thanks for the question.

Yes, Matt MFA and we've got at 2 of 4% for the year, so a little bit higher than.

Historical growth a bit frontloaded as well so you know yourself at the 9% growth here in Q1.

That's just really of the member flows and the renewal flows being frontloaded given what happened happened last year. So.

You know certainly of our already a bit above historical and.

Hopefully as we get through the year and we see more of great. Mfr results. We can we can give you even better numbers.

As we go.

And then you are exactly correct on the on the guidance.

And my -10 for the for the remaining 3 quarters and and high teens stack for the full year.

Got it okay, Great and then second question bigger picture.

Reinvigorated Thomson and we're starting to expand our units over the next few years just curious how your conversations with vendors have changed and if you think back Posco will tell you that day.

Sort of built out over the past 15 years, the vendors that would never deal with them are dealing with them now and and that's giving them access to a lot of product and and I think that's really the opportunity and stuff and you guys. So just a question on vendors and where you guys are at this point.

Yeah sure you know we're supported by a great group of suppliers are there and they're great partners and our business and they've been incredibly supportive over the past 6 weeks as well. So so if any of them are listening. Thank you of.

For all of your support.

And I think the way the way the industry really works as you get more support from vendors if you're growing.

Your bag and you're profitable and you're growing and obviously the more real estate growth we have of the more attention and we'll get from from our suppliers and and so I anticipate as we go forward we will see.

Them support the spin.

And specific idea of real estate growth through getting newer better products into our new clubs.

And I would imagine they will support us with more of promotional and trade funding as well as we as we continue to put up great comps.

Great. Thank you Sir.

Next question comes from Edward Kelly with Wells Fargo.

Yeah, Hi, good morning, guys.

I wanted to just go back to the same.

And the comp guidance that you provided for the rest of the year.

And the downturn.

You get into.

At the back half.

And we start thinking about 2 year stacks on that that's kind of mid high single digit to your stacks and.

At the back half.

Which is better than probably what you know what it would've been at club it never happened.

But it's probably not as good as what we would of all thought given all the members that you've gained during the period. So I'm just kind of curious as to the <unk>.

Disconnect clean.

Number of members that you brought in and how much the actual box.

Versus what that back half of 2 year stack looks like.

Yeah.

Thanks, Ed I guess I would.

Almost repeat what I said earlier at the.

For the whole store to us is about what happens from a food at home perspective.

We are tremendously confident from a member of flow perspective, we've seen great shopping habits, we've maintained our market share through Q1.

And the inflation will certainly be helpful. At the top line comps if it if it continues.

But if you don't.

If people stop eating every meal at home I don't think.

If there's any other way to think about it than comps go down at some point.

I think I think they have to and.

And then you have the stimulus rolling off unless there's another package as well and so this.

This may prove to be conservative guidance and in fact, we hope it does but for for now we wanted to put something out there we were comfortable with and again as I said sort of to Mike Baker from the most important thing to me is that you don't worry about the short term and the long term of this company is what we're focused on and the long term future of this company at.

Incredibly bright the membership data alone before you get into assortment and digital and real estate and all the wonderful things happening and this company.

The membership data alone and portends, great things for this company its just going to be weird over the next couple of quarters and once we get into next year and and everything normalizes.

I think we will be doing great great things.

Just as a follow up for that then Bob and Europe. So you member growth and Q1 was up obviously you had a member growth last quarter, how much of our members actually up now relative to the end of 2019.

Yeah.

Ah Boy I'm not sure I have that number at my fingertips.

But it is.

It's pretty considerable I mean, we ended.

We ended 2019.

Somewhere of.

<unk> 5 million members rates or.

6 and change at this point so it's got to be almost 20 per cent member growth.

And so and then and the new members that you've brought in.

Spending levels on those members are similar to your member base better and worse.

Well remember at a member of member of spending seasons over time right. So they come in at a lower level and.

Over usually about 3 years, they get up to average member of spending.

So the fact that we have a ton of new members.

First of your members last year and now getting into their second year, there's a little bit of of comp benefit and in a normal year, but the members came in at a pretty high level of first year of spending last year. So it may actually.

Not be of great source of comp and.

And this and the second year here.

But they came and great.

They continue to look like they're behaving very very well.

And I would expect them to continue to season, it's just going to be lumpy and weird given how high they came in relative to.

1 of their first year of cohorts and then what happens with food at home.

Got it okay. Thank you, yes, thanks Ed.

Next question comes from Karen short with Barclays.

Thanks very much.

Sorry to harp on this membership.

Commentary, but you said you grew the membership base by 8% and 1 Q and I think the exact word was that was a function of record and renewals and new clubs. So I guess for and my first question is I am still not sure I understand why renewals and what impact that but are we using your ending 2020 greater than <unk>.

Million members as of <unk>.

Of which to grow about 8% or are we using a number that would have been in the first quarter of last year, which I think would of been somewhere between 5.5 and $6 million. Yeah. Good morning, Karen at that 8% was against last year's first quarter.

<unk> members grew sequentially against Q4 of last year as well.

But at a lower level than and the 8%.

Okay, and and I'm right and saying you were somewhere I think you and in 19 at greater than 5.5 and then in 2 key you update at that number to be 6 million. So it would've been and growth rates somewhere between those 2.

I think thats right Bill calculate the actual growth rates at.

And to the earlier question that was 17%.

And then and.

In terms of the actual.

For the March April May cohorts, I know, you like and get them I know you said better than it ever has been but I think the first year renewals have always been and a 50 ish range right.

Are you willing to give us some number in terms of it is at 60 is at 70 is there any metric that you can get a little more granular yeah. So over a long historical basis. They they were and the fifties, we talked last year that they were.

And just over 60, I think from the actual number was 62.

And what we saw and the first quarter was was meaningfully better than 62.

So so.

And what <unk>.

It's higher than what we thought it would be.

But we'll see what happens with with.

For the.

And as we go through the year given all of the the lag data that I talked about earlier, but.

We were very pleased to see the initial numbers coming and way ahead of what we are what we've seen and the path.

Okay, and then I just wanted to switch gears in terms of the.

SKU optimization, specifically and food.

So I know that was supposed to be plan more to be more aggressively completed in 2020 and I.

At the pandemic I think basically put that to a halt of little bit just because behavior was so abnormal in terms of what people were buying but can you just give an update on where you're at with that and how to think about that throughout 2021 in terms of outlets.

Yeah, that's a good question.

The category.

Category like soup at the beginning of the food.

Some of your optimization project, we were really going to skinny down Kansas at right. We have I think about 10 times the assortment of that Costco carries and.

And in some months of the year like the summer Costco doesn't carry any cancer. So.

We certainly have some what we would call unnecessary choice and our assortment and can't soup and turns out when you have a pandemic everybody and their brother wants canned soup and so we kept to that and the assortment and and paused that and things like that.

As we ease our way out of the pandemic, we will get right back to where we are where we wanted to go on categories like canned soup.

Probably the other thing we should we should talk about is as private label our own brands.

And are doing phenomenally, well, we got up to 22%.

Penetration during the quarter and that that will be and increasing focus for our team as well.

As Paul and I talked to the merchants, it's certainly something we.

We want to do for the long term health of the company right at 22 should be of.

30 easily 35, maybe.

And and that will that will show of its teeth and the and the food business certainly in Q1, we made some moves that will.

Show up and in Q2, and later and we also saw great oil and brands performance and the general merchandise side of the business and I talked about that and the and the prepared remarks. So.

Youre, absolutely right to think of SKU optimization and slowed down during the pandemic and it will it will ramp back up again as we as we get out.

Great. Thank you.

Last question comes from Robert Moskow with Credit Suisse.

Hi, Thanks for the question and it May sound like a familiar question.

But regarding the guidance.

And it kind of implies a growth rate below what target has provided its below what consensus is for Walmart on a 2 year stack basis.

It looks more like what the typical with what the pure play grocers are guiding too, but I thought of bj's as being more of like a.

And because of your general merchandise you you'd have a stronger growth rate and also because of your.

Just because of your momentum so.

Are you.

And really the question is about market share do you expect to continue to take market share for the rest of the year over other grocers and if so.

And would that be upside to your to your guide.

Good morning, Robert.

Look I don't want to comment specifically on target or Walmart.

They they know their company is better than I do I don't think we're a grocer I think we are a much different company than a grocer.

So I think we're.

And somewhere in the middle of quite quite honestly I.

Your market share point is a good 1 we took tremendous amounts of market share last year.

And I think it came from 2 places quite honestly, 1 weird and we were doing a much better job at running our business being and stopped giving our members' tremendous value of doing all of the things we needed to do and frankly I think we did at better than at any 1 last year.

And then you have the food at home thing that added.

Excess market share I guess is how I might think about it.

And <unk>.

And as we've talked about.

Almost everybody has asked this question, we don't know what's going to happen with food at home, we think logically it should go down and well we didn't see that happen in Q1, we maintained our market shares are.

I've got to think of it happens maybe at maybe our guidance is conservative that's what we wanted to put out their conservative guidance for that.

We were comfortable with.

We'll see what happens as we go through the year.

Yeah that would be my my perception is that your shares are going to remain strong and youll outperforming other grocers. So thank you.

Okay.

Oh.

Yes.

Oh pardon me at this time I will turn the call over to Mr. Eddie.

Great. Thank you very much for for all of your time and attention and your questions and for your support of our company during.

During the last the last 6 weeks most particularly.

We are we'd like to thank our team for the wonderful results in Q1, and we look forward to the bright future that we see for our for our business. Thanks very much.

This concludes today's conference call you may now disconnect.

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